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Macy’s Inc. may be ready to pull the trigger on sweeping consolidations.
This story first appeared in the February 6, 2008 issue of WWD. Subscribe Today.
With the $27 billion, 850-unit Macy’s under increasing pressure from the weakening economy, a slumping stock and its challenging merger with May Department Stores Co., speculation is mounting that the retailer is looking to downsize its network of seven regional operations to three or four, and cut back central staff at the Cincinnati headquarters.
Though Macy’s declined to comment and phone calls to top executives were not returned, sources said the Miami-based Macy’s Florida could fold into Macy’s South, based in Atlanta. Macy’s North in Minneapolis could fold into Macy’s East, based at Macy’s Herald Square in Manhattan, and Macy’s Northwest, based in Seattle, could fold into Macy’s West in San Francisco.
“There are lots of rumors. We don’t comment on rumors or speculation,” said Jim Sluzewski, Macy’s Inc.’s spokesman.
Retail experts estimated that hundreds of employees would be affected — roughly 150 to 200 per regional office — but annual savings could be north of $80 million.
Macy’s operates a seventh regional office in St. Louis, but that operation appears safe due to a commitment said to be made by the retailer’s management to the people of the city and its mayor. It couldn’t be determined how long that commitment stands. In the case of the Atlanta office, Macy’s might decide to maintain a separate ready-to-wear team because that market is much different from the Florida market. “Florida is more contemporary than Atlanta,” said a source familiar with the retailer.
The corporation also operates Bloomingdale’s, based in Manhattan, which has been on a growth track and doing well.
Shares of Macy’s closed down 7.2 percent Tuesday to $25.10, which was steeper than the sector’s 3.5 percent decline. Retail stocks fell on economic worries as well as anticipation of weak same-store sales on Thursday. But sources speculated that the deeper drop in valuations of Macy’s and other retailers was due to concerns that the sector would see more restructurings, which eat up profits in the short term.
A downsizing of its regional operations would bring Macy’s closer to operating as a true national chain, similar to how competitors such as J.C. Penney, Target, Gap, Limited Brands and Kohl’s function.
But a restructuring would to some degree mark a strategy reversal by Macy’s chairman, chief executive and president, Terry Lundgren, on the need to maintain regional offices. Lundgren said around the time of Macy’s takeover of May Co. that, “We have [divisional] headquarters in seven cities. Our structure may cost more, but we think it’s the right structure. If you are in the fashion business, you need to have people who really understand those customers” in each region. “This will be what separates us from most of our competition.”
But sources said big changes at Macy’s wouldn’t be a surprise. “Given the terrible macroeconomic climate, no matter how successful a company is, the prognosis for retail is poor. There is no doubt in my mind Macy’s will be consolidating,” said the source familiar with the company.
“Now is the time to do this. The season is over. They’ve collected money from vendors. They can be reorganized and ready for fall, and get the benefits in 2008….Carl Icahn owns a piece of Macy’s and is saying get your act together.”
Retail analyst Deborah Weinswig of Citigroup Global Markets, in a research note on her top 10 retail predictions dated Jan. 10, wrote that further consolidation was a possibility for Macy’s. Her prediction for the year was that Macy’s will consolidate more divisions and close additional stores. “In our view, this would be a significant positive for J.C. Penney and Kohl’s, as it could reduce competition as well as potentially free up mall-based real estate,” she stated.
The regional consolidations, while wrenching for those losing jobs, would be relatively easy for Macy’s. The systems, stockkeeping units, buying and private labels are the same.
A rash of reorganizations has already hit retail. Starbucks is closing 100 shops; Ann Taylor, 117 over the next three years; Eddie Bauer announced 123 layoffs at its headquarters; The Home Depot has set 500 layoffs at its headquarters, and J.C. Penney disclosed 200 layoffs.
But Macy’s isn’t only cutting back. There was also speculation Tuesday that the retailer is looking beyond this year’s challenges and planning a major overhaul of the Herald Square flagship. While renovations and shop additions are always happening at what’s considered the world’s largest store, there’s apparently a new vision in the works to give the store a more cohesive look, and upgrade the infrastructure, including bathrooms and stairwells. The Herald Square flagship is among the world’s most trafficked stores, and is also much maligned, often criticized for its lack of service and housekeeping.
Across the country, Macy’s has already done much streamlining since the merger with May Co. in 2005. Of the 80 duplicate locations earmarked for disposal at the time of the deal, Macy’s has either closed or sold about 70 and could decide to retain some of the remaining 10 units, the company said. May’s corporate headquarters and merchandising unit in St. Louis were eliminated, and central offices of divisions inherited via May, including Filene’s/Kaufmann’s in Boston; Foley’s in Houston; Hecht’s/Strawbridge’s in Arlington, Va., and Robinsons-May/Meier & Frank in Los Angeles, were also closed. Macy’s nearly doubled in size when it acquired May Co.
Meanwhile, according to Securities and Exchange Commission filings Tuesday, a host of top Macy’s executives exercised options on the retailer this week, including Lundgren, who divested 57,372 shares. Executive vice president and chief financial officer Karen Hoguet sold 18,031 shares, while president and chief marketing officer Peter Sachse sold 9,835 shares. Vice chairs Janet Grove, Thomas Cody, Susan Kronick and Thomas Cole each sold 21,310 shares.