Macy’s Inc. will lay off more than 10,000 workers, roughly 7 percent of its workforce, this spring in a massive streamlining of a magnitude not seen at America’s largest department store chain since the Great Recession.
Of the total, 6,200 are management positions. “That is a significant portion of our executive population — 17 percent. It’s a huge cut,” Terry J. Lundgren, Macy’s chairman and chief executive officer, told WWD.
The remaining 3,900 employees to be let go are in the stores’ organization, though no customer-facing jobs are being cut, according to Macy’s executives. The company currently has 158,000 employees.
Shares of Macy’s fell more than 10 percent to $32 in after-hours trading following the release of the news, which also outlined the timing of the previously announced store closings.
The job cuts and other changes are a sign of the immense pressure traditional brick-and-mortar retailers are under from the likes of Amazon and other pureplays as consumers opt for the convenience of e-commerce over a trip to the mall, and spend on experiences over apparel. Further indication of the department store sector’s woes came Wednesday when Kohl’s Corp. stock dropped nearly 15 percent in after-hours trading as it lowered guidance and reported that holiday comps declined 2.1 percent.
Macy’s also isn’t alone in cutting jobs or shuttering stores, with that bastion of mall specialty retail The Limited beginning to close all of its units and Sears Holdings needing yet another cash injection from Eddie Lampert’s ESL Investments.
In addition to announcing the layoffs, on Wednesday Macy’s said it will close 63 Macy’s stores in early spring and about 32 others will shutter over the next few years, as part of the approximately 100 store closings unveiled in August. Three units closed in the middle of last year. Macy’s will lose about $575 million in sales this year due to the closings. There are currently 730 Macy’s stores and 38 full-line Bloomingdale’s stores.
“We looked at every pyramid of the company. We looked at benchmarking. We have been planning this very carefully. This is not something we did quickly,” said Jeff Gennette, Macy’s president, who will succeed Lundgren as ceo sometime in the first quarter of the year.
A wide range of jobs are impacted, Gennette said, citing upper management slots, vice presidents, buyers and assistants, among other types of positions.
Lundgren and Gennette said Macy’s also intensified efforts to reduce non-payroll costs next spring, such as marketing, inventory, travel, cell-phone usage and supplies. “We really are looking at every single account,” Gennette said. “Everything is under scrutiny.”
The reductions, which are occurring at both the Macy’s and Bloomingdale’s divisions of the $27 billion Macy’s Inc., leaves the corporation with the “right tools” and team to fuel its growth strategy for the future, Gennette emphasized. It also leaves the retailer with potentially a more manageable and productive store fleet.
Lundgren even said Macy’s brought in an outside consultant with experience in consumer package goods and other non-retail sectors “to get a fresh look at the expense reduction possibilities.” He declined to name the firm.
While sharply reducing its footprint, Macy’s will be rolling out Bluemercury shops and Backstage off-price departments inside its stores, as well as growing its domestic online businesses and omnichannel operations, and its China business, which is online through Alibaba’s T-mall. Asked if Macy’s might one day open a store in China, Lundgren replied, “At this point, Macy’s in China is an online business only, but we remain open to understanding the opportunities in China.”
In the U.S., two new Macy’s stores are set for Westfield Century City, L.A. and Fashion Place in Murray, Utah. New Bloomingdale’s stores are set for Westfield Valley Fair Shopping Center, San Jose, Calif., and The SoNo Collection in Norwalk, Conn. No Bloomingdale’s stores will close.
Overseas, under license agreements with Al Tayer Group, Bloomingdale’s will open in 360 Mall in Al Zahra, Kuwait in the spring and new Macy’s and Bloomingdale’s stores will bow in Al Maryah Central in Abu Dhabi, United Arab Emirates, in 2018.
Macy’s growth strategy will be revealed in greater detail on Feb. 21 when results for 2016 are disclosed.
The retailer has been under pressure from activist shareholders to boost its stock price, and from consumers who are bored with traditional store formats and demanding new shopping experiences.
In response, Macy’s has been monetizing some of its owned real estate, while seeking to develop distinct in-store concepts and offerings, such as Backstage. In November, Macy’s formed an alliance with Brookfield Asset Management, which has rights over the next two years to create a “pre-development plan” for about 50 Macy’s properties. Also last year, Macy’s Herald Square introduced the first Apple shop inside a department store, and Lady Gaga and Sir Elton John collaborated on a limited-edition line of clothing and accessories called Love Bravery, which was sold exclusively at Macy’s and supported charities championed by the celebrities.
“To make our existing stores more productive, that is job number one,” said Lundgren, who becomes executive chairman once Gennette succeeds him as ceo.
In its lengthy announcement Wednesday, Macy’s said it will sell its 1.3 million-square-foot Minneapolis flagship to 601W Companies, which will redevelop the site. It will no longer operate as Macy’s. The deal is expected to close by the end of this fiscal year. No purchase price was given.
In addition, Macy’s Stonestown store in San Francisco has been sold to General Growth Properties. Macy’s will lease the store back from GGP as that company develops plans for that location.
About $250 million of charges, or 50 cents a share, will be recorded in the fourth quarter of 2016 related to the changes. However, Macy’s expects to generate expense savings of about $550 million beginning this year, enabling the company to execute growth strategies.
Macy’s comparable sales declined 2.1 percent in November and December 2016. “We expect our 2017 change in comparable sales to be relatively consistent with our November-December sales trend,” said Lundgren. “Our apparel business, which includes women’s, men’s and children’s, performed well, with particular strength in active and cold-weather merchandise. Sales were also strong in fine jewelry, as well as furniture and bedding, reflecting the success of our initiatives in those categories. However, ongoing weakness in handbags and watches negatively impacted our results.”
The company expects full-year 2016 diluted earnings per share (excluding asset impairment, restructuring, retirement settlement and other charges) to be in a range of $2.95 to $3.10, compared with previous guidance of $3.15 to $3.40.
“Over the past year, we have been focused and disciplined about making strategic decisions to position us to gain market share and return to growth over time,” Lundgren said. “While we are pleased with the strong performance of our highly developed online business, as well as the progress we have made on selling and visual presentation programs and expense reduction initiatives in 2016, we continue to experience declining traffic in our stores where the majority of our business is still transacted.
“Our omnichannel strategies continue to evolve based on the changes in our customers’ shopping behaviors, including a focus on buy-online, pick-up-in-store and mobile-enabled shopping. In addition, we have invested in and enlarged our customer data and analytics team, which will help drive our new marketing strategies for 2017. Whether it is improving corporate agility, enhancing our customer engagement strategies, or continuing to capitalize on the potential value of our real estate assets, we remain focused on the actions that will ultimately improve our financial results and provide the greatest return for our shareholders.”
While optimistic for Macy’s future, Lundgren acknowledged it’s been a difficult period for the business. “It’s never easy to have to let people go. It’s the hardest part of our job,” he said. “The only thing that helps us get through these challenging moments is recognizing that by doing this, we are preserving tens of thousands of other jobs and that these actions put us in a position for growth and success in the future. We are still a very, very successful and profitable business.”