Macy’s and Nordstrom Companies’ Analysis

Introduction

Mercy and Nordstrom are competing companies in the retail chain industry specializing in clothing, apparel as well as accessories. Both companies are dealing majorly in women, men and children wear. However, the companies have expanded their product range including all manner of fashionable products, accessories, garments, ornaments and bouquet. The two companies have not only expanded in terms of product range but also in geographical coverage. Currently, Macy’s is operating over 800 stores spread in all the states with US and Nordstrom boasts of over 300 stores. Even though the companies are similar in terms of products and industry, they compete on many fronts.

The paper tends to examine the two competing companies in terms of their environmental factors, strategies and their performances in the last five years. In the strategic analysis, the paper will examine both external and internal strategies through the application of various tools such as the Porter’s five forces, value chain and VRIO. The paper will then create two industrial scenarios and analyze how the companies will perform under such scenarios.

Environmental Analysis

Porter’s five forces

The analysis of the retail chain industry in which Macy’s and Nordstrom operate exploits the application of the five forces model developed by Porter. The model provides the necessary tools that are critical in the appraisal of the competitiveness of the companies within the retail chain industry¹.

The buyers bargaining power

The consumers can effortlessly surrogate the products and services offered by Macy’s and Nordstrom companies in the retail industry through purchasing the products provided by other companies in the industry. As a result, the organizations’ share of the market can be abated. In addition, the end users of the companies’ products are capable of changing their tastes and preferences. As such, the companies have to provide quality products that meet the consumers’ requirements. Therefore, the buyers have high bargaining power in the industry.

Bargaining power of sellers

Companies within the retail chain trade control higher proportion of the market. As a result, the firms engage large number of suppliers in business. The control of larger segments of the market gives power to the companies since the firms can create scarce strategies to the suppliers by switching to other potential manufactures and wholesalers effortlessly and cheaply. Further, the companies are capable of amalgamating to form a single company. In principle, the suppliers in the retail industry enjoy low purchasing power.

Threats of new market entrants

The ever-increasing competition in the retail chain industry due to the mushrooming of other industries in the trade compels the firms to incur additional expenses. Actually, the companies incur the additional costs in sustaining trademark devotion as well as marketing of products. Most importantly, the presence of outstanding delivery chains, localities, and trademark as well as the financial capital of the companies provide the advantage of warding off potential competitors². Conversely, given the indifferent nature of customers in the industry regarding brand differentiation, there is low production of commodities and entrance hurdles.

Competitive rivalry in the industry

Companies operating in retail industry are very aggressive. However, due to the market leadership capabilities of Macy’s and Nordstrom in the industry, establishment of their operations in the industry is uncomplicated. In other words, the companies utilize their technological advancements as well as financial strengths thereby increasing the competitive edge over the other firms. In addition, the increased competition in the trade reduces the share of market controlled by corporations as well as the prices of the products. In this industry, competition is high.

Threat of substitute products

The players in the retail chain industry offer diverse similar products. In essence, the consumers are offered with a variety of products and firms to choose from. The existing firms in the industry offer convenience and low prices thereby augmenting substitute threats. Moreover, online shopping alternative is on the increase. Most consumers are embracing online shopping due to price benefits gained from the companies by passing savings to buyers. The sprawling of various alternatives presents the organizations with frantic operations. As a result, the corporations venture aggressive marketing activities to augment their trademark devotions as well as grasp large market proportions.

Strategies applied by the companies

As indicated, the companies have been operating in a highly competitive retail industry with both small and large firms competing for the share of the market. As such, each company must utilize differentiated business strategy to claim a share in apparel and other fashionable products market³.

Strategies applied by Macy’s Inc

In the last five years, the company has applied diverse strategies amid increased competition to attain its objectives ranging from financial to increasing and maintenance of the market share. To sustain its competitiveness, the company has adopted new business strategies while continue to pursue the original expansionist approach that has enabled its spread⁴. Currently, the company is focusing on three significant strategies into order to enhance its growth in sales, cash inflows and earnings.

Localization strategy

In the localization initiative, the company tends to concentrate and optimize its operations. The company has put much of investments in various capabilities including technology, talent as well as market to enhance the customers experience and satisfaction. Investments in these core competencies have guaranteed the company’s clients variety of products. Moreover, the product marketing mix have also been achieved through enhanced merchandize assortments as well as marketing programs that bring new shopping experience beyond the expectation of the clients⁵. In essence, the aim of the strategy is to differentiate the company’s customers shopping experience by localizing the products as well as marketing initiatives.

Multi-channel strategy

The multi-channel strategy, which is the second strategy, is to increase the presence of the company. The major aim of the strategy is to increase the company’s online stores as well as physical stores. Increasing the presence of the company enables the customers’ seamless shopping experience in the company’s physical and online stores. The online stores are designed to be accessed by the customers through mobile devices. Further, the strategy allows most of the associates and stores of the company to sell the products that are not available on the stock through selection of the products from other stores.

In essence, the company stores and associates are capable of selling products locally irrespective of their availability in the company stores to the esteemed customers. The strategy has increased company market share through increased customer base. In addition, the strategy has increased the company’s performance particularly in terms of increased sales. In the last two years, the number of online filled orders and shipments was over 280 million contributing to over 40% increase in sales volume. The multi-channel strategy has also enabled the company to regain leadership in market share.

The customer-oriented strategy

The customer-oriented strategy aims to increase the company engagement with the customers in order to understand their needs. The customer-oriented strategy is achieved through the company’s MAGIC selling programs. The program has enabled the company increase the customers’ engagement and provide appropriate feedback through enhanced products and services delivery. In addition, the training and coaching under the program improved the in-store customers’ services delivery⁶.

Together with other strategies such as expansion strategy including mergers and acquisitions, differentiation, and development of own products, the company has increased its performances in the last five years. In the apparel and fashionable products retail market, the company managed to sustain the largest market share. In addition, the primary objective of increased sales and cash flows has also been sustained. The attainment of the objective in terms of increased sales and cash flows enabled the company’s continuation in improving its competencies and capabilities.

Strategies applied by Nordstrom Inc

Even though the company applies various strategies pursued by other competing firms, Nordstrom Inc. utilize the differentiation, switching costs, business processes and information systems to position and increase the market share⁷. The strategies applied by the company are the capabilities and competencies that have increased its competitive advantage.

The competitive strategy

The company achieves the competitive strategy through the provision of better-quality products and services as well as constant improvements. In essence, the competitive strategy is the differentiation strategy the company achieves through quality products and services. The company provides the most fashionable products together with excellent services that complement the customer’s needs and satisfaction. Further, the company has tailored the sales acquaintances, providing unique shopping experience and the customer’s requirements. Essentially, the company achieves the competitive strategy through the provision of the highest quality merchandize offered attractively to the clientele.

Switching costs strategy

The switching cost strategy is achieved through the provision of free online shipping, relaxed access to online store inventory, enhanced services to the clients, price harmonization and liberal return strategy. Even though the free shipping for online purchases offered by the company seemed to be costly, the benefits of attained customer loyalty are more than the costs involved⁸. In addition to free shipping for online purchases, the company has uninterrupted inventory system enabling the clients to make orders of unavailable merchandize from other stores. In addition, the store focuses on the provision of excellent services including pre-sales services and well as after sale services. As indicated, the quality services are offered through personalized shopping experience.

The liberal return policy that allows the purchased products to be returned is not only achieved with sales receipt but also through customers’ sales history. The policy has enabled the company sustain the customers. The liberal return strategy is aimed at increasing the repeat purchases as well as maintaining the existing clients. Besides, the company product’s prices are matched with the prices of the competing high-end retail stores. The price matching policy ensures that the company brands are sold within the competitive prices.

Business process strategy

The business process strategy ensures efficiency and cost-effectiveness in all business processes. The efficient businesses processes guarantees quick and less costly turning of products into sales, which add competitive advantage to the company⁹. The company emphasizes on the sales process, which converts the end merchandize into usable finances. The sales process of the company is efficient, less costly and enables the company remain competitive in terms of products prices¹⁰.

Information systems strategy

The company utilizes its technological capabilities to increase the customers’ contacts, sustain customers, increase sales and develop new products that go beyond the clients’ needs. In addition, the information system enables the firm provides increased quality services. For instance, the company e-book records the customers profile increasing chances of individual contacts and enabling the company attend to specific needs of customers. In addition, the perpetual inventory system increases the accessibility of the products to the customers in all the stores of the company thereby improving the quality of sales services.

The analysis of similarities and differences between the companies’ strategies

The strategies applied by the companies are similar in many fronts. Technically, the companies have applied similar strategies despite their differences in scope and technicality. For instance, the companies have utilized their technical capabilities to create similar strategies such as the information system strategy, multi channel strategy and customer oriented strategy. Given the fact that the two companies react to similar market and external forces, the formulation of the strategies are analogous. As such, the company focuses on the customers in order to claim a sizeable market share¹¹. Strategies that are customer oriented have similar applications in both companies. For instance, Nordstrom emphasizes on the provision of quality products and services through the competitive strategy. Similarly, Macys focuses on enhancing the satisfaction of the customers through the customer centric and localization strategies.

The companies have also applied the technological knowhow in developing the strategies. The perpetual inventory system has been applied in both companies’ strategies to enable constant purchase of the companies’ products. In Nordstrom, the application has been used in the information system strategy enabling customers to access products that are not within their local stores. Similar application is also used in the Macy’s multi-channel and customer centric strategies. External forces particularly the competitiveness in the retail industry drive the similarities observed in the above strategies as well as differentiation and expansion approaches. However, differences exist in the corporate and business strategies particularly the way the firms have organized the internal resources

VRIO analysis of the differences in the firms’ strategies

The VRIO tool is applied to look into internal environment of the firms. In other words, the way the firms have organized the internal resources and strategies to react to the external forces. VRIO will look at value, rarity, inimitability and organization to examine differences in the strategies the firms have applied. Further, the differences in the strategies will be examined through the application of value chain analysis. According to the VRIO analysis, the firms will sustain the competitive advantage when the strategies have value, rare and difficult to imitate as well as when the policies of the firm support the initiative¹².

As indicated, the firms have applied the technological competencies to support their initiatives. Strategies such as the information systems strategy, multi-channel strategy and customer centric strategies have used similar technological application. According to VRIO, the strategies have value and supported by the organization policies in both companies. However, the application is not rare and can be imitated easily. Therefore, the strategies can only sustain temporary competitive advantage or have equal competitive advantage. The differences of the firms’ strategies in terms of competitive advantages and economic implications are summarized in the table below.

Summary of VRIO on the firms’ strategies

Value chain analyses

Macys

According to the value chain analysis, the firm’s strategies are similar at the primary level activities while huge differences occur at the secondary level activities. The primary level activities are actions that are directly concerned with creating and delivering value to the customers and include coordinated distribution channels, sales and marketing activities and shipping procedures. On the other hand, secondary level activities are supportive business processes that are not directly involved in the creation and delivery of the products and include advanced technological development. In fact, Macys achieves its competitive advantage through its efficient sales and marketing procedures, which are highly sustained by the management support of the strategies, levels of technological advances as well as the infrastructure development.

Nordstrom

Scenario situations

Macys

Scenario 1: Economic vibrancy

The increasing economic trend will continue to influence the operations of various businesses. In fact, retail chain companies will thrive due to increased demand. In addition, the state of affairs will lead to increased capital in the possession of the retail businesses. As such, Macy’s Inc. will have to increase on the purchasing expenses. The situation will further lead to augmented purchasers’ base for the retail industry. Due to increased demand for Macy’s brands, the purchasing power of the buyers will increase.

Scenario 2: Economic downturn

The decreasing economic trend will continue to influence the operations of various businesses. In fact, retail chain companies will diminish due to decreased demand. In addition, the state of affairs will lead to reduced capital in the possession of the retail businesses. As such, Macy’s Inc. will have to reduce on the purchasing expenses. The situation will further lead to reduced purchasers’ base for the retail industry. Due to reduced demand for Macy’s brands, the purchasing power of the buyers will decrease. Moreover, the firm will be compelled to look for substitute near markets for its products. The financial crisis would compel the firm to focus on sale and purchase activities at the expense of marketing.

Nordstrom

Scenario 1: Innovation

Innovation and reinvention will be critical aspects of the retail chain industry. Nordstrom will be able to achieve competitive edge over rivals through innovation leading to enhanced shopping experiences for its clients. Nordstrom will acquire the knowledge, creativity as well as the determination needed in order to keep up with the competition in the retail chain industry. The firm will also be capable of studying the customers’ needs, make production and then deliver the products to the clients. Moreover, quality control and good relations between the suppliers and the firm will enable the selection and maintenance of efficient suppliers thus increasing the suppliers’ power.

Scenario 2: Innovation

Innovation will encourage the development of new entrants in the industry leading to increased competition. As such, the buyers will attain increased purchasing power since they will be presented with substitute products from other firms. In addition, the suppliers will have increased bargaining power, as they will be have several firms to deliver products.

Conclusion based on the scenarios

Macy’s multi-channel and customer centric strategies will enable wide presence and accessibility of the products by the customers. The strategies will increase the firm’s competitive advantage and sustainable growth potential¹³. On the hand, Nordstrom switching cost strategy, marketing and financial capabilities will enable a sustainable competitive advantage. Hence, Nordstrom will perform better in the circumstances.

Works Cited

Aiginger, Karl. “Competitiveness: from a dangerous obsession to a welfare creating ability with positive externalities.” Journal of Industrial Trade and Competition, 6.3 (2006): 63–66. Print.

Ambrosini, Véronique. “Identifying valuable resources.” European Management Journal, 25.4 (2007): 320-329. Print.

Bowman, Cliff. “What are dynamic capabilities and are they a useful construct in strategic management?” International Journal Management Review, 11.1 (2009): 29-49. Print.

Cardeal, Nuno. “Valuable, rare, inimitable resources and organization (VRIO) resources or valuable, rare, inimitable resources (VRI) capabilities: What leads to competitive advantage?” African Journal of Business Management, 6.37 (2012): 10159-10170. Print.

Davies, Howard and Ellis Paul. “Porter’s competitive advantage of nations: Time for the final judgment?” Journal of Management Studies, 37.2 (2000): 1189–1213. Print.

Dunning, John. “Internationalizing Porter’s Diamond.” Management International Review, 33.4 (2003): 5-13. Print.

Irwin, Richard. “Strategic cost management: The value chain perspective.” Journal of Management Accounting Research, 37.16 (2003): 179-197. Print.

Nijssen, Edwin and Frambach Ruud. Creating Customer Value Through Strategic Marketing Planning: A Management Approach. New York: Springer, 2000. Print.

Porter, Michael. “Location, competition, and economic development: Local clusters in a global economy.” Economic Development Quarterly, 14.1 (2000): 15–35. Print.

Wernerfelt, Birger. “A resource-based view of the firm.” Strategic Management Journal, 5.2 (2004): 171–180. Print.

Footnotes

1. Howard Davies and Paul Ellis, “Porter’s competitive advantage of nations: time for the final judgment?” Journal of Management Studies 37 (2000): 1197.
2. John Dunning. “Internationalizing Porter’s Diamond.” Management International Review 33 (2003): 7.
3. Michael Porter. “Location, competition, and economic development: Local clusters in a global economy.” Economic Development Quarterly 14 (2000): 17.
4. Karl Aiginger. “Competitiveness: from a dangerous obsession to a welfare creating Ability with positive externalities,” Journal of Industrial Trade and Competition 6 (2006): 65.
5. Cliff Bowman. “What are dynamic capabilities and are they a useful construct in strategic management?” International Journal Management Review 11 (2009): 35.
6. Véronique Ambrosini. “Identifying valuable resources.” European Management Journal 25 (2007): 325.
7. Michael Porter. “Location, competition, and economic development: Local clusters in a global economy.” Economic Development Quarterly 14 (2000): 17.
8. Birger Wernerfelt. “A resource-based view of the firm.” Strategic Management Journal 5 (2004): 173.
9.  John Dunning. “Internationalizing Porter’s Diamond.” Management International Review 33 (2003): 7.
10. Edwin Nijssen and Frambach Ruud. Creating Customer Value Through Strategic Marketing Planning: A Management Approach. (New York: Springer, 2000), 28.
11. Richard Irwin. “Strategic cost management: The value chain perspective.” Journal of Management Accounting Research, 37 (2003):181.
12. Nuno Cardeal. “Valuable, rare, inimitable resources and organization (VRIO) resources or valuable, rare, inimitable resources (VRI) capabilities: What leads to competitive advantage?” African Journal of Business Management, 6 (2012): 10165.
13. Birger Wernerfelt. “A resource-based view of the firm.” Strategic Management Journal 5 (2004): 173.