Macy's Inventory Management

Topics: Inventory, Macy's, Balance sheet Pages: 6 (1714 words) Published: June 23, 2013
Macy’s Inventory Management

Summery:
Tying up too much capital in products that are not in demand could be a fatal mistake for struggling small businesses. Moreover, Inventory management can mean the difference between success and failure for some companies. According to the New York Times article, Macy’s was able to post a profit last quarter thanks in large part to improvements it made to its inventory management system. In spite of the unstable economic conditions and the huge competition in the market such as J.C Penny and Kohl’s, Macy’s was able to get market share and raise their profit. In this paper, I will be briefly discussing the inventory management history at Macy’s and how the changes in inventory management helped the firm to maximize value, sales and minimize costs.

Macy’s Inventory Management

Introduction:

(A) Description:
Formerly known as Federated Department Stores, Macy's, Inc., is one of the largest department store operators in the United States. Its stores, under the Macy's and Bloomingdale's names, are generally located in large shopping malls and offer men's and women's clothing, accessories, home furnishings, and other consumer goods. At the end of 2007, the company was operating 866 Macy's and Bloomingdale's stores in 45 states, the District of Columbia, Guam, and Puerto Rico. In a time when most stores routinely sold on credit, Macy was unique in that he instituted a cash-only policy not only for customers but for himself as well. No Macy's inventory was purchased on credit, and no Macy's credit account was issued until the 1950s.

(B) New Partnership:
Under the new partnership, Macy's matched and out priced its rivals. Macy's sales rose to $5 million within a year and subsequently continued to grow by 10 percent annually. The Straus brothers introduced their odd-price policy, now used virtually everywhere in U.S. retailing. By charging $4.98 instead of $5.00, for example, the store sought to entice consumers with prices that seemed reasonably low and thereby encourage more spending. However, In early 1992 the company announced an indefinite delay in paying its suppliers. A last-minute effort by investor Laurence Tisch to buy $802 million of outstanding stock did not win creditor support. The final blow came on January 27th when Macy's filed for bankruptcy protection. A five-year business plan included reducing the advertising budget, fewer one-day sales, more focused promotions, fewer private-label items, improved customer service, and a new computerized inventory management system. By early 1993, the plan had begun to demonstrate its effectiveness as Macy's showed its first profit--$147.7 million--since filing for bankruptcy. Moreover, sales during the 1992 holiday season were better than expected, reaching $1.2 billion, while revenue was 3.8 percent higher than the previous year. Macy's continued to rid itself of unprofitable operations, closing 11 stores in March 1993.

(C) The Merger:
As sales increased, industry analysts reported that the strategy of increasing productivity and cutting costs, in spite of the continued poor economy on the coasts, was beginning to pay off for Macy's. Further encouragement for Macy's financial picture would soon arrive in the form of a merger offer from Federated Department Stores. In January 1994, Federated Department Stores made a move to acquire Macy's when it bought almost $5 million of Macy's debt from Prudential Insurance Company. For seven months, Macy's officials resisted Federated's efforts to purchase it, hoping to instead turn the company around on its own. However, the company's efforts to climb out of bankruptcy were proving inadequate and the companies completed the merger, bringing Macy's out of its three-year bankruptcy. As a result, sales increased from $8.31 billion in 1994 to $15.83 billion in 1998. As consumer confidence levels surged to a 30-year high in 1999, Federated's sales in both its department...
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