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January 22, 2024
Macy’s Tackles Streamlining Again
In its first major layoff round since just before the pandemic, Macy’s announced plans to reduce 3.5% of its workforce — including 13% of its corporate staff — in moves designed to reduce costs and speed decision-making.
The layoffs of more than 2,300 employees, first reported by The Wall Street Journal, come as activist investors in December launched a $5.8 billion buyout bid for the nation’s largest department store chain, which also owns Bloomingdale’s and Bluemercury. On Sunday, Macy’s board rejected the offer. Tony Spring, Bloomingdale’s CEO, is also set to succeed Jeff Gennette as Macy’s CEO next month.
“Despite our strong and tangible progress over the last few years, we remain under pressure,” Gennette and Spring wrote last week in an employee memo. The changes are a response to nearly a year of consumer research “to both better meet their expectations and to generate consistent growth.”
The layoffs will be achieved by adding automation to its supply chain, eliminating and outsourcing roles, and consolidating teams. Investments will be made in consumer-facing areas, including adding more visual display managers to upgrade the look of stores and enhancing digital functions to support a more seamless online experience, sources told the WSJ.
Macy’s has continually reinvented itself to combat emerging competition from online players, fast-fashion chains, and off-price sellers. Recent repositioning steps have included resetting its private-label portfolio, opening smaller shops outside of the mall, and simplifying pricing and promotions. Inventory management has also been a focus.
Progress over the last year has been undermined by broader weakness in the apparel category tied to inflationary pressures. Macy’s sales declined 7% in the third quarter of 2023.
Macy’s also announced the closure of five stores. In February 2020, Macy’s disclosed plans to shutter 125 department stores over the following three years and reduce about 2,000 corporate jobs.
Macy’s has promised to soon provide more details on updated strategies under Spring’s leadership.
On Macy’s third-quarter call in October, Adrian Mitchell, COO and CFO, said the retailer had to “deliver relevant products, strong value, and a more enjoyable shopping experience,” and some of that would include “optimizing our physical footprint.”
“We are committed to bringing more inspiration on a daily basis to our customers,” he said.
Discussion Questions
What do you think is behind Macy’s move to streamline operations amid activist pressures?
What advice would you have for Tony Spring as he takes over as Macy’s CEO in February?
Poll
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Jeff Sward
Founding Partner, Merchandising Metrics
Joel Rubinson
President, Rubinson Partners, Inc.
Brandon Rael
Strategy & Operations Transformation Leader
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This is part and parcel of Macy’s longstanding policy to shrink itself to bolster profits. While some pruning of the store estate and good personnel discipline is necessary at any retailer, the latest round of Macy’s cuts is a consequence of poor management and a lack of focus on growing the top line.
Macy’s obviously needs to keep investors satisfied, and its focus on profit has accomplished that at a time when sales performance has been extremely lackluster. However, this strategy comes with an expiry date; ultimately no retailer can shrink itself to success.
“The changes are a response to nearly a year of consumer research ‘to both better meet their expectations and to generate consistent growth.’”
It would be interesting to know what customer areas Macy’s researched, and how much of it involved the shopper experience on its sales floors. Based on the conditions of stores we have both visited, Macy’s needs more staff, not less.
I saw this a little differently: the reduction in store count was practically nil (certanly compared to prior years), and while it can be said it largely aligns with what was announced 3-4 years ago, there was nothing to prevent that number from being enlarged. So have we finally reached a stable fleet size?? (Personlly I’m a bit skeptical: years ago when the “Top Doors” initiative was launched – and the store listing (perhaps) inadverdantly made publc – I felt that would end up being the final number…and we’re still quite a bit higher.)
As for the “streamlining” part: yeah, whatever; that’s been going on for quite a while (since 1858, I’m guessing).
Macy’s is undertaking the typical “rationalization” playbook because they are under financial pressure, and cost cutting is required to bolster profitability and preserve cash. The change in CEO is the ideal time to make these changes, notwithstanding the sad consequence of people losing their jobs. There’s a lot that Mr. Spring will need to focus on, but improving financial results needs to be at the top of the list in order to placate Wall Street — this also includes finding sales growth. That won’t be easy. The activist pressure is an unwelcomed distraction, and I respect Macy’s move to rebuff the overture.
This is part of any retailers balancing resources to better serve customers. Why are there no headlines when a Retailer opens 5 new customer fulfillment centers? If up to 30% of sales are now online, is there any surprise that store count might shrink…..(particularly when through acquisition there were far too many to begin with)
I have to believe Macy’s would be taking these actions with or without the looming takeover activity. There’s a dichotomy of sorts roiling the market. Physical retail is proving to be essential to the overall “omni” nature of the business, but the $$$ being siphoned into ecomm force the shrinking of door count and headcount so that the remaining physical locations can thrive and be profitable. It’s a helluva vice to be in.
The real issue of Macy’s survival has nothing to do with this announcement. The real issue is Macy’s Brand Promise. What are they going to stand for in a year, in 5 years? Great story-telling? Great experiences? Great treasure hunting? Or a One Day Sale that is 24/7/365…??? Macy’s is in the very uncomfortable position of having their real estate being worth more than the current and foreseeable retail business. So of course the vultures are circling. This can’t be even the tiniest of surprises to the Macy’s board.
Mr. Spring may very well have to accelerate the shrink while also accelerating the return to physical retail as theater and entertainment and value and differentiation. Sounds like one of the hardest jobs in retail right now.
This is the heart of the issue, Jeff. I don’t think Macy’s knows what they stand for or what they want to stand for. It’s a recipe for disaster. Sometimes you see glimmers of hope – like the On 34th private label – but there’s no coherent strategy.
Macy’s competes in a format that has been on death’s door for a long time-Department Stores. Leadership can take out costs all they want and it will not make a difference. The only path I see here, and it is definitely a long shot, is to bring back the “magic” of shopping at a Macy’s-any Macy’s not just the flagship store in Manhattan. That means stronger merchandising, better in store experiences, better everything.
Great points Mark! The department store segment has been under considerable pressure for several years. The growth of online shopping and the competitive pricing on merchandise that is sold in many competitors’ stores and online marketplaces makes it a pricing game. A pricing game is hard to win, so the key is to differentiate on experiences. Making the store shopping experience magical, engaging and memorable is key to customer loyalty and profitability.
We’ve seen this movie before: Macy’s has undertaken staff reductions in the past to manage its expenses in light of stagnant or falling sales, and this is just the latest example. But trying to solve an underlying cultural problem (“speed decision-making”) may be the reason for those declining sales in the first place. It’s a leadership problem, not necessarily a head count problem.
The larger problem that has been plaguing Macy’s, and the department store sector in general is recruiting young shoppers to replace their aging core customers.
when a chain like Macy’s reduces store count, it improves same store sales but it hurts the brand. The signage effect can be very important and you lose signage exposure. I remember consulting with AT&T when the game was about long distance (before mobile). They used to lament, “But the local guys have the trucks”. I work on quantifying the effect of brand in terms of a future annuity of sales and I can tell you that brand effects can be very powerful. Macy’s needs to watch out for a death spiral.
Macy’s has been in a slow death spiral for years.
Macy’s continues down a downward spiral of shrinking their operations to turn their books from the red to the black. We’ve seen this strategy play out with Sears, Kmart, Bed Bath & Beyond, and many other retailers who attempted to shrink themselves to growth and profitability to keep the shareholders happy.
The department store sector has faced considerable disruption over the past ten years, with the changing consumer behaviors and the acceleration of digital and social commerce. Historically, the department store sector has been a frequent target of takeover attempts over the past several years by investors looking to take advantage of prime real estate (i.e., the Sears misguided strategy led by Eddie Lampert)
Even if the real estate holdings are sold at a profit, unless this money is reinvested in the core business, it will be a race to the bottom. This includes:
For Macy’s, soon there will be no more stores to close and no more people to lay off.
I don’t know if the real estate offer is a good one or not. But real estate is the one value Macy’s still has. As I have said several times, sell the flagship to Disney and let them turn it into entertaining nostalgia.
Seriously, Macy’s should try to determine the actual size of the customer base…not the projected size, and shrink the company to meet it. How about they establish a solid and realistic foundation and build on it rather than chasing something that isn’t there?
Macy’s bold move to streamline operations reflects a necessary adaptation to an evolving retail landscape. The focus on enhancing consumer experiences, leveraging automation, and optimizing resources signals a commitment to staying agile and competitive in a challenging market. While layoffs and store closures are tough decisions, Macy’s strategic vision under Tony Spring’s leadership holds promise for navigating future uncertainties and revitalizing the brand’s relevance in the retail sphere.