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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.
This story first appeared in the February 3, 2009 issue of WWD. Subscribe Today.
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.”
The centralization process involves closing the Macy’s West, Macy’s Florida and Macy’s Central divisions, based in San Francisco, Miami and Atlanta, and with 1,400, 600, and 850 employees, respectively. Some individuals are being reassigned. At the store level, five to six cuts were made per door. Macy’s operates over 800 units. The 7,000 jobs to be lost are out of the current workforce of 180,000, and represent a net figure that includes the 1,200 job additions for My Macy’s.
“With our new [centralized] structure, Macy’s now will have one unified buying organization, one unified merchandise planning organization, one unified stores organization, one unified marketing organization and one unified organization for each corporate function such as finance, logistics, information technology and human resources — instead of four of each operating divisionally,” Lundgren said. “By reducing duplication, we will be able to react faster to market trends, simplify our relationship with vendors and ensure that our expense dollars are devoted to activities that will drive the business most effectively.”
About 40 percent of the job cuts are executive positions. The remaining 60 percent represents reductions at stores, distribution centers and the Macy’s Merchandising Group (MMG).
Macy’s new central structure is expected to be in place in the second quarter of 2009, with central buying, merchandise planning, stores senior management and marketing functions mostly in New York. Finance, human resources, law, property development and purchasing — including those now performed at the division level — will be located primarily in Cincinnati.
The New York-based Macy’s home store and Macy’s corporate marketing divisions will no longer exist as separate entities. The MMG will be refocused solely on the design, development and marketing of private brands.
There are no changes at Bloomingdale’s or macys.com.
The centralization means role changes for several top executives, including:
• Timothy Adams, currently chairman and ceo of Macy’s Home Store, becomes chief private brand officer.
• Tom Cole, currently vice chair of Macy’s Inc., becomes chief administrative officer adding human resources, legal, and corporate communications and continuing over IT, logistics, accounting, credit, store planning and design and construction.
• Mark Cosby, currently president and chief operating officer of Macy’s East, becomes president of stores.
• Jeffrey Gennette, currently chairman and ceo of Macy’s West, becomes chief merchandising officer.
• Julie Greiner, currently chairman and ceo of Macy’s Florida, becomes chief merchandise planning officer, responsible for centralized merchandise planning and assortment allocations by store, as well as the district/region merchandise planning structure and function.
• Ronald Klein, currently chairman and ceo of Macy’s East, becomes chief stores officer, responsible for all Macy’s stores and My Macy’s.
Three vice chairmen are retiring soon. Susan D. Kronick, 57, who currently oversees Bloomingdale’s and Macy’s retail divisions, will colead the My Macy’s integration (along with Cole) and will retire in early 2010. Thomas Cody, 67, will continue to have responsibility for corporate governance and philanthropic activities, and also will retire in early 2010.
Janet E. Grove, 58, chairman and ceo of MMG, will retire in mid-2011, and in the meantime will oversee international initiatives.
“Yes, we are looking at sites [for Macy’s] and have people coming to us to encourage us, but definitely none are in the works at this point,” stressed Lundgren. Bloomingdale’s has set a Dubai opening for 2010.
The expanded My Macy’s organization puts more manpower in the field at the local store level, digging deeper into the needs of individual units, particularly in terms of styles, colors and sizes. My Macy’s will have 69 district offices, with each covering 10 to 12 stores, and manned by an average of 23 merchandising and planning associates who will help the central planning and buying organization to understand the needs of local customers. In the past, Macy’s teams covered about two dozen stores each.
“Reduction in the span of control was a major issue,” Lundgren said in a conference call.
“The second major change was with the regional merchandise manager,” he added. “We’ve replaced this one position with four individuals, two district merchants and two district planners.”
The 69 Macy’s districts will be grouped into eight regions in the Chicago, Houston, Miami, Los Angeles, New York, Pittsburgh, San Francisco and Washington areas. Each region will include an organization of 35 to 40 executives to oversee merchandising, planning and various support operations. Special events and marketing public relations staffs also will be located regionally around the country.
Overall, the My Macy’s structure “gives us much more confidence in our ability to consolidate remaining divisions,” Lundgren said.
Macy’s Mall of America store has already benefited with better sales since the local My Macy’s team decided to stock it with more status denim and swimwear because the Minnesota mall attracts lots of tourists and has an indoor water park. My Macy’s teams also recognized the need for more traditional fashions at the St. Louis and Pittsburgh stores.
“There are examples we find everywhere we go that simply would not be recognized without the input of the local My Macy’s structure,” Lundgren said.
Macy’s expects to see the most impact from My Macy’s by mid-2010.
“One of the benefits is having skilled talented people in the stores every single week,” Lundgren said.
With the poor economy and negative comps, Macy’s is “recalibrating” its objective for 14 to 15 percent earnings before interest, taxes, depreciation and amortization, said chief financial officer Karen Hoguet. “Obviously the down business [means] it will take longer to get there. It will require getting positive comps again.”
Last year, Macy’s downsized from seven to four divisions and, last month, the company announced 11 store closings. “We look at our stores on a quarterly basis, and have a list that we are constantly monitoring to see whether they fall below the line of performance,” Lundgren said. “At our last look, there are no stores that are not cash flow positive. That could change, if we believe they can not come back, they will go on our list of stores that are candidates to be closed.”
Asked if there could be more layoffs later this year, Lundgren said, “This is it. You never know of course, but we decided we are going to get this all out and behind us. This is it. We went through every single discipline, organization structure, every group” to determine expense reductions. “We decided let’s get it out now so we don’t have to come back later.”