Macy’s, Inc.’s New, Three-Year Polaris Strategy Latest Effort to Stay Competitive in Age of Digital Commerce

Summary

In its preliminary 4Q and full-year 2019 sales results this week, Macy’s (M) announced the closure of 125 stores—about 20% of its physical footprint—over the next three years, as well as 2,000 job cuts. These moves come as the retailer continues to grapple with the rising dominance of e-commerce and shifting preferences of shoppers.

In addition to cost-cutting, intended to create annual gross savings of approximately $1.5 billion by year-end 2022, CEO Jeff Gennette announced a planned acceleration of the company’s digital transformation through investments in its websites and mobile apps, as well as an expanded ‘tech hub’ in Atlanta.

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Analysis

M continues to be under significant competitive pressure to correctly execute its digital transformation plans. The Polaris Strategy is the latest step in the larger battle for sales growth in the e-commerce age. The key dilemmas previously highlighted in a December Cyber Governance Alert on M remain for Gennette, his team, and the board. First, in the face of declining sales and shrinking margins, what percentage of M’s budget should be allocated to technology in order to capture greater market share of both online and traditional retail? Second, what percentage of M’s IT budget can be spent on protecting those valuable technology investments?

So far, likely due to financial constraints, the company has consistently chosen to underinvest in adequate protection, resulting in poor performance on cyber governance. See Cyberhedge’s Cyber Governance Alert on M from December.

In his remarks, Gennette makes clear that three things are key to M’s ability to drive sales: customer “loyalty,” “convenience,” and “engagement.” Digital technology cuts across all of these things. The company is attempting to further accelerate efforts to boost digital sales growth while also aggressively cutting OpEx in the coming three years. Management no doubt faces some very difficult choices—remaking a 162-year-old, brick-and-mortar retailer into a digital commerce machine is a big challenge. But, it should consider increasing investment in security to better protect against the downside cyber risks M faces (amongst them, a larger digital footprint equating to a more complex IT network to protect).

Persistently poor cyber governance (even relative to other companies facing similar challenges) will likely weigh down an already depressed share price. Further, it risks undercutting the Polaris Strategy’s aims and Gennette’s desire to better serve the customer in the e-Commerce era.

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Denis Bolshakov

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