Coupons seemingly are ubiquitous; since their start in 1894, they have become a fixture of American culture. In 2005, 46 percent ofU.S.retailers gave out coupons, and 80 percent of Americans used them. Yet Macy’s stores are dramatically reducing coupon offerings to increase profits.
After Macy’s (formerly Federated Department Stores) purchased May Department stores, which included Filene’s, Marshall Fields, and a host of other stores, the number of Macy’s stores doubled. In response, the giant retailer has concentrated on renovating its in-store appeal by decreasing clutter and making dressing rooms more sophisticated with deluxe furniture and televisions. Along with these in-store changes, it offers more expensive merchandise, more exclusive products from designers, and its own private-label products.
By the same token, to increase its earnings, Macy’s decreased the number of days on which customers can redeem coupons by one-sixth, which might lead to more profits and gross margins but also could mean fewer customers. Many customers prefer to shop at other department stores, such as JCPenney, Kohl’s, or Dillard’s, that offer them coupons.
In removing the emphasis from coupon discounts and focusing on merchandise and the retailing environment, Macy’s is taking a bit of a risk. The retailer may suffer lost customers, especially price-conscious ones, which in the short run will hurt its profits. Macy’s hopes to make shopping its stores worthwhile for customers through everyday value rather than discounts. However, the retailer plans to offer coupons specifically to its credit card holders, its most profitable customers.
1. How is Macy’s trying to shift its pricing strategy?
2. Do you think it will work?
Cotton Timberlake, “Macy’s Loses Sales as it Weans Shoppers from Coupons,” Bloomberg.com, May 16, 2007.