Macy’s Inc. is looking to get more bang for its buck.
The department store’s top executives laid out the details of a productivity plan that could cut its annual costs by up to $550 million over the next two to four years.
The plan, which top executives discussed at the Goldman Sachs Annual Global Retailing Conference in New York Thursday, is meant to complement Macy’s growth initiatives and put it on a solid footing for a new age.
“We’ll get Macy’s Inc. back to profitable growth with a focus on improving gross margins, reducing [selling, general and administrative expenses] and improving working capital,” said Jeff Gennette, chairman and chief executive officer.
“The competition is fierce,” Gennette said. “The macro environment has uncertainties and there is doubt on the sector. And retail is certainly not for the faint of heart but I’m confident that Macy’s has the strategy, the resources and the grit to win in today’s environment.”
Paula Price, chief financial officer and executive vice president, said Macy’s is feeling increased pressure from the costs to fulfill online orders, labor and competitors.
“We needed a program that expands and refines our existing technology and data science tools, improving our efficiency, speed and scale to best serve our customers,” Price said.
Data science and technology are key to helping the company work smarter in the areas as diverse as supply chain, merchandising mix and pricing, marketing, stores and sourcing.
The idea is to buttress the business from changes in the market by cutting expenses and boosting working capital efficiency. Annual costs over the next two to four years are expected to be cut by $400 million to $550 million and improve working capital by about $100 million. That comes in addition to the up to $200 million the company is looking to cut each year from other efforts to curtail costs.
In the productivity push, Macy’s will sharpen its approach to markdowns with a more personalized approach, roll out handheld devices for associates, test self-checkout in stores and more.
Hal Lawton, president, offered some more examples that show how Macy’s is looking to be a savvier operator.
For instance, Macy’s supply chain is starting to take a “hold and flow” approach.
“It’s an enhanced logistics capability that will help us improve our sales and margin dollars by holding back some of the inventory and then reallocating in season as we see consumer demand evolve and the need develop,” Lawton said. “We’re also using very sophisticated algorithms to direct these allocations and look at consumer demand on a daily basis to release the inventory.”
By way of example, he pointed to Macy’s exclusive Lacoste Father’s Day Polo program.
“Historically, the full delivery of this drop would have been made at the beginning and going to all stores all inventory,” he said. “However, this year we were able to hold some inventory back and then immediately after the initial allocation, were able to start flowing the remaining 30 percent of the inventory to locations that had higher demand and limiting it from ones where we didn’t see high sell-through. This drove improved sell-offs and helped fuel 8 percent growth for the Father’s Day event on this program.”