Macy’s Inc. is reducing its workforce by 4 percent, or 7,000 jobs, and centralizing from four divisions to one, joining the phalanx of retailers nationwide that within the last several weeks slashed expenses and head counts to cope with the worsening economy.
The move to centralization is a huge change for Macy’s, yet one that seemed inevitable. For most of its 150-year history, the retailer operated regionally with different divisions. In the last 25 years, however, Macy’s steadily consolidated and eliminated historic nameplates such as Filene’s, Marshall Field’s, Bamberger’s and Abraham & Straus that were inherited through acquisitions and mergers, among them Federated Department Stores Inc. in 1994 and May Department Stores Co. in 2005, which propelled Macy’s into a national chain with $27 billion in revenues. Macy’s now seems to be playing catch up to primary competitors such as Target Corp., Kohl’s Corp. and J.C. Penney Co. Inc., which have long operated centrally.
The centralization was one of a series of measures Macy’s unveiled Monday to save money and improve cash flow, among them:
• Reducing the quarterly dividend to 5 cents a share of common stock from the current 13.25 cents.
• Further reducing capital expenditures to $450 million, from the $550 million to $600 million previously announced, and down from an original 2009 budget of $1 billion.
• Eliminating merit raises this spring and reducing matching employee 401(k) contributions.
Employee merchandise discounts, company cars, company-paid life insurance and financial counseling could be eliminated, if the board approves.
All told, Macy’s expects the moves to save $250 million in 2009, and $400 million annually starting in 2010.
The chain is the latest major retailer to announce sharp cost cuts, following Saks Inc., Neiman Marcus Inc., Target, Home Depot and Starbucks.
While striving to reduce expenses, Macy’s is advancing its My Macy’s strategy nationally, resulting in the addition of 1,200 jobs. My Macy’s was started last May in 20 markets and is geared to help tailor the merchandise on a local basis by forming district structures around the country. It began in 20 markets last May, and 49 more are being added.
“This is a hard day for me personally,” Terry Lundgren, Macy’s chairman, chief executive and president, told WWD. “I regret so many of the Macy employees who have been a part of our team are not going to be with us as we move forward. That’s the regrettable part.”
But he added that “the beauty of this new strategy is that we now have the centralized national organization but with local execution.”
Lundgren also said he feels “fortunate” that Macy’s has recently “outperformed our competitors” and the My Macy’s initiative is already bearing fruit and poised to expand on a national basis. “Of the company’s top 15 best-performing geographic markets in December, 13 were My Macy’s pilot districts,” Lundgren said. “We are moving quickly and decisively to expand this model to all of our markets.”
While Macy’s comparable-store sales were negative last season, they haven’t been as bad on a monthly basis as its competitors. Macy’s forecasts a 6 to 8 percent same-store sales decline in 2009, with spring suffering a steeper drop than the fall. Macy’s expects to report around $1 billion in cash for last year, and is working to reduce debt and related interest expense. Macy’s commenced a cash tender offer to purchase any or all of its outstanding 6.3 percent senior notes due April 1, 2009 ($350 million aggregate amount outstanding) and 4.8 percent senior notes due July 15, 2009 ($600 million aggregate amount outstanding).
Macy’s shares finished Monday’s trading session at $8.59, down 36 cents, or 4 percent. Volume exceeded 42.7 million shares, more than triple the daily average of 13.1 million.
As far as seeing any signs of improvement in apparel sales so far this year, Lundgren replied, “Not really. It’s going to be interesting as spring fashions are delivered. At this point, our expectation is that new fashion is not going to be on the high priority list for consumers in the spring season.”
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