Macys. This, photo shows corporate signage at Macy's flagship store in Manhattan, in New York. Macy's Inc. reports earnings Thursday, Nov. 9, 2017Earns Macys, New York, USA - 02 May 2017

Macy’s Inc, in a dramatic, massive restructuring, will close 125 stores, cut about 2,000 workers and shut its dot-com headquarters in San Francisco and its corporate offices in Cincinnati.

The approximate 125 stores closing over the next three years account for $1.4 billion of Macy’s $24 billion in annual sales and includes the previously revealed 30 stores currently in the process of closing.

WWD first reported last month that Macy’s dot-com headquarters in San Francisco will close and relocate to New York City. Some technology positions will be added to the retailer’s Johns Creek, Ga., facility, and an office in Atlanta will serve as the primary technology hub for the company.

The 2,000 workers losing their jobs represent 9 percent of the corporate and support staffs.

Macy’s has long been saddled with many weak stores, to a large degree stemming from its acquisition of May Co. in 2005.

But the business has also been hurt by stronger competitors, notably Target, Nordstrom, Amazon, Zara and TJX Cos., and according to some retail experts, Macy’s hasn’t been innovating fast enough, particularly in fashion, to keep up with rapidly shifting consumer spending habits.

As an early dot-com operator dating back to the late Nineties, the Macy’s web site has generally received high marks. Another positive is that Macy’s has been prudently reducing debt and is not overleveraged.

Since the May Co. merger, Macy’s has been closing stores and cutting costs. The question is whether management has been aggressive enough in taking action. Tuesday’s disclosure outlining new and more extreme streamlining measures underscores Macy’s need to move faster on turning around its operations, improving profitability, and reinventing.

Through the restructuring, Macy’s expects annual gross cost savings of $1.5 billion to be fully realized by year-end 2022, with $600 million gross cost savings achieved in 2020.

While disclosing the widespread reductions across the business, Macy’s also outlined growth maneuvers, among them:

• Creating four $1 billion “power” private brands. A new private brand sourcing strategy is being implemented geared to reduce costs and improve speed.

• Redesigning the fulfillment network with the aim of improving inventory productivity through increased sell-throughs and lower markdown rates.

• Continuing to invest in stores operating in the best malls.

• Continuing to expand the Backstage off-price concept. In 2020, an additional 50 Backstage departments inside Macy’s stores and seven additional freestanding, off-mall Backstage stores will open.

• Exploring new off-mall formats.

• Continuing to invest in web sites and mobile apps.

• Enhancing the Macy’s Star Rewards loyalty program.

Macy’s is launching Thursday a compact brick-and-mortar format in the Dallas area, called Market by Macy’s, which was first reported by WWD last week. If the concept catches on, it will be cloned off-mall in lifestyle centers, the company said. Market by Macy’s will feature a mix of Macy’s merchandise and local goods, as well as local food and beverage options and a “robust” community events calendar.

In 2018, the company launched Market@Macy’s, an in-store shop with an ever-changing assortment of brands across a wide variety of merchandise categories and where the brands pay a base fee or a percent of sales. It’s considered a “retail as a service” or RAAS. In 2020, the company will be re-branding the format so as not to confuse it with the other format in Texas.

Macy’s has long operated with dual corporate headquarters, in New York and Cincinnati. Macy’s is able to shut down the Cincinnati facility and consolidate in New York because of its new campus in Long Island City, Queens, accommodating both Macy’s and Bloomingdale’s teams. Workers just began to move into the campus in January.

The company will also close its Tempe, Ariz., customer contact center and consolidate customer service work into its Mason, Ohio, and Clearwater, Fla, facilities.

Macy’s said it’s increasing staffs at its Mason location and its Progress Place facility in Springdale, Ohio.

“We have a clear vision of where Macy’s, Inc. and our brands, Macy’s, Bloomingdale’s and Bluemercury, fit into retail today. We are confident in our Polaris strategy, (the new three-year strategy) and we have the resources required to return Macy’s Inc. to sustainable, profitable growth,” said Jeff Gennette, chairman and chief executive officer. “We will focus our resources on the healthy parts of our business, directly address the unhealthy parts of the business and explore new revenue streams. Over the past three years, we have shown we can grow the top-line; however, we have significant work to do to improve the bottom-line. We are confident the strategy we are announcing today will allow us to stabilize margin in 2020 and set the foundation for sustainable, profitable growth.

“We are taking the organization through significant structural change to lower costs, bring teams closer together and reduce duplicative work,” Gennette added. “This will be a tough week for our team as we say goodbye to great colleagues and good friends. The changes we are making are deep and impact every area of the business, but they are necessary. I know we will come out of this transition stronger, more agile and better fit to compete in today’s retail environment.”

Investing in and accelerating digital growth is a big part of the Polaris agenda. Digital continues to grow at Macy’s Inc.’s divisions, and generates more than $6 billion of Macy’s $25 billion in annual sales.

In assessing the store portfolio, Macy’s analyzed future predicted profitability based on consumer trends and demographics. Across the remaining store fleet, the company is either reducing or adding staff. Macy’s operates 680 department stores and 190 specialty stores.

“Our customers expect convenience and a tailored experience across all channels. We have an opportunity to build a broader yet integrated Macy’s experience within a metropolitan area by investing in our magnet stores, building freestanding (off-price) Backstage locations and testing new, off-mall store formats,” said Gennette. “The more convenient, brand-right touchpoints we have, the greater loyalty and engagement we engender. This will enable us to grow with the next generation of American shoppers.”

He said this year, 100 stores will be upgraded with physical enhancements, technology improvements, and changes in talent and local marketing. To date, this treatment has been applied to 150 stores, which account for approximately 50 percent of 2019 total stores’ sales. These stores continue to outperform the balance of the fleet, Gennette said.

On the personnel side, several changes to the senior management team were made. John Harper, formerly chief stores officer, has assumed the role of chief operations officer with expanded responsibility for stores, technology, supply chain and brand experience.

Marc Mastronardi is now chief stores officer, reporting to Harper. Mastronardi was most recently senior vice president of store operations and customer experience.

Danielle Kirgan, chief human resources officer, is taking on an expanded role as chief transformation and human resources officer. She will lead the company’s transformation work.

The company currently anticipates total costs related to Polaris of approximately $450 million to $490 million, the majority of which will be recorded in 2019. About $270 million to $290 million of these costs will be cash.

Macy’s Inc. has designated 2020 as a “transition year” amid all the structural changes to its operations. Consequently, the company anticipates negative comparable sales in 2020 “due to the trajectory of the business over the past six months, anticipation of continued challenges in mall-based retail and disruption from the implementation of the Polaris strategy.”

The company also anticipates net sales to decline due to store closures.

For 2019, fourth-quarter net sales are estimated at $8.3 billion, and for the full year are estimated at $24.5 billion. Additionally, the company anticipates its full-year 2019 earnings per share to be near the upper end of the previously guided range of $2.57 to $2.77 a share.

For 2020, Macy’s forecasts $23.6 billion to $23.9 billion in sales. Diluted earnings per share are seen at $2.45 to $2.65. Adjusted diluted earnings per share, excluding asset sale gains, are seen at $2.20 to $2.40.

The company also provided three-year financial targets, forecasting net sales for 2022 at $23.2 billion to $2.39 billion. Adjusted diluted earnings per share are seen at $2.50 to $3 for 2022.

Macy’s will host an investor day Wednesday at 8 a.m., Eastern time. The company  is scheduled to report fourth-quarter sales and earnings on Feb. 25.

“Macy’s is taking major steps to stabilize its operating performance through sizeable cost-reduction efforts as well as earmarking 125 of its least productive stores for closure over the next three years,” said Christina Boni, Moody’s vice president and lead analyst covering Macy’s.

“Macy’s, like its major department store competitors, is working to accelerate change after a weak 2019,” Boni added. “Macy’s has raised its cost-reduction targets dramatically, with a goal of $1.5 billion of annual gross savings to be achieved by year-end 2022 as it works to stabilize margin in 2020 and re-accelerate growth. Macy’s has continued to pursue a conservative financial policy by reducing debt in excess of $2.7 billion in the past three years, which has provided support to its credit profile in the face of weakening operating performance.”

 

 

 

 

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