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Macy’s Inc: Centralized Buying Case Study

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Updated: May 27th, 2020

Introduction

Past experience and losses have compelled Macy’s Inc. to consider localizing merchandise in an effort to clear the deficiencies. This initiative is also triggered by the fact that the firm operates across the United States and hence vulnerable to different changes in different regions. To respond to the different wants, Terry Lundgren wants 15% of the merchandise in each store to reflect local tastes and preferences. In as much as the localizing strategy is to be successful, the firm should consider the cost and benefits of the initiative and its effects on the affiliate businesses.

Pros can con with centralized buying

Pros Cons
Higher bargaining power Lead to poor customer segmentation
Effective utilization of national advertising Negative effect on the differentiation strategy
Enhance the creation of a national identity
Few management executives

Centralized buying in Macy’s refers to the standard merchandising strategy in which the development of products by suppliers is controlled at the headquarters for all retail stores. In such a case, the store has greater bargaining power due to bulk purchases. The firm can also utilize national advertising more effectively because a single advert could fit the uniform products offered in all stores across the United States. In addition, the store can create national identity because their products will be recognized nationally by both the consumers and suppliers.

As centralized buying requires uniform control for all stores, therefore, very few executives would be required to manage the process. However, centralized buying will lead to difficulties when targeting and segmenting customers as well as identifying the niche markets. This is because centralized buying does not allow for the understanding of diverse consumer needs at the local level. Moreover, this kind of buying reduces the flexibility of the firm to implement differentiation strategies due to its vulnerability to national retailing market dynamics.

Role of centralized buying versus decentralized buying

Centralized buying with staple merchandise has a significant role in maintaining quality and acceptable standards of products and services. The quality of staple merchandise is a particularly important competitive advantage in the retail market. In this respect, it is imperative to maintain if not to enhance the quality beyond that of the competition. Centralized control is better positioned to identify suppliers and influence them to observe quality in production more than decentralized control. However, for fashion and seasonal merchandise quality is not a vital competitive advantage, but the response to the changing wants of the consumers. As these changes vary across regions and levels, decentralized buying can enable effective responses. For instance, the fashion needs for consumers in California State are different from those in Ohio, and the store representatives in specific regions can better identify the suppliers who can meet the changes.

Factors to consider in localizing merchandise

Macy’s should consider several factors in localizing merchandise by store location, including:

  1. The capacity of individual stores to manage the initiative
  2. Availability of suppliers
  3. The frequency of the local dynamics that are triggering the strategy
  4. The product categories requiring localized merchandising
  5. The impact of the initiative on the overall strategic planning of the firm

In localizing merchandise, Macy’s must align with the overall goals and objectives set, especially those that affect profitability. The availability of suppliers willing to produce localized merchandise is important because the products must be there to satisfy customer needs. This must also be accompanied by reliable management at the store level, which can facilitate the endeavour independently. Again, there is a need to know the many time’s changes will be effected on the products in order to prepare suppliers better for the project. There is no need to localize if the categories of the products affected have an insignificant effect on the business and can be compensated by other cost-efficient strategies. Nonetheless, it is crucial to consider the impact of the initiative on the strategic planning of the firm in order to eliminate companywide consequences.

Coordinating decisions between Macy’s and Bloomingdale’s

Merchandising decisions can be coordinated between Macy’s and Bloomingdale’s by making Macy’s localized merchandise a new product line for Macy’s. This will make the localizing initiative an activity within Macy’s and independent of central decisions. Since the stores are spread across the country, it is obvious that the centralized control of the firm is responsible for making a decision on the kind of suppliers and probably not the specific suppliers. Therefore, by specifying the localized merchandise as a product line will not affect the decision-making process, just like the pricing strategy for Bloomingdale’s does not affect it.

Conclusion and recommendations

Although centralized buying has the advantages associated with lower prices, it can impact negatively on customer segmentation and differentiation strategy. The role of centralized buying is associated with enhancing the quality of staple merchandise, while that of decentralized buying relates to the changing customer wants in fashion and seasonal merchandise. For Macy’s to implement the localizing strategy effectively, it must consider the factors that influence the viability of the strategy and make the localized merchandise an own product line to maintain coordination of decision with Bloomingdale’s.

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