Analysis Of Macy’s Store Revenue Decline And Proposed Online Shopping Solution

Current Situation and Projections

Macy’s store is a group of Macy’s Inc. that has been experiencing operational difficulties from its continued sales and revenue decline. From its projections, the trend is likely to continue if there are no significance changes in the ways of its operations. This paper seeks to propose and analyses the probable course to take Macy’s stores to avert this trend and embark on profit and revenue improvement trend. In this regard, this paper shall explain the current analysis of the company in terms of key success factors, risks that face the stores, current performance, current projections, and discussions on the current position, proposed changes, likely performance, analysis of the proposition, recommendations, and a conclusion.

Macy’s store is currently experiencing a decline in revenue due to several factors in its business environment that are working to its disadvantage. Some of the factors include new entries in the marketing that are raising the level of competition (None, 2018). The competitors are offering better discounts accompanied by engagement in various promotional activities. The rate of inflation has also adversely contributed to bad business outcomes. The other factor is the rate of employee turnover.

Macy’s operational projection assessment of the three years has been given as follows:

From the above projection, the operation has been resulting to decline both revenue and gross profits in 2017. There is no likely change in this trend that is expected in the current year 2018 and in 2019. Other information from their management plan include

1. Shareholders expected the rateof return= 6%
2. Tax rate=35%
3. Banks interest = 5%
4. Shareholders principal in funding investment projects is selling of shares 60 % selling of shares and 40 % borrowing.
5. The payback period forany project should be no more than 5 years

To change the trend, the management needs to come up with a new strategy, policies, and procedures that will change this trend. The proposed change is the introduction of an online shopping and sales store, the introduction of better employee policies and the improvement of customer and supplier cordial relationship (Yurttadur et al, 2017). Through the implementation of this proposal, the stores are expected to increase their customer base, which shall help in improving its sales, improve on human resource policies to minimize staff turnover and attract new and better ones and receive discounts or better prices from the suppliers, which could in turn help in containing the inflation (Sharma & Mehra, 2017). To facilitate and enhance the online transaction, agreements have to be made with the banks in relation to online payment.

For this proposal to succeed there are some of the factors that need to be put into consideration. Some of the financial factors include the financial capacity to implement the online shopping and sales platform and to facilitate the supplier’s discount criteria acquirement. A consideration of the source of finance for implementation can be considered on whether from internal or external sources so as to have the cheapest possible source of capital. Some of the non-financial to facilitate include staying in line with the current registrations, anticipate the future ones and align the implementation with them. Another factor would be performing an industrial benchmarking to understand the industry, which shall help in aligning the proposed strategies (Kallala et al, 2015). Other factors include an able human resource capability to come up with the best policies aimed at staff retention, an analysis of customer behavior and retention attractors, and an analysis of suppliers and characteristics.

Causes of Revenue Decline

The cost of implementing the online store is analyses as follows: –

1. The cost of developing a website and all required infrastructure is estimated to be $ 70,000
2. Cost of sales staff (Virtue assistance) $ 500 per month = $60,000 per year

• Website maintenance $ 500 per month=$ 60,000 per year

1. Online promotion costs estimated to be $ 50 a month= $600 per year

The initial investment cost =$ 70,000 with recurrent monthly cost amounting to $ 1,050

The online shopping is expected to have an impact on revenues averaging at $ 3,200 per month

According to Erdogan et al (2015), calculation of Macy’s WACC=

WACC = ((E/V) * Re) + [((D/V) * Rd) *(1-T)]

E = Market value of the company’s equity

D = Market value of the company’s debt

V = Total Market Value of the company (E + D)

Re = Cost of Equity

Rd = Cost of Debt

T= Tax Rate

The total initial cost of the project is % 7000

From shareholders investment principal on this 60 % on equity = $4,200, borrowing 40% = $3,800

Wacc= (42000/70000) *0.06) + [((38000/70000) *0.05) * (1-0.35))]

          = 0.036 + [ 0.027*0.65]

         = 0.036+ 0.018

         = 0.054

         =5.4%

From the expected performance projection of the online shop, the returns on profit per month which is the difference between the monthly revenue and the monthly cost (Kassicieh et al, 2015) (3200-1050) is $ 2150. The annual profit = 2150* 12= $25,800.

The payback period is within 3years that is, we shall recover our initial investment by the end of the third year.

Project internal rate of return in the next 5 years= P₀ + P_n/(1+IRR) _n

The internal rate of return is 25%, which is more than the cost of capital. The project is therefore viable.

Calculating the project net present values

NPV = C x {(1 – (1 + R)^-T) / R} − Initial Investment

            = 26,832

The NPV is more than 0 and therefore acceptable

Cost and benefits for an online shopping store

1. The initialcost of a web developer, which includes the entire cost of developing the website, shopping cart, integrations with social media, reviews and the enhancement of tracking analytics(Nesticò & Pipolo, 2015). This helps in keeping records of the visitors, their contacts, and the demand records can be analyzed with ease, therefore, making the appropriate changes of stock on time.
2. Cost of the sales staff, which can be done by hiring a virtue assistant to drive traffic and update social media at a fractional cost of hiring a salesmanto spend daily hours at the store. The virtue assistant can also so the analysis and compilation of orders.
3. Online marketing and promotions, which can also be done by a virtue assistant. The cost of online marketing is much less since the onlyinternet is required with the help of the virtue assistant.
4. The web hostingcosts which is less than $30 per month. This cost is far much less than the cost of renting a store.

1. Whether to host the platform or get a third party to do web hosting; For Macy’s stores, the third-party web hosting is a better option since they shall not be engaged in the initialcost of installing the server (Chu, 2017). It is also less risky for them.
2. The capabilityof the third-party hosting in terms of the features provided, a reputation which can be got from reviews by their customers, the price should be rational and the ability to grow in the sense that they can accommodate the future growth of the stores.
3. A full security plan in the sense that they are able to prevent probable criminal activities such as website attacks, the presenceof firewalls, password security among others
4. Presence of automated backups; Accidents happen every now and then and if they do, it is possible to lose company information. To prevent this, backupsare necessary and the hosting company should have the ability to store backups frequently.
5. Presence of shipping software; which will help in tracking the orders from when the customer places the order to when the payment is done
6. A payment gateway, which will help in the transaction; Bank agreements are also necessary to enhance this.

The main advantage of initiating this online shopping platform is that it shall give an opportunity to double the revenues while minimizing the costs as much as possible. With this effect, Macy’s stores shall have curbed the most dreaded effect of revenue decline. The other causes of bad effects can be handled in non-financial grounds, for example, devising better policies of attracting (Grossmeier et al, 2015)and retaining staffs, for example, adjusting working hours per person and even enhancing more health measures.

The implication of this online shopping implementation is that the initial investment fund required shall have to be set aside. This investment shall not secure the expected revenue at once and therefore set aside a marketing budget (Dewachter, 2017). Although there is an initial financial pinch, the ultimate outcome shall benefit the business.

Proposed Changes and Potential Outcomes

Out of considerations and analysis outcomes, the online platform is a viable project that shall help in raising the company’s revenues. However, the management should ensure that they align the platform with the policies of the company, follow them and align the implementation with the present and anticipated rules and regulations governing the industry (Kosinova et al, 2016). Analyze the suppliers and align their purchasing policies with those of the suppliers. This shall help in benefitting from their discount rates and can also help the store discover other suppliers who have better prices. Risk mitigation and management are also necessary to ensure that future is fully secured.

Conclusion

Macy’s stores which are part of Macy’s Inc has been experiencing a continued decline in its revenue brought about by declining sales as a result of new entrants in the market. To curb this decline, an introduction of an online shopping store has been proposed. The proposed investment in this online shopping platform is viable and should be implemented as shown by the results of the internal rate of return which is 25% and has a positive net present value. Before implementation, other factors for example of the designer of the platform and the host should be considered. An analysis of the third-party hosts should also be looked into. The other factor, which is a declining staff employee, is to be tackled using non-financial methods. The implication of the investment is that some funds have to be put aside for the purpose of initial investment costs and the running cost until the platform can make funds, which can be used in its maintenance. Other effects shall be the changing of human resource policies to provide better to improve the employee morale.

References and bibliography

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