Will Macy’s cut its way to improved margins and future growth?

Discussion
Photo: RetailWire
Feb 05, 2020
George Anderson

Macy’s, Inc. CEO Jeff Gennette  says the department store operator has a bottom line problem and now he has a new and improved three-year plan that he says will help the retailer cut billions of dollars in costs on an annual basis.

Yesterday, the retailer announced plans to cut 2,000 jobs from its corporate and regional support staff. Macy’s will also close its corporate offices in San Francisco, Cincinnati and Lorain, OH, making New York City the sole corporate headquarters for the business.

The retailer also plans to close 125 stores over the next three years, including around 30 that were previously announced, as it seeks to achieve annual savings of $1.5 billion a year by 2022. The stores targeted for closing generate about $1.4 billion in annual sales.

“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,” said Mr. Gennette in a statement. “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.”

Among the new revenue streams Mr. Gennette is talking about is a new store format, Market by Macy’s. The concept, which was launched as a turnkey in-store pop-up enabling consumer and digital-native brands to sell their products and services inside Macy’s, is being rolled out as a small store standalone format in off-mall lifestyle centers.

Market by Macy’s locations will feature a product mix of local goods and other items curated for customers by location. The stores will also offer food and beverages and “a robust community events calendar.” The first Market by Macy’s will open tomorrow in Dallas.

Macy’s also plans to expand its Backstage concept. The off-price model, which has outperformed Macy’s full-price business, will be expanded to 50 more Macy’s as a store-within-the-store. The company also plans to open an additional seven standalone stores in off-mall locations.

DISCUSSION QUESTIONS: What parts of Macy’s plan give you cause for optimism and which ones make you dubious about its prospects for success? In the end, will the changes announced by Macy’s put the retailer in a stronger competitive position by 2022?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Investing in experiential retail and local goods could attract consumers to Macy’s stores. However, I was hoping to see a commitment to process efficiencies. "
"I only see a lot of corporate jargon that in the end means, “we’re circling the wagons and preparing for the worst.”"
"Macy’s doesn’t have a bottom-line problem, they have an identity problem. What does their brand mean to their customers? Until they can answer this, they won’t recover. "

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27 Comments on "Will Macy’s cut its way to improved margins and future growth?"


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Mark Ryski
BrainTrust

We are witnessing Macy’s transformation before our eyes…and it’s not pretty. There’s a lot going on at Macy’s. The move to close under-performing stores and cutting expenses to strengthen the financial position is sensible, but it should have been done three years ago. The new store concepts are interesting, and may produce better outcomes, but this will take time to evolve and there’s no guarantee that consumers will respond positively. While I think Macy’s management is on the right track, they are years behind and it will take more time to catch-up, if they ever do.

Paula Rosenblum
BrainTrust

Macy’s has had too many stores since the last merger. Those chickens are finally coming home to roost.

Having said that, moderate priced department stores in general are in a tough spot. Squeezed by fast fashion, mass merchants and DTC brands, differentiation comes really, really hard.

I’m optimistic, only because I felt the store portfolio was too large. But overall, the sector remains in big trouble.

Art Suriano
BrainTrust
The plan is good and can help Macy’s, but I don’t see it as the big win. Macy’s still has a great name, and that’s a definite advantage, but for years they lost their edge by not maintaining a firm sense of who they are. At times they were Kohl’s with discounts and coupons, one after the other. No wonder they’re losing money. The more you discount, the more sales you have to make to catch up, and that’s not easy to do. In-store too often customers are dealing with poor customer service or no customer service at all because they have thinned out the associate count so significantly. It’s hard to find someone to help you. Macy’s needs a more significant reinvention, making themselves unique, not chasing the competition but leading the way. With the right image, merchandise, pricing, promotion, marketing, and technology, and creating the same customer experience, whether it be in-store or online, Macy’s could be the retail leader of the century. For now, I think the changes shared in the article… Read more »
Jeff Weidauer
BrainTrust

It’s not possible to save your way to success. Many have tried, but you have to invest in the business in order to grow. Macy’s new plans are good ideas, but this is all likely to be too little, too late.

Gene Detroyer
BrainTrust

Jeff, I come to this discussion a day late, but I felt compelled to comment. Then I read your comment. “It’s not possible to save your way to success.” You used my opening line. While a company should always be cost conscious, it can only grow or even maintain its business on the revenue side. If you can’t generate the revenue, it has nothing to do with costs and everything to do with your offer. There is nothing in this plan that breeds long term success, by any means.

Bob Phibbs
BrainTrust

The big mistake was buying all their competition and turning them a deep shade of beige. With no real competition, stores were allowed to grow old, bean counters were encouraged to cut staff, and marketers to get lazy with discounts. As I said in this article, closing that many stores holds risk. As you exit markets, their online orders will take a big hit as well. While I applaud their announcements, when you have so many locations that originally competed with each other but now are the same, there will be another round of closures that have to be made as well.

Gene Detroyer
BrainTrust

I could not agree more!

William Passodelis
Guest
6 days 13 hours ago

I FULLY agree with you!

Jeff Sward
BrainTrust

OK, Macy’s is a little late to this retrenching and transforming process. My brilliant 20/20 hindsight tells me that the seeds for this project were sown 15 or 20 years ago during the amalgamation of Federated and Macy’s and May Company and Dayton Hudson. There were cities and regions that had two or three distinct department store players and all of the sudden they had one. Los Angeles had Bullock’s, JW Robinson and Broadway. So the creation of a national chain in and of itself created an over-stored scenario. Add e-commerce and race-to-the-bottom dynamics to the mix and…yikes. I like the ideas I am reading about, but can Macy’s spend and execute fast enough to regain their place in the hearts and minds–and wallets–of today’s consumer?

William Passodelis
Guest
6 days 13 hours ago

Mr. Sward, You are SO right. Those three LA stores had TOTALLY different personalities, cultures, and vibes and did different things for different people on different days. Most other cities had the same situation — they are too numerous to list. As Mr. Phibbs said, we ended up with one big, very beige store. The situation of retail over the last decade did a lot of hurt and damage to this store as well as the industry overall also. I wish them the best!

When I talk to Millennials (if they will patronize me and speak with me) and if I bring up this store as well as others like it, I get a blank stare and a question, “Why would I go there?” usually followed by: “I would not go there, that is a place for my mom or grandma.”

Stephen Rector
BrainTrust

While store closures are part of the lifecycle of retail, it’s too bad that Macy’s couldn’t figure out how to get the “Neighborhood Stores” to work. I always wondered if Macy’s would have converted them into complete Backstage stores (a la Nordstrom Rack) to truly have a good/better/best store fleet strategy (Backstage, Macy’s and Bloomingdale’s). Would the results have been the same? Regardless, with their remaining stores they must invest in the shopping experience, exciting and differentiated merchandise and store staffing to turn things around.

Brandon Rael
BrainTrust

The Macy’s transformation plan has been in motion for quite a while now, and while there may be some shock and disappointment with the mass store closures and corporate office staff reductions, this is all a painful but necessary process for the company to go through. Macy’s had acquired some of their major competitors, particularly in markets that were not familiar with their brand proposition.

As Macy’s undergoes this multi-year transformation, let’s hope that part of the process is the reimagination of what the department store means in 2020 and beyond.

The traditional department store model has worked for well over a century. However, it’s time for a change and let’s hope that Macy’s, one of our iconic retail brands, can lead the charge.

Michael Terpkosh
BrainTrust

Macy’s can’t save their way to prosperity. A new store format is good, but long overdue. Macy’s continues to try to be successful in the higher priced, over-inventoried, cluttered department store format. They are getting hit from too many sides. Online, second-hand, and other retailers reinventing themselves. The new Target remodels are creating a similar feel to department stores and should be a big concern for Macy’s. Plus, with Sears going away and J.C. Penney on the ropes, it does not appear Macy’s is getting much uptick from less brick-and-mortar competition. In the end maybe Macy’s will survive, but they may be the only survivor in the traditional department store space.

Lee Peterson
BrainTrust

I only see a lot of corporate jargon that in the end means, “we’re circling the wagons and preparing for the worst.” They made so many mistakes this century, it’s hard to imagine a comeback. At the end of the day, Macy’s is just going to be a LOT smaller.

Gene Detroyer
BrainTrust

Beautifully put!

Ricardo Belmar
BrainTrust
Macy’s doesn’t have a bottom-line problem, they have an identity problem. What does their brand mean to their customers? Until they can answer this, they won’t recover. They want to be “America’s Department Store” but do they know what that actually means? Cost-cutting your way to success is just playing the same financial games retailers used in past decades by growing store counts to raise revenues but in reverse. You can temporarily make the numbers satisfy Wall Street, but it won’t do anything to improve customer experience and cause consumers to shop your stores and turn shoppers into buyers. These announcements are incremental. Closing under-performing stores, check. Adding more off-price Backstage locations because they are selling well, check. Closing offices around the country that are just dividing your corporate resources and preventing technological focus where needed, check. But does any of this fundamentally change Macy’s identity in the eyes of the consumer? Macy’s has reported that their top 150 stores generate about half of their brick and mortar sales. When they announce a series of… Read more »
Jeff Sward
BrainTrust

Eyes of the consumer… Check!

Dick Seesel
BrainTrust

Macy’s strategic retreat points out the difference between the “haves and have-nots” among regional malls. But how much of this is Macy’s own fault, as the lead tenant? Every time there is a new initiative at Herald Square or a pop-up shop at a handful of flagship branches, I point out the sheer number of Macy’s stores around the country that suffer from lack of attention, poor service and bland assortments. Does a plan to save $1.5 billion in expenses allow Macy’s to fix its remaining mall anchors?

As to the “Market by Macy’s” idea, an off-mall small-format store sounds awfully familiar to this former Kohl’s executive. Can Macy’s learn to edit effectively, and can it operate with the low-cost mentality that is part of Kohl’s DNA? Macy’s track record would suggest otherwise.

Cathy Hotka
BrainTrust

I’d take another tack: reducing the amount of merchandise in the store. Each aisle is cluttered, the music is too loud, and there are clothes on the floor. Let’s all inhale and try to create a more soothing store experience.

Lisa Goller
BrainTrust

Investing in experiential retail and local goods could attract consumers to Macy’s stores. However, I was hoping to see a commitment to process efficiencies.

Labor is usually the biggest expense on a balance sheet, so job cuts are inevitable. Yet with so many workers and offices getting chopped, it’s hard to say whether Macy’s is simply trimming the weeds or amputating essential appendages.

As for process efficiency improvements, I hope Macy’s is also reviewing how it can work smarter with its trading partners to be more agile, save time, cut costs and improve the customer experience — and make Macy’s more competitive by 2022.

Richard J. George, Ph.D.
BrainTrust

While not being cavalier about costs, history has shown that across a variety of industries, including retailing, you cannot save your way to prosperity. As noted, Macy’s is an old-line retailer that has struggled to survive — let alone grow — in a dynamically changing marketplace. The question is, will the latest Macy’s strategic initiatives be enough to stop the bleeding? The examples of these new formats may be necessary but not sufficient to make a difference.

Harley Feldman
BrainTrust

The newer ideas, Market by Macy’s and Backstage, seem to have legs for increasing Macy’s profitability. Closing stores will help the bottom line as they are currently losing money. The difficulty will be bringing these new ideas and growing the profitable stores fast enough to keep Macy’s viable. Macy’s is making the right kinds of moves, but will it happen fast enough? Within the next year, measures of success or lack of success will be known.

Mohamed Amer
BrainTrust
The announcements by Macy’s are welcomed and can make a positive impact in the short term.  The trouble is that these initiatives cannot revive or infuse sustainable year over year growth for the company. The quality of top line growth is crucial and this does cast a cloud on future plans.   Macy’s is going through a difficult pruning of its exposure to low performing malls while the company attempts to reinvent its stores and rationalize its assortments. But in this existential struggle, the company can’t ignore nor escape the downward spiral of the once reigning department store model in retail.  There is a reason why Dayton Hudson morphed into Target and was eventually spun off after acquiring Marshall Field’s (incidentally to Macy’s). Over the past two decades, Macy’s had doubled down on the department store model with acquisitions and bet that size and market share will accrue comp store growth and profitability.   Unwinding and recasting their long held strategy, from assets to mindsets, from systems to processes, from store operations to digital presence… Read more »
Peter Charness
BrainTrust

As the evolutionary wheel of retail turns again, no doubt the middle market department store business needs something new — just as many shopping malls need to reinvent themselves. So Macy’s isn’t the only retailer caught in this squeeze. Circling the wagon and raising cash to fund “what’s next” is a natural, but as others have pointed out, not a sustainable standalone strategy. Would agree with the majority on this thread that pointed out the “what’s next” should have been in motion 3 years ago or more.

Craig Sundstrom
Guest

As I said in the past after one of these annual culling announcements — tho I can’t remember which particular one — it’s pretty obvious Macy’s long-term goal, whether they (even) realize it or not, is to reduce their store count to the 100-150 stores they classify as “Top Doors.” In essence, it will be more like Nordstrom: a single presence in medium-sized markets and a handful of stores in larger metros. Whether or not it will have any of its traditional flagships left is unclear. It’s hard to imagine Herald Square not staying open, but with Seattle now closing, there are only a half-dozen left, mostly in the Northeast.

So the big question really is, is this a viable strategy … a Nordstrom-like presence without either N’s merchandise or service? I really don’t know.

Steve Dennis
BrainTrust

Let’s be crystal clear. Macy’s does not fundamentally have a cost problem. It does not have a complexity problem. It does not have a too many stores problem. It has a customer relevancy problem. Needing to take an axe to overhead and store counts is the inevitable (and all too common) outcome of a value proposition and business design that is not sufficiently remarkable to win, grow and keep profitable customers.

I go into far more detail in my Forbes story, but this is likely too little, too late.

Ethan Chernofsky
Guest
17 days 5 hours ago

If they are focused on what to cut and what to keep, then yes. The key factor is going beyond simple metrics like store performance. If the perspective takes into account more sophisticated metrics like cannibalization risks, the turnaround could be smooth.

wpDiscuz
Braintrust
"Investing in experiential retail and local goods could attract consumers to Macy’s stores. However, I was hoping to see a commitment to process efficiencies. "
"I only see a lot of corporate jargon that in the end means, “we’re circling the wagons and preparing for the worst.”"
"Macy’s doesn’t have a bottom-line problem, they have an identity problem. What does their brand mean to their customers? Until they can answer this, they won’t recover. "

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