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August 23, 2007
The $100 million boob job
The WSJ asked a rhetorical question today:
Can a splashy ad campaign featuring the likes of domestic entrepreneur Martha Stewart, tycoon Donald Trump and singer-actress Jessica Simpson help revive Macy's sagging fortunes?
No.
Even if they spend $100 million on advertising.
In one of those "what are they thinking" efforts, Macy's really is going to spend $100 million to saturate us with already over-saturated celebrities to profess how they now love Macy's. $100 million.
The real solution, of course, is that only improved word of mouth from thousands of existing customers, not a bushel of shill-happy celebrities will turn Macy's around. Or any retailer whose fortunes are sagging.
Such an effort requires a holistic and coordinated effort from operations, design, human resources and marketing. It requires an unwavering belief from the CEO and a company-wide can-do spirit. It's a lot of work.
That's the problem. It also requires significant changes in culture and personnel. That's why it'll be easier to blame the CMO or the ad agency when revenues worsen or better yet, take the $20 million severance package when the board shows you the door.
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Based on their sales and transaction size, I'm guessing they have maybe twenty million customers who've purchased merchandise from Macy's in the past twelve months.
That means they are spending around $5 per customer. It might be an interesting experiment to just send each customer a $5 incentive to buy in stores or online.
At their margins, they'll need to get somewhere around $250,000,000 in net sales to pay for the cost of the advertising.
On a retail base of $27,000,000,000 annual net sales (yes, that's 27 billion), they need to show a 1% increase in comp store sales to pay for the advertising.
I'm not suggesting the advertising will or will not work. I just want to put $100,000,000 in context with annual sales generated by this monster of a company.
Wow.
Kevin -- Interesting analysis. Unless Macy's has some strong reporting systems in place, they won't know if it's the campaign that's driving revenue or something else.
I wonder if someone has the inclination to develop a budgetary sketch on what $100 million could do to create sustainable long-term word of mouth?
Big retailers contract with a handful of vendors who've developed a this kind of methodology.
The vendor doing this work for Bloomingdales (a division of Macy's) called looking for additional business a few months back --- so I'd guess they farm that work out..
$100 million is $100 million. The WSJ story outlines the arguments inside Macy's of whether to go forward with a celebrity campaign or continue on with coupons and discounts.
IMHO, both are flawed strategies. One need only visit the Macy's flagship store on Michigan Avenue in downtown Chicago as I have more than a dozen times in the past two years as to see that it is an aged and uninspired operation where sales clerks are often few. There is nothing to inspire word of mouth, much less loyalty or evangelism.
What's also telling are the revenue growth numbers for competing sectors: In the one-year period ended July 31, 2007, sales at luxury retailers increased 11.1%. Sales at discounters jumped 9.2%.
Macy's is a middle-of-the-road retailer. The middle is muddled.
So true - the way to make business better for Macy's, or any business, is to make the business BETTER - healthier, better designed, more integrated. You put it well, "...a holistic and coordinated effort from operations, design, human resources and marketing. It requires an unwavering belief from the CEO and a company-wide can-do spirit. It's a lot of work."
It's a lot of work, yes, but so is anything that's really worth saying you're part of, or putting your name on.
Just in the morning I was reading a case study of how Marks & Spencer's fortunes changed with 'Your M&S' campaign. It was a smart and thought through campaign which changed the way organization worked but was led by communications. Its fun reading it. Check it out at www.utalkmarketing.com
Turn The Macy's in Chicago back to Marshal Fields and I will shop at both again, Until then no macy's for me. When they all became Macy' they pushed the Mentality of the east coast is better than the rest, this did not sit well with the rest, or ther image.
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