Macy’s Thanksgiving Day Parade May Be Expensive, But the Company Needs It Now More Than Ever
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When Macy’s began sponsoring the annual Thanksgiving Day Parade, in 1924, department stores reigned supreme in American retail.
Nearly a century later, the landscape has shifted enormously, and yet on the fourth Thursday of November each year, the giant balloons and marching bands still gather on Central Park West and make the journey down to Macy’s Herald Square flagship as millions of people watch. Today, though, it’s no question that the golden age of the department store is well behind us: Many of Macy’s fiercest competitors from over the years have since gone out of business, and others are now on the brink of bankruptcy (if they haven’t filed for it already).
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Macy’s itself is facing challenges, too. Last week, just days after disclosing a data hack on its website, the chain slashed its guidance for the full year on weaker-than-expected third-quarter sales. While this marked its first same-store sales decline in two years, the retailer continues to battle significant headwinds from declining traffic at lower-quality malls, intense pressure from online rivals, shifting consumer tastes and a shrinking middle class, and has seen its stock fall by nearly 50% this year.
In a recent note to clients, Cowen analysts led by Oliver Chen wrote that while “Macy’s awareness is exceptionally high and valuation is very low… we worry that long-term sales, margins and store count may need to go down before going up.”
Its against this backdrop — at a time when many of its peers are focused on cutting costs — that Macy’s will stage its 93rd annual Thanksgiving Day Parade on Thursday. The retailer has never disclosed the cost of the event, typically referring to it as its “gift to New York,” but according to estimates, it doesn’t come cheap.
One 2017 appraisal from the online shopping site Ebates.com put the approximate cost of the prior year’s spectacle as between $10.4 million and $12.3 million. For sponsors, a new balloon costs $190,000, which is reduced to $90,000 for each returning year. And with 16 giant character balloons, along with 40 smaller (but still extremely large) balloons, the helium alone is estimated to cost at least $510,000.
Macy’s also hires a Parade Studio Team of carpenters, costume designers, engineers and more who put in more than 50,000 hours of work in preparation for the event, and foots an estimated tax bill of more than $138,000.
While it might be tempting to see this as an overly expensive undertaking for almost any retailer in 2019 — and one whose return on investment is hard to measure, unlike most digital advertising tactics today — experts say this kind of thinking would be short-sighted.
“One could look at some of the financial difficulties and recognize that one could always think about cutting back and not sponsoring it, but this is an investment for the long term and this is an investment in their brand, which they’re hoping to perpetuate,” said David Reibstein, a professor of marketing at Wharton.
About 3.5 million people come out on Thanksgiving Day to watch the parade in person, and an additional 50 million viewers or more watch it on television. And while the estimated cost of the parade is hardly insignificant, Macy’s is still a juggernaut: The retailer generated revenues of nearly $25 billion last year.
“Macy’s believes in celebration and giving back to the communities we serve,” Susan Tercero, the Parade’s executive producer, told FN. “The Parade is the ultimate expression of our brand values. It is a more than nine decade tradition that brings our colleagues together with millions of spectators and viewers nationwide in celebration.”
The parade has become a long-standing tradition for many American families, and the Macy’s name is such an essential part of it that many people shorten it to simply the “Macy’s Day Parade” — an association that sets it apart from every one of its competitors.
“I think that’s one of the reasons that they maintain their sponsorship is because there is such a rich heritage attached to the brand,” said Jim Cusson, president of Theory House, a retail marketing agency. “It’s an opportunity for Macy’s to confirm their place in American culture by supporting the parade — and in the busiest shopping season of the year, it gives them this unique opportunity to stand out above all the other retailers based on that sponsorship.”
While the parade runs from 9 a.m. to noon ET, Macy’s also reaps the benefits of coverage in the days and weeks leading up to the event and throughout the holiday season, said Kevin Lane Keller, a marketing professor at the Tuck School of Business at Dartmouth College.
“‘The magic of Macy’s’ has been their tagline for a long time, and so the Christmas season is natural for them,” he said. “This kicks that off to try to get people thinking about Macy’s and make Macy’s top of mind and tap into those positive feelings that people have for the brand.”
The timing of the event also gives the retailer a valuable slot on a holiday that’s “less cluttered” than others, he said: It’s the lull before the Thanksgiving meal, when many families are gathered together to cook, spend time with one another and watch the annual parade and, later, a football game. Later, when it comes time to map out Black Friday and holiday shopping plans, the hope is that Macy’s will be the first name these viewers think of.
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