Macy’s Centralizes Buying Offices
By Tom Ryan
Last week, Macy’s revealed
plans to consolidate its four divisions – East, Central, West and
Florida – into a single organization for the first time in its 150-year
history. The plan also involves expanding its My Macy’s localized-buying
strategy to 69 markets.
The move to consolidate its
divisions "seemed inevitable" given that its many nameplates
from the May Company acquisition
had been steadily eliminated to establish Macy’s as a national chain. It
also puts the retailer on par with competitors such as Target, Kohl’s
and J.C. Penney that have long operated centrally.
To assure that stores
are being merchandised and marketed to regional tastes, My Macy’s, a program
tested in 20 markets last year, is being rolled out. My Macy’s will have
69 district offices, each covering 10 to 12 stores. An average of 23 merchandising
and planning associates will help the central planning and buying organization
to understand local-customer needs. In the past, Macy’s teams covered about two
dozen stores each.
Terry Lundgren, chairman,
chief executive and president, told Women’s Wear Daily that "the
beauty of this new strategy is that we now have the centralized national
organization but with local execution."
Mr. Lundgren also said
he feels "fortunate" that Macy’s had recently
"outperformed our competitors" and the My Macy’s initiative is
already bearing fruit and poised to expand on a national basis. Of its top
15 best-performing geographic markets in December, 13 were My Macy’s pilot
districts.
The centralization process
involves closing the Macy’s West, Macy’s Florida and Macy’s Central divisions,
based in San Francisco, Miami and Atlanta. All buying will be done in New
York. Last year, seven divisions were downsized to four.
"With our new structure,
Macy’s now will have one unified buying organization, one unified merchandise
planning organization, one unified stores organization, one unified marketing
organization and one unified organization for each corporate function such
as finance, logistics, information technology and human resources — instead
of four of each operating divisionally," Mr. Lundgren said. "By
reducing duplication, we will be able to react faster to market trends,
simplify our relationship with vendors and ensure that our expense dollars
are devoted to activities that will drive the business most effectively."
The centralization is
just part of a massive restructuring program that will eliminate 7,000
jobs, or 4 percent of its workforce. Other actions:
- Eliminating an average of five
to six positions per store; - Reducing its quarterly dividend
to 5 cents a share from 13.25 cents; - Further reducing
capital expenditures to $450 million from between $550 million to $600
million previously and an original 2009 budget of $1 billion; - Eliminating
merit raises this spring and reducing matching employee 401(k)
contributions.
Discussion Questions:
Do you think Macy’s move to consolidate its regional
divisions will help its competitive position? What’s the likelihood
that the rollout of its My Macy’s program does as good a job in tailoring
regional buys and marketing to local tastes?
Many of these retail experts have said for the last few years that department stores are a thing of the past, that it’s an antiquated business model, etc; we’ve all heard it before. Yet when the article about Macy’s downsizing was published, by my local paper, the SF Chronicle, the reader’s comments section overwhelmingly seemed to say “we didn’t abandoned Macy’s, they abandoned us.”
Many cited that in the last 10 years, Macy’s eliminated knowledgeable salespeople and replaced them with disinterested 20-something cashiers. The high-end brand names and designer labels, interesting and smart merchandising, maintenance, complimentary boxes and tissue i.e. all the things that made it a fun, sophisticated, sexy, and chic place to shop is gone, yet the premium prices stayed the same. Why bother with store brands? Donald Trump can’t trump Armani and he never will. These weren’t retail pundits saying this but regular people.
As we have seen many times, central buying for the entire country always falls short. Macy’s has attempted to keep the local factory with My Macy’s. While this is the right idea, the devil is in the details. Local vs. Central sets up a power struggle for who makes the final decision. When local is overridden all the time, they fall into the “Why bother?” group. American retailers have a poor record for managing multi formats. Over time they seem to become one. Keeping what is unique will be critical for Macy’s long-term success,
The “My Macy’s” program is a very tiny step forward in the right direction to help repair some of the damage done by then “Federated” for being insensitive to the history, passion and loyalty, consumers had in the local markets for iconic department stores such as Marshall Field’s in Chicago and Famous-Barr in St. Louis, just to name two examples. Macy’s seemed to believe that all the local markets would fall head over heels to have “Macy’s” in town, when in all probability, Macy’s was viewed by many consumers as a national intruder onto home turf.
Most major competitors of Macy’s (JCPenney, Kohl’s, Target) have always run centralized buying offices or–in the case of JCP–figured this out a decade ago. These competitors may not be traditional department stores but they are fighting for the same retail dollar as customers do more cross-shopping and search for value. Running one buying team will allow Macy’s to take a clearer position on big ideas, trends and brands. Putting long-overdue resources (people and systems) into the “My Macy’s” initiative will help drive content tailored to individual market needs.
I know of no organization that has become “competitive” by reorganizing. Reorganization only buys time. It is a “feel good” exercise. An organization becomes competitive by meeting its customers’/clients’ needs better than anyone else. This can be done by innovations, by thoroughly identifying what consumers want and what the competition is doing or not doing, and tailoring organizational strategies accordingly.
I was initially excited by the “My Macy’s” concept, believing that it could revitalize the brand and apparel shopping as a whole. It answers a fundamental issue of the wrong merchandise for the wrong consumers. I am skeptical of its execution, though, based on articles like the ones in today’s WSJ (as well as my own recent personal experience) on price-slashing and decreasing inventories. Without strong and steady consumer spending, how can Macy’s appeal to local demographics and still maintain inventory and price controls?
I agree with David Biernbaum’s comments. The people in the Chicago area are still upset that Marshall Field’s disappeared. I doubt that this still will erase those feelings.
However, the success of My Macy’s reported in the article may help them turn the corner. As with any program of this nature, its success will lie in the ability of the various staffs (field and central) to read the market, make the necessary changes to the merchandise and then execute.
Since absorbing the May Company operation and more recently, investing in the complete rollout of the Macy’s moniker, I’ve been impressed by the way Macy’s has refused to stay still, even as the recession cloud darkened. The My Macy’s initiative is a more relevant interpretation of Penney’s old store-level buying model (which is looking a bit ahead of its time in these “localization” crazed days), however, the move to consolidate buying operations is long overdue. Kudos to Mr. Lundgren for resisting the urge to hunker down and instead, laying a solid platform for the pullout!
By the way of nitpicking, this isn’t “the first time in it’s 150 year history” that Macy’s will have a centralized organization, since it certainly had one prior to buying other stores in the 1920s (IIRC, Toledo’s LaSalle-Koch was first); but back to the main issue at hand….
I suppose I could warm up to this idea (at least to tepid) if I saw some evidence it’s part of a well thought-out plan, instead of a seeming reversal of what they’ve been insisting for several years; what one commentator saw as “refusing to sit still,” I see as veering wildly from one idea to the next: the “let’s try everything until we find something that works” strategy only works if you know it is when you find it…will Macy’s?
Ever since Macy’s absorption of the May Co, which unfortunately included Marshall Field’s and several other such higher end department stores, only one thing has really impressed me (and not in a good way). That is Macy’s unbelievable ability to get the business press to report even the most mundane product shuffle, marketing ploy or reorganization as if it is important “news.” (We’re going to have national advertising, no–we’re doing locally focused advertising! We’re not into coupons. Wait–customers LOVE coupons so watch for the coupons we’ll print every week! We’re centralizing, no–we’re de-centralizing, scratch that–we’re centralizing again even tighter this time! We’re adding Hilfiger, we’re adding a wine bar, we’re closing the toy departments, wait–let’s stock toys from from FAO Schwartz! On and on and on.)
The other large retail corporations which routinely manage to run their businesses without all the free PR mentions Macy’s gets must be both furious and laughing themselves silly at the gullible reporters Macy’s PR department manages to seduce.
Is there any reason to think that beyond putting a lot of employees out on the street Macy’s latest reorganization will honestly matter with respect to their survival? Is there any reason to think the board and top management at Macy’s have a clue what they are doing? I suspect the answer is “No” to both questions.
We commented on this consolidation several months ago. I stand by my same conclusions.
I commend Macy’s for their plan. From the outside looking in, I would say what is taking them so long? But, the operation is massive and doing is well by moving more slowly. Yes, localization efforts are important for retailers. But, how much of a national retailer’s operation is really local? Whether it be drug, mass, food, specialty or department store, my guess is that 90% or more of the merchandise is precisely the same throughout the country. Why would a retailer have 7 sets, or 4 sets or even 2 sets of buyers purchasing the same product?
Most types of retailers need nothing more than good planners with good information systems. Fashion merchants have a little more of a challenge, but Macy’s use of smaller regional offices to monitor local tastes makes ultimate sense. The successful national specialty chains did not grow up by operating diverse divisions throughout the country. They were successful in displacing local retailers by carrying a single merchandising philosophy from coast to coast and from A counties to D counties.
Macy’s total success will depend on how well the local offices are able to customize that very small share of the business to local tastes and interests. Assuming they can, Macy’s will have the best of all worlds.
The Department Store in general is an antiquated, almost certainly doomed idea, so, until Macy’s gets out of that box, it’s just a matter of time. Customers just don’t shop that way now, nor have they for the past 15 years.
The My Macy’s idea is one way to move the needle, but re-thinking their physical retail is the real ‘get’ for them.
They’ve still got incredible clout in terms of manufacturing and vendor staying power, but where’s the new ideas? Where’s My Macy’s at retail? Where’s smaller stores? Where’s a private label concept on its own?
Meanwhile, Walmart, fueled by the right idea at the right time, has been trying new things with incredible speed over the last 15 years, sending their competitors (Macy’s being one of them) into a tailspin. As Department Stores languish in their out-moded delivery system and their ‘hairball’ organizational structures, others have flourished by outmaneuvering them on all fronts. Even fashion (Target).
In the words of the immortal Woody Guthrie, it’s time for Macy’s to move on up (new ideas), or move on out.
A critical issue facing all retailers, not just Macy’s, is managing the tradeoff between the benefits of lower costs and increased buying clout from centralized merchandised management and the benefits of decentralization from increased sales by tailoring merchandise assortment to local market. Managing this tradeoff becomes more critical when there is significant heterogeneity in consumer preferences across geographic regions.
Discount and specialty apparel chains have traditionally opted for centralized buying and over the last decade department stores like JCPenney, Belks, Home Depot, and Nordstrom have reorganized toward more centralization.
Macy’s, through the My Macy’s program, should be complemented for pursuing this interesting attempt to develop an organization process and structure to deal with this difficult and important issue. I suspect that the success of this program will be driven more by process by which the market experts interact with the national buyers and store managers rather than formal organization structure.
I don’t think this is helping Macy’s competitive position, it’s more to help its financial position. Macy’s is in a fight for survival so they are just doing what they can to keep them out of bankruptcy. I’m surprised they didn’t deeper cuts. Macy’s is trying to put a very positive spin on a very dire situation. Time will tell if they can downsize themselves back to being a strong retailer.
In many ways, this feels like Macy’s trying to undo past mistakes by doing more of what they did in the first place. Either you are a centralized national retailer, or your are a decentralized, regionalized retailer. They wanted to be a national retailer, so they abandoned time-honored local banners. Now they want to localize assortments so they centralize buying.
Centralizing buying while accommodating localized assortments is not an easy challenge. Beyond the issues of consolidating and reorganizing, there’s the mixed message; streamline, consolidate, economize…and localize, specialize, and customize. I agree that the devil is in the details but I suspect the devil’s also in the strategy.
This is a move and change that is overdue and I applaud them for it. Centralization is the way all of their competitors run their organizations and it is about time for Macy’s to join the club.
The execution of its My Macy’s initiative is paramount to true differentiation of themselves from everyone else and indeed within their organization, so that a customer on travel WILL venture into another Macy’s store away from home, and not simply discount it as “I can get that at home.”
Yes indeed–in reply to a former comment–the store level purchasing of Penney’s sure does seem WAY ahead of its time!
Another comment remarked on loss of what helped to make the experience at Macy’s fun and exciting–not the least of which is the difficulty with gift boxes and tissue paper. Little details make the experience and this is something lost to the current incarnation of Macy’s. It IS true that the devil is in the details and all Macy’s has on that point are devils and no good performance on details. Macy’s has to decide if it REALLY wants to be a fashion retailer, department store or a national store for obtaining necessities.
20 years ago when Macy’s was exciting and offered top designers and their top lines AS WELL as their bridge lines–instead of ONLY an array of expensive in house brands–it was a different company!
Remember where we have come from, too. Federated used to operate some of the finest stores in the country and their execution was fantastic. Bloomingdales was a part of THAT and R.H. Macy was a competitor vying for the customer. We now find ourselves with a unified national structure which has forsaken its glorious “Federated” past and has put on the name of “Macy’s” after acquiring that separate company and unfortunately seeing fit to jettison all of that which made Federated top notch and that which drove that OLD R.H. Macy to its height in attempting to match and answer Federated.
If they continue in poor execution and lack of inspiration then they will doom themselves–and customers will answer by going elsewhere–and Macy’s will go away and will deserve to (and should NOT get a bail-out!).
The consolidation, however, given the current operation is a great thing and the My Macy’s initiative has great potential!