Macy’s Inc., battling the weak sales trends plaguing retail and striving to become a nimbler organization, on Wednesday triggered sweeping cuts and consolidations across its operations, resulting in the net loss of about 2,100 workers and eventual annual expense savings of $400 million.
The restructuring at America’s largest department store operator is indicative of the sea change taking place in retail, with a holiday season that almost every executive termed challenging. The increasing shift to online and mobile shopping has companies pondering what to do with their brick-and-mortar stores, while consumers seem more interested in experiences and dining out than in fashion.
Macy’s released its comparable-store sales for November and December on Wednesday afternoon, and more retailers will do so today. Most expectations are that the numbers will be mediocre at best, and bad at worst.
Macy’s fell into the latter category, and the company lowered its earnings forecasts for the final quarter and for all of last year. It also listed the locations of the 40 stores being closed this year, resulting in another 2,700 job losses, although some could be rehired in different jobs. Before Wednesday’s announcement, the head count at Macy’s Inc. was 163,000.
Citing the impact of unseasonably warm weather and dwindling tourist spending, Macy’s said comparable-store sales for the November-December period fell 4.7 percent compared with the same period last year.
For the year, the retailer expects earnings in the range of $3.85 to $3.90 a share, excluding expenses related to cost efficiencies and asset impairment charges associated primarily with spring store closings. This compares with previous EPS guidance of $4.20 to $4.30. Reflecting its performance struggles, earnings guidance for 2015 includes an expected $250 million gain on the sale of real estate in downtown Brooklyn, including the flagship and parking facilities.
Fourth-quarter earnings are seen at $2.18 to $2.23 a diluted share, excluding charges associated with cost efficiencies and store closings. This compares with previous guidance of $2.54 to $2.64 in the fourth quarter.
Macy’s noted the 4.7 percent comp decline includes owned and licensed sales. On an owned basis, comparable sales declined by 5.2 percent in the combined November-December period.
Macy’s stock rose 2.77 percent, or $1, to $37.15 in after-hours trading. The announcement on the cuts was made after the stock market closed. Earlier in the day, the stock fell 2.19 percent, or 81 cents to $36.15.
“The holiday selling season was challenging, as experienced throughout 2015 by much of the retailing industry,” said Terry J. Lundgren, Macy’s chairman and chief executive officer. “In the November-December period, we were particularly disadvantaged by the historically warm weather in northern climate zones where both Macy’s and Bloomingdale’s are especially well-represented. About 80 percent of our company’s year-over-year declines in comparable sales can be attributed to shortfalls in cold-weather goods such as coats, sweaters, boots, hats, gloves and scarves. We also continued to feel the impact of lower spending by international tourists as the value of the dollar remained strong.
“That said, we are buoyed by a very strong performance in our digital business, with continued double-digit increases in online sales. In November-December, we filled nearly 17 million online orders at macys.com and bloomingdales.com — a new record for our company and an increase of about 25 percent over last year — based on significant new fulfillment capacity, site functionality and aggressive digital marketing. This validates the strength of our omnichannel strategy and related investments which we made over the past decade and will continue into the future,” Lundgren said.
With no major change in the sales trend seen for January, Macy’s now expects a comparable sales decline, on an owned-plus-licensed basis, in the fourth quarter of 2015 to approximate the 4.7 percent decline in November-December, from previous guidance of down between 2 and 3 percent for the fourth quarter. For all of 2015, Macy’s sees a 2.7 percent decline, from a previous guidance of down 1.8 to 2.2 percent.
The cost-cutting measures will be implemented beginning early this year. While reducing SG&A expenses by about $400 million, Macy’s said it will still invest in growth strategies, particularly omnichannel capabilities at Macy’s and Bloomingdale’s.
“In some cases, there will be short-term pain as we tighten our belt and realign our resources,” Lundgren said. “But our eye is on a long-term vision of Macy’s Inc. as a dynamic retailer that serves existing customers and acquires new ones through innovative approaches to the marketplace.
“We believe we can operate more effectively with an organization that is flatter and more agile so we can pursue growth and regain market share in our core Macy’s and Bloomingdale’s omnichannel businesses faster and with more intensity. We will continue to invest in strategic initiatives that anticipate emerging customer needs and create shareholder value.”
In 2014, Macy’s achieved record profits and hit its goal of 14 percent earnings before interest, taxes, depreciation and amortization. Macy’s said the actions disclosed Wednesday “represent progress toward the company’s previously stated goal of re-attaining over time” the 14 percent EBITDA rate.
On the real estate front, Macy’s said it was moving forward on previously stated intentions to form partnerships and joint ventures, and that it has hired Eastdil Secured, a real estate-focused investment bank, to approach potential interested parties. Credit Suisse and Goldman Sachs will assist in the effort. Both mall-based properties, as well as Macy’s flagship real estate assets in Manhattan, San Francisco, Chicago and Minneapolis, are being considered.
While Macy’s last year demonstrated it was interested in unlocking shareholder value by monetizing some real estate, such as the Brooklyn flagship, it was Starboard Value, led by activist-agitator Jeffrey Smith, that motivated the retailer to move faster and widen its perspective. Macy’s has already nixed Smith’s proposal to create a real estate investment trust, but has met with him at least on two occasions. “I could say we are thinking more broadly about this,” Lundgren told WWD in a recent interview. “I am spending more time on real estate.”
At Macy’s, Eastdil joins a team of advisers in banking, real estate, law and tax who are focused on monetizing real estate assets. Tishman Speyer has expressed interest in pursuing partnerships on the four flagship locations and therefore will not be advising the company on those properties. Tishman Speyer will, however, continue to advise Macy’s on potential opportunities for maximizing the value of other real estate in the company’s portfolio.
The company has begun a search for a senior-level real estate executive to oversee and manage real estate activities, including the leadership of any partnerships or joint ventures.
Macy’s cost-cutting measures being implemented early this year include:
• Consolidating from seven store regions and 58 local districts down to five regions and 47 local districts. Macy’s said new technologies enable these changes.
• Eliminating three to four positions at each Macy’s and Bloomingdale’s store so staffing is more in line with current sales volume to increase productivity and improve efficiency, for a total of 3,000 affected associates, though about half are expected to be placed in other positions.
• Offering voluntary separation to about 165 senior executives in Macy’s and Bloomingdale’s central stores, office and support functions who meet certain age and service requirements and choose to leave the company beginning in spring. About 35 percent of these executive positions will not be replaced.
• Reducing 600 positions in back-office organizations by eliminating tasks, simplifying processes and combining positions, with about 150 of these associates reassigned to other positions.
• Consolidating the four Macy’s Inc. credit and customer services center facilities into three. The call center in St. Louis will be closed in the spring, affecting about 750 employees. Work performed in St. Louis will be divided among the credit and customer services centers in Tempe, Ariz.; Clearwater, Fla., and Mason, Ohio, where a total of about 640 positions will be added.
• Decreasing nonpayroll budgets companywide in areas such as travel, meetings and consulting services.
The 770-unit Macy’s chain will close 40 stores (36 in early spring; four later in the year) as previously announced.
“In today’s rapidly evolving retail environment, it is essential that we maintain a portfolio of the right stores in the right places. So we will continue to add stores selectively while also being disciplined about closing stores that are unproductive or no longer robust shopping destinations because of changes in the local retail shopping landscape,” said Lundgren.
The 40 stores represent about $375 million in annual sales, some of which are expected to be recouped online and at nearby stores. Associates displaced by store closings may be offered positions in nearby stores. Eligible full-time and part-time associates who are laid off due to the closings will be offered severance benefits.
Macy’s explained that the cost reductions are estimated to generate annual selling, general and administrative expense savings of about $400 million, beginning this year. This will help the company achieve “modest” improvement in its EBITDA rate in 2016 compared with 2015, excluding gains from the expected sale of real estate in Brooklyn. Macy’s stressed it will still invest in growth strategies, particularly omnichannel capabilities at Macy’s and Bloomingdale’s.
In conjunction with Wednesday’s announcements, as well as incremental asset impairment charges related to store closings, about $200 million of charges, of which about $165 million is expected to be cash, are expected to be booked in the fourth quarter of 2015. These charges were not previously included in earnings guidance provided by the company and are in addition to the $111 million, or 20 cents a share, booked in the third quarter as an estimate of asset impairment charges related to 2016 store closings.
Macy’s Inc. generated fiscal 2014 sales of $28.02 billion. The company operates about 900 stores under the names of Macy’s, Bloomingdale’s, Bloomingdale’s Outlet, Macy’s Backstage and Bluemercury, as well as the macys.com, bloomingdales.com and bluemercury.com Web sites. Bloomingdale’s in Dubai is operated by Al Tayer Group LLC under a license agreement.
Final clearance sales at the Macy’s stores set to close will begin Monday, and run for eight to 12 weeks, except for the Westfield Century City store in Los Angeles, the North DeKalb Mall unit in Decatur, Ga. and the Roseburg Valley Mall in Roseburg, Ore. store, where final clearance sales are in progress.
While closing 40 stores, Macy’s is opening one store this year and two next year, while Bloomingdale’s is opening one store next year and another in 2018. In addition, in the next two years, the company plans to open about 50 additional Macy’s Backstage off-price locations (most of which will be inside existing Macy’s stores), and about 40 freestanding Bluemercury beauty specialty stores. Internationally, new Macy’s and Bloomingdale’s stores are planned to open in Al Maryah Central in Abu Dhabi, United Arab Emirates, in 2018 under license agreements with Al Tayer Group.
Below, the list of Macy’s stores to close.
- Irvine Spectrum, Irvine, Calif.; 140,000 square feet; opened in 2002; 112 associates.
- Country Club Plaza, Sacramento, Calif.; 165,000 square feet; opened in 1961; 111 associates.
- Westfield Century City, Los Angeles; 136,000 square feet; opened in 1976; 108 associates. A larger store will open here in spring 2017.
- Enfield Square main store, Enfield, Conn.; 166,000 square feet; opened in 1971; 84 associates.
- Enfield Square furniture/home/men’s store, Enfield, Conn.; 76,000 square feet; opened in 1971; 20 associates.
- North DeKalb Mall, Decatur, Ga.; 190,000 square feet; opened in 1965; 89 associates.
- Kailua, Hawaii; 59,000 square feet; opened in 1946; 57 associates.
- Palouse Mall, Moscow, Ind.; 41,000 square feet; opened in 1979; 47 associates.
- Northwoods Mall, Peoria, Ill.; 165,000 square feet; opened in 1985; 62 associates.
- Cortana Mall, Baton Rouge: 243,000 square feet; opened in 1976; 108 associates.
- Valley Mall, Hagerstown, Md.; 120,000 square feet; opened in 1999; 59 associates.
- Berkshire Mall, Lanesborough, Mass.; 111,000 square feet; opened in 1994; 58 associates.
- Eastfield Mall, Springfield, Mass.; 127,000 square feet; opened in 1994; 71 associates.
- The Shoppes at Stadium, Columbia, Mo.; 140,000 square feet; opened in 2003; 81 associates.
- Middlesex Mall, South Plainfield, N.J.; 81,000 square feet; opened in 1976; 69 associates.
- McKinley Mall main store, Buffalo, N.Y.: 88,000 square feet; opened in 1989; 65 associates.
- McKinley Mall home store, Buffalo, N.Y.; 31,000 square feet; opened in 1989; 10 associates.
- Arnot Mall, Horsehead, N.Y.; 120,000 square feet; opened in 1995; 79 associates.
- Hudson Valley Mall, Kingston, N.Y.; 121,000 square feet; opened in 1995; 72 associates.
- Eastern Hills Mall, Williamsville, N.Y.; 127,000 square feet; opened in 1971; 80 associates.
- Cary Towne Center, Cary, N.C.: 107,000 square feet; opened in 1991; 63 associates.
- Chapel Hill Mall, Akron, Ohio; 169,000 square feet; opened in 1967; 91 associates.
- Midway Mall, Elyria, Ohio; 105,000 square feet; opened in 1990; 64 associates.
- Quail Springs Mall, Oklahoma City, Okla.; 146,000 square feet; opened in 1986; 87 associates.
- Pony Village Mall, North Bend, Ore.; 41,000 square feet; opened in 1980; 54 associates.
- Roseburg Valley Mall, Roseburg, Ore.; 40,000 square feet; opened in 1980; 59 associates.
- Suburban Square, Ardmore, Pa.; 102,000 square feet; opened in 1930; 74 associates.
- Century III Mall, West Mifflin, Pa.; 173,000 square feet; opened in 1979; 101 associates.
- Ridgmar Mall, Fort Worth, Texas; 181,000 square feet; opened in 1998; 92 associates.
- Chesapeake Square, Chesapeake, Va.; 95,000 square feet; opened in 1999; 69 associates.
- Virginia Center Commons, Glen Allen, Va.; 110,000 square feet; opened in 1993; 81 associates.
- Peninsula Town Center, Hampton, Va.; 173,000 square feet; opened in 1977; 109 associates.
- Military Circle Mall, Norfolk, Va.; 153,000 square feet; opened in 1976; 95 associates.
- Regency Square main store, Richmond, Va.; 100,000 square feet; opened in 1990; 100 associates.
- Regency Square furniture/home/men’s store, Richmond, Va.; 124,000 square feet; opened in 1990; 35 associates.
- Downtown Spokane, Spokane, Wash.; 374,000 square feet; opened in 1947; 94 associates.
Macy’s stores closed in the final three quarters of 2015:
- Owings Mills Mall, Owings Mills, Md.; 164,000 square feet; opened in 1986; 90 associates.
- Bedford, N.H.; 180,000 square feet; opened in 1966; 105 associates.
- Essex Green Shopping Center, West Orange, N.J.; 93,000 square feet; opened in 1975; 101 associates. Macy’s Backstage opened at this location.
- Downtown Pittsburgh, Pa.; 1,158,000 square feet; opened in 1946; 170 associates.
New Macy’s stores will be opening in:
- Ka Makana Ali’i, Kapolei, Hawaii; 103,000 square feet; to open in fall 2016; approximately 180 associates.
- Westfield Century City, Los Angeles; a 155,000 square-foot store to open in spring 2017 to replace an older and smaller Macy’s store
- Fashion Place, Murray, Utah; 160,000 square feet; to open in spring 2017; approximately 150 associates.
New Bloomingdale’s stores will be opening in:
- Westfield Valley Fair Shopping Center, San Jose, Calif.; 150,000 square feet; to open in fall 2017; approximately 250 associates.
- The SoNo Collection, Norwalk, Conn.; 150,000 square feet; to open in fall 2018; approximately 200 associates.