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Will a smaller Macy’s be a better Macy’s?
Macy’s, Inc. announced yesterday plans to cut 3,900 corporate jobs, three percent of its total workforce, in a move to reduce costs by $365 million this year and $630 million annually going forward.
“While the reopening of our stores is going well, we do anticipate a gradual recovery of business, and we are taking action to align our cost base with our anticipated lower sales,” Macy’s CEO Jeff Gennette said in a statement.
“We know that we will be a smaller company for the foreseeable future, and our cost base will continue to reflect that moving forward,” he added.
On June 8, Macy’s announced that it raised roughly $4.5 billion in new financing, giving it increased financial flexibility to purchase new inventory and pay down its debt on time.
Mr. Gennette has continued to express optimism about the company’s prospects despite posting a preliminary loss of $2.10 a share in the first quarter, compared to a 44 cents gain in 2019.
“We are seeing strong sell-through of seasonal merchandise and anticipate that we will exit the second quarter in a clean inventory position,” he said earlier this month. “The holiday season will be crucial, and the team is working now to get the right merchandise and assortment in place.”
Macy’s, which furloughed 125,000 primarily store employees at the end of March, is beginning to welcome some back as it reopens locations. Others in customer support and supply chain roles are expected to rejoin the company “as sales recover.”
Wall Street did not take Macy’s job cuts as a positive sign, sending shares down nearly six percent yesterday.
Many also seem unconvinced that Macy’s three-year Polaris growth strategy, announced in February, will pay off in a big way. The plan focuses on the core strengths of its namesake business as well as its Bloomingdale’s and Blue Mercury divisions. The retailer is also planning to:
- Up its private brand-building efforts with the goal of achieving $1 billion in annual sales for four of its lines;
- Launch the 3.0 version of its Star Rewards loyalty program to engage existing customers and attract new ones;
- Add Backstage shops inside its full-line stores and expand on the launch of the standalone Market by Macy’s concept featuring a mix of local goods and other items curated for customers by location.
- Macy’s, Inc. Announces Restructuring to Address Sales Impact from the COVID-19 Pandemic – Macy’s, Inc.
- Macy’s, Inc. Statement in Response to the RWDSU – Macy’s, Inc.
- Has Macy’s secured its future success with its new financing deal? – RetailWire
- Canceled orders and furloughed employees are part of today’s retail reality – RetailWire
- Are strip centers where it’s at for Macy’s and Sephora? – RetailWire
- Will Macy’s cut its way to improved margins and future growth? – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Do you think a smaller Macy’s will be a better retailer than it was before? Which of the steps taken by Macy’s or planned as part of its longer-term Polaris strategy is likely to be most beneficial to its performance?
Poll
BrainTrust
Cutting costs and closing unprofitable stores are definitely smart decisions during uncertain times and with anticipated softer sales in the foreseeable future. However most department stores are in a difficult position as much of their product offerings are available at many other chains and online marketplaces which make differentiation challenging. Retailers that rely on commodity products (items available at many other stores and marketplaces) will have continuous challenges to maintaining profitability.
The “smaller Macy’s” is a product of expense reduction, not a longer-term strategy to be more nimble. If the company’s volume hadn’t been impacted by COVID-19 (with the expected slow recovery), would Macy’s have made these payroll cuts? I feel sorry for those who were let go, but were their roles needed in the first place?
I don’t really see the relevance of these job cuts to the Polaris strategy. In fact, the “new” strategy sounded in many ways like more of the same. Perhaps the “new normal” and the reductions in headcount should force a more radical rethinking of what a traditional department store looks like in the future.
As we have seen time after time — you cannot cost cut your way to success. In retail, you need to drive revenue. Period.
Much smaller, yes. There’s still something about some of the flagships, like the 34th Street store, but out in the hinterlands — not so much. Both Backstage and PL will help the chain float, but I’m thinking 25 stores is the OK point for the mother ship.
A smaller Macy’s makes perfect sense in today’s retail world. No complaints about cutting corporate jobs. Over the last several years, these corporate jobs have gotten out of control for many businesses with too many executives and most of them receiving high pay and bonuses. Yet the lower level staff continued to be reduced to cover the costs needed for those at the top. It didn’t make sense then and certainly doesn’t make sense now, so I’m glad that Mr. Gennette is taking the necessary steps. Regardless of COVID-19 the retail world was already changing, with online sales increasing and many stores closing. The retail chain of the future will be smaller stores with most merchandise on display but not for purchase and, thanks to technology, the item will be waiting for us by the time we get home. The one positive benefit of COVID-19 is that it’s forced many retailers to wake up, recognize the need for technology and, as Mr. Gennette is seeing, to plan wisely for the future. These steps Macy’s is taking are a good start, but it’s only the beginning of what the company will need to do to achieve long-term success.
Macy’s had way too many stores under the same banner. I am amazed that Terry Lundgren kept it going at that size as long as he did. COVID-19 makes for a nice “reason” to cut back, but this step has been needed for a long time.
One M&A too many, I think, and the elimination of all the well-known banners wasn’t a very good idea.
Marshall Field’s is still missed in Chicago 14 years later. We could live with changing the name to Macy’s in suburban malls, but changing the name of the flagship State Street store was heresy. At least there is a small museum at State Street to remember the Marshall Field’s history.
I agree. The loss of Marshall Field’s, its culture — its symbolism — was and remains a terrible thing! The fact that Macy’s could not realize what they were doing away with was a testament to arrogance. I wish Macy’s well, but the debacle with Marshall Field’s was simply a very bad decision.
Having said all that, I think closing under-performing stores is necessary and they are trying several things that seem to be beneficial so far. They need to do introspection, however. Nordstrom enjoys the benefits of Rack but at the end of the day, they are Nordstrom. Macy’s can benefit from Backstage but they need to be Macy’s.
It is going to be a tough road to recovery. When companies shrink so much so quickly, the transition is not smooth. The amount of work does not shrink as much – at least in the short term. A lot of cracks would have developed across the organization – from sourcing to merchandising to technology. Macy’s has to reorganize these gaps and reorganize the processes internally to fit the new revenue goals.
This is an excellent point. Between furloughs and now these layoffs, a lot of “cracks” will develop in the coming months as a result of these changes. There are a lot of unknowns for the future at this point with the economy at large, but the concern here will be the company will have so many cracks that even as things normalize the company will not be able to return to normal.
Some layoffs definitely had to happen. Revenue dropped too much, too quickly. But this has to be very carefully done as to not cause new cracks that cause revenue to drop even more in the future, due to future damage from the cracks.
The apparel industry and the rural regional mall concept were both facing tough headwinds before COVID-19. COVID-19 dramatically increased the challenges. It’s an awful time to be selling something that nobody wants (apparel) at a place no one wants to go (malls).
The NYC Macy’s flagship is a concept that can certainly endure as an iconic shopping destination for tourists, but it’s going to be really difficult for Macy’s to invent a new purpose for the non-NYC stores.
The move to smaller is a financial necessity that was going to happen anyway. It was accelerated by COVID-19. The move to a new relevance is a merchandising and marketing and multi-channel execution play. Complicated stuff with a lot of moving parts and intense competition. Macy’s new brand promise has to be something a little more compelling than “One Day Sale.”
Yes, I agree with you Jeff and with Neil below. Cutting costs is necessary but not a strategy. Far from it. Where is Macy’s headed with this? Tell me how you are going to use your square footage. I do like the Backstage and Market concepts. Are they paying off? What have we learned from them? Who is your customer now? I don’t think I even know who the Macy’s customer is today and I cut my teeth with Federated who will always have a part of my heart. For my 2 cents.
Thanks Lee. I am both a Bullock’s and a Macy’s guy, so I am rooting like crazy for these guys. This is a whole new ballgame from the time I was a buyer and merchandise manager. More moving parts! Evolution is painful!
Shrinking Macy’s and cutting costs are necessary for longer-term survival. However, it is also the easy part: it requires no imagination or flair and relatively little strategizing. Making Macy’s relevant again is the hard part and that’s the element that the company has consistently failed to get right. However unless Macy’s manages to reinvigorate its proposition and ways of doing business it will find itself in exactly the same position in a couple of years when it will be forced to shrink some more. And so the pattern will continue until there is nothing left.
A higher-end retail store cutting staff is not always a good thing. Their customers expect service – that is what makes them different from mass merchants. Similarly, an own-brand strategy can be a high risk for a retailer like Macy’s. They have to ensure that whatever they put under that brand is the right quality, style and design. If not, they will further damage the brand. Most shoppers of higher-end department stores are looking for leading brands or very high-quality own label, like Harrods or Selfridges. These are very limited in number and they “represent” the store and brand.
The local focus would seem to be a better idea, making them different from the competition and offering their local customers something special, particularly if it is great design and style. This is not easy to achieve but if they have the right merchandising team in place to pull it off then this could be a way forward.
Macy’s is doing a lot of things right, but there are societal factors that make apparel a low priority, including the pandemic and the resulting lack of child care. Good moves, but department stores and apparel face an uphill battle.
Macy’s size reduction is a product of cost-cutting, not the focus. A smaller Macy’s could be a better Macy’s, but smaller means being more nimble, more focused, and more relevant. No company has ever saved its way to success.
Macy’s as a brand is still worth something – the Macy’s Thanksgiving parade is one of the most watched shows each year. Management has to turn the paradigm around – thinking of themselves as an entertainment company that sells merchandise in a fun environment both online and in-store versus a company that is always advertising that everything is on sale. They have to differentiate themselves and it’s not with private label merchandise – it’s the shopping experience that must be improved.
I love this conclusion. Yes, entertainment. And, don’t forget the Fireworks. How about they close all the stores and sell the flagship to Disney and Disney turns it into a department store from the golden age of department stores?
The smaller Macy’s strategy is a good start. They must get their costs aligned with revenues in order to get back to profitability. However Macy’s is still a department store in a category of stores that has been under pressure for many years. Shoppers have moved to speciality stores both in person and online to focus on purchasing special items. No longer do shoppers need to visit a department store to find the kind of item they are looking for. So the challenge for Macy’s will be how to focus its offerings into more specific SKUs to stand out against specialty store offerings.
This is a smart move by Macy’s. The reality is that they have A, B, C and D stores with the grades denoting exactly how they perform. Macy’s needs to shutter the C and D locations and concentrate on their huge online business. Their Bluemercury concept is a winner and I see the curated idea with a smaller footprint and local product as another innovation that will help reinvent the brand.
No doubt Macy’s was in trouble prior to the pandemic, but the times we are in now have forced leadership to take a hard look at what it will take to survive. No retailer can afford to dance around problems as in the pre-COVID-19 days. There’s no more sleight of hand for any company; issues need to be fully addressed in order to move forward.
Cutting costs and becoming a smaller retailer is a necessary start. But what Macy’s needs is a plan for relevance in the eyes of consumers. There is no question Macy’s may have the best-known brand in retail. Anyone you ask will recognize the Macy’s name. But ask them when was the last time they made a purchase and, more importantly, why they made a purchase. Granted there are tremendous headwinds against apparel right now making it difficult for Macy’s but what could they do to promote their position in home goods, or in beauty products to get away from apparel?
Like other department stores, Macy’s needs to properly curate their selection to give customers a reason to shop with them and a reason to buy – for products they can’t find elsewhere. Their plan seems to be all about becoming the go-to brand for everything a consumer wants. That’s trying to out-Amazon Amazon and not a winning strategy as we have seen over and over.
Macy’s has good success stories to tell (look at the VR experience in furniture for example) and great potential in concepts like Market by Macy’s, STORY, and even with b8ta – if they execute them well. Execution has been their greatest challenge, partly due to massive internal bureaucracy. While it’s saddening to see these corporate staff reductions, let’s hope they were made with precision and purpose to create a more streamlined organization that enables strong agility. Without that, it will be difficult to emerge a stronger retailer for the future.
As a Macy’s (and its Executive Training Program) alum from back when Macy’s was Macy’s (public as RHM then private, pre-Campeau/pre-Federated), it’s painful to see how far the chain has fallen from what it once was: the best in the business. We sold the same goods as Federated at higher prices, the merchandising set the benchmark of the day as did the assortments, including the PL brands, and the store standards. The Cellar was nearly a destination by itself as were so many other elements of the offering.
The debt from the LBO led the way to all-too-frequent one-day sales, radical changes in associate compensation and ultimately becoming just like every other department store. In the 1980s it would have been unimaginable that Macy’s would become part of Federated, which was its Darth Vader in those times. Even worse, the acquisition spree and assimilation of brands like Marshall Field & Co., as Georganne Bender points out, diluted anything valuable about those brands and the customer relationships they had. It was the lowest common denominator and sadly, it is even worse today.
All those traffic drivers are gone and there is, as Neil Saunders aptly notes, nothing relevant about Macy’s anymore. Reducing the company’s size won’t change that in any productive way unless they decide to be the best department store in the world again. Wouldn’t that be great to see?
Such a great post Mr. Rubin! I forgot how great “The Cellar” was — hadn’t thought about that for years. It probably would have done well with freestanding stores! Macy’s Pre Campeau/Federated was as far from what we see today as Mercury is from Neptune — opposite ends of the spectrum. Federated bought and became Macy’s. Federated did have high standards and excellent service, however, post Campeau it was all about survival, and the whole company changed radically with the amalgam of the wreckage of Federated and Allied. I definitely understand the Star Wars reference, however!
Hopefully Macy’s will find a way forward and be profitable AND relevant.
I beg your pardon. My reference to freestanding “Cellar” stores was without good thought — Macy’s of that time was so laser focused in on their merchandise mix and execution that they would never have been so sloppy to have tried such a thing! Sorry!
You cannot save your way to prosperity. While no company should be cavalier about expenses, reductions in the number of staff and the number of outlets without a bona fide strategy in place going forward is the Sears model of failure.
Smaller? Not sure. Reinvented? Has a chance. I remember when you could barely walk around a Macy’s because of all the people. In recent years, it’s been more of a ghost town. I really hope they regain the excitement. If they go down, it will have a cascading effect on malls, Starbucks locations which partly live off of shopper traffic, etc.
Macy’s will do well as a smaller retailer. I think focusing on Backstage and Macy’s Market will be most beneficial to the success of the retailer in the future. Loyalty programs are good for retention but won’t be a big enough ploy to draw new customers. The growth will be in improving the customer experience.
When is a mall a mall and when is a department store really just a mall, and how many of either do we really need? I think that there will be some winners in the department store space, but it won’t be because the market for them is growing. Rather it will be because the few left standing will get a bigger share of that diminished market.
I like simple answers, and mine on this question is a resounding no. Why? Because they do not seem to have learned the lessons of the past. That’s the key to growing in the retail business, and they appear to have forgotten that. Unless they can raise the bar when it comes to not only having the right merchandise but, more importantly, having the right people on the sales floor taking care of the customer, they are headed down the same road as a lot of other retailers.
Interestingly, retailers at the luxury end of the market haven’t fared as poorly. Macy’s used to be in this tier, but the perception has changed. I ran a tiny sample survey of 5th graders to act as investors with the question — the consensus answer was: “Macy’s was great once, but it’s going downhill. I hope they can find a way to come back, I love the Thanksgiving Day parade.”
Smaller or not, awareness is not an issue for Macy’s and that suggests deeper loyalty and a push back to the luxury level with a real value add over competitors can be key to driving the new Macy’s.
Smaller … quicker … better? No, of course not. You’d have to be hitting a container of something mind-altering long and hard to even begin to think this is other than what it seems like: a desperate, albeit necessary cost-cutting effort.
Under the best case scenario, Macy’s will soon be back to where it was “before”: losing share to online sellers and store-based competitors with more flexible formats, only it won’t quite be the same because the factors that gave those actors a competitive advantage are almost certainly going to be even more important. Probably the only constant is that they still aren’t (as bad off as) JCP, but the latter’s liquidation of a large part of its store base will likely reverse the market share Macy’s gained from them over the past decade (at least until Penney’s finally “wins” the race to the bottom). Hmmm … I wish them well.
I really want to see Macy’s make it — they have a good name and at least some level of standards for the merchandise they sell (unlike, say, J.C. Penney or Sears), but the constant restructuring every year where they lay off thousands seems to have made for an organization that does not appear to be stable.
So far this year, I have lost count of how many restructures they have announced and how many times they’ve announced thousands of layoffs.
Oh and just so everyone knows right now, today, Friday, there is a One Day Sale going on at Macy’s. 40-60% off. This sale goes through Sunday. But it is called the One Day Sale. I am confused.
The other thing that I think is a big advantage for them is their rather early and ongoing use of RFID for inventory tracking purposes which enables them to efficiently do buy-online-pick-up-in-store fulfillment.
Macy’s needs to play strategically here. As JCP goes under, there is going to be significant marketshare up for grabs from lower middle class customers and their discount formats like Backstage are well positioned to pick that business up. Go to a mall and look at the large families shopping together with kids, etc. They will keep going to the mall — they shopped Sears and they keep going to the mall now that Sears is gone. Same will go after JCP closes. Macy’s will be there — they need to figure out how to capture that customer group of large families with kids who still go to the mall, who historically has not gone to Macy’s.