Will store closings and layoffs end Macy’s woes?

Discussion
Photo: RetailWire
Jan 05, 2017
George Anderson

While overall sales were up, not every retailer had a merry Christmas. A case in point is Macy’s, which announced it would close 68 stores and cut some 10,000 jobs following a 2.1 decrease in same-store sales covering November and December. The store closings are part of the 100 the chain announced it would shutter back in August.

The cuts the chain is making are expected to save the company $550 million beginning this year. Macy’s said the savings, along with others it realized in 2016, put the company a full year ahead of schedule on its plan to trim costs. Management also announced the retailer would invest $250 million in its digital business as well as store-related growth strategies, Bluemercury, Macy’s Backstage and in China.

Terry Lundgren, Macy’s chairman and CEO, said that while the company saw healthy growth in its digital business, in-store sales, which still represent most of its business, dragged down its overall performance. Macy’s performance, he said, was reflective of “overall trends” affecting “the broader retail industry.”

Neil Saunders, an analyst at Conlumino, told USA Today that Macy’s actions were “harsh, but necessary.” He said Macy’s would invest in stores where they see opportunities for growth. “That is the right direction,” he said. “They want to make sure the ones they have are really great stores and that requires money.”

Mr. Lundgren, who will turn over CEO duties to Jeff Gennette, president of Macy’s, Inc., in the first quarter continues to remain positive about the future.

“Our omnichannel strategies continue to evolve based on the changes in our customers’ shopping behaviors, including a focus on buy online, pickup in store and mobile-enabled shopping. In addition, we have invested in and enlarged our customer data and analytics team, which will help drive our new marketing strategies for 2017,” he said. “Whether it is improving corporate agility, enhancing our customer engagement strategies, or continuing to capitalize on the potential value of our real estate assets, we remain focused on the actions that will ultimately improve our financial results and provide the greatest return for our shareholders.”

DISCUSSION QUESTIONS: Do you think Macy’s management is making the right moves to turn around the company’s business? What do you think are the major opportunities and challenges the company has to address?

Braintrust
"Given the extreme amount of M&A Macy's has executed, it's a miracle all those stores lasted this long."
"What they are doing is akin to cutting down on meals to save money for food."
"I grew up in the department store business. Federated to be exact. There are still miles to go and if anyone can do it, Macy’s can!"

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28 Comments on "Will store closings and layoffs end Macy’s woes?"

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Bob Phibbs
BrainTrust

If they hadn’t bought up any and all other retailers like Robinsons-May, Marshall Field’s, etc. they wouldn’t have a glut of stores all doing the same thing. It’s not all the consumer or digital, sometimes it’s just that people don’t like what you have to offer.

Mark Ryski
BrainTrust

Yes, I believe that Macy’s aggressive store closure/cost cutting plan is a smart move to improve short-term results and provide more runway to work on the more fundamental challenges. Macy’s is overbuilt and a significant culling of the herd, while painful and traumatic, is overdue.

I believe that Macy’s can recover from this and emerge stronger — but it won’t be easy and it will take time. The big opportunity for Macy’s is traffic — their stores receive an enormous amount of visits, but they need to focus on converting more of the visitors (often passing through to get to the mall) to stop, shop and buy. As the new incoming CEO, Jeff Gennette recently said in a Bloomberg article, “the key will be for us to convert – we’ll get the traffic.”

Paula Rosenblum
BrainTrust

Given the extreme amount of M&A Macy’s has executed, it’s a miracle all those stores lasted this long. As Bob points out, there are just too many of them. Omnichannel is a tiny piece of a puzzle that says “This chain is too big.” Truthfully, Terry Lundgren deserves some kind of award for keeping them going this long!

Tom Redd
Guest

No one in the press remembers — back in August of 2016 Terry outlined the number of stores they were closing. They planned to do closings based on performance and location after the holidays. The 68 stores closing is a smart move. I have been to some of them, like Eau Claire, Wisconsin — my son lives there. They never shop that Macy’s. It is an old store, low in staff and in a bad location. Smart move to close it.

This is a very smart move — clean up the channel. Online shifts will be next and more pop-up stores promoting smaller brands is working. Macy’s has a solid merchandising platform that is in the final phases of change, per their press releases.

The industry press loves to have a scapegoat. Sears is getting boring and J.C. Penney too. So guess it is Macy’s turn to get the press attacks. USA Today — retail smart? Bloomberg? They cannot seem to remember last August.

Lee Kent
BrainTrust

As many of you know, I grew up in the department store business. Federated to be exact so I do have a passion for Macy’s. While I still love the concept of the department store, many are finding that what they could get in one store they can now get just as easily, if not more easily, online. Ramping up the omnichannel business as Terry Lundgren did was a super smart move and now it’s time to figure out what folks want to come into a store for. Likely what they will find is that they don’t need all that square footage even if they are shipping from store. And they don’t need all those stores.

In answer to today’s question, is management making the right move? In a word, yes! But the buck doesn’t stop there. There are still miles to go and if anyone can do it, Macy’s can!

But that’s just my 2 cents.

Phil Masiello
BrainTrust

Macy’s has been quick to embrace e-commerce but slow to react to the changes in their brick-and-mortar stores. The customer is making the decision about where to shop. I don’t believe management is moving fast enough to set Macy’s on a stronger digital course. They need to close the unprofitable stores faster and develop more affiliate relationships online to replace the lost revenue.

But as brands like Macy’s and Sears disappear from the mall anchors, so go the other retailers in the malls. So the implications to brick-and-mortar in total are just beginning to appear.

Nikki Baird
BrainTrust

I don’t think there’s any doubt that Macy’s was still over-stored, and probably still is after these closures. But I also think they are not nearly aggressive enough in overhauling the store experience to match new shopper behaviors. And I was just flat-out amazed to find a Macy’s men’s department with four cash registers on December 17th and only one person on staff. Eight people in line. We left without buying anything, simply because we couldn’t find anyone who could take our money in less than a 30 minute wait. Omnichannel isn’t Macy’s only problem.

Mark Ryski
BrainTrust

Great points, Nikki. There is a certain amount of damage that is utterly self-inflicted, and your example is a good one. What’s the point of having traffic in the store if you don’t convert it? Having enough cash registers open to take money is as simple as it gets, but yet Macy’s (and other retailers for that matter) often fail to execute the basics.

Martin Mehalchin
BrainTrust

Macy’s and its traditional peers and competitors really need to figure out a relevant role for the department store in today’s world. The basic format and operation of the typical Macy’s, Nordstrom or Neiman’s has not changed in most of our adult lives while consumer habits and the competitive set have changed immensely!

Al McClain
Staff

When is the last time you’ve been to a Macy’s that was NOT understaffed? To me, they have become a department store in the dreaded middle, with neither great service nor unique enough products to offer. Buying up all these regional chains is something they have really never recovered from.

Ross Ely
Guest

Macy’s must stabilize its business in light of the major changes facing retail. Cutting the expenses associated with having too many stores and employees is the right way to proceed. The savings will give them more runway to restructure their operations to achieve profitability and growth.

Fundamentally, Macy’s must reinvent itself to become relevant in the world of e-commerce, mobile and omnichannel. It has a great opportunity to leverage its strong brand by taking a leadership position in these trends driving the retail industry.

Gene Detroyer
BrainTrust

Macy’s problem is the department store business model. It is outdated and unpopular.

So this year they will close about 10 percent of their stores and let go 10,000 people and save $550 million. Then what do they do next year when again business is down? Close 10 percent more stores? Lay off another 10,000 people? Save another $500 million? And the next year and the next?

A company cannot save its way to success if the problem is on the revenue side. Eventually, there are no more stores to close, no more people to lay off and no more costs to cut from the P&L.

Today, there is a very successful “department store.” It is called Amazon.

Brian Kelly
Guest
11 months 10 days ago
A great holiday? We’ve discussed this often. Macy’s strategy for a national moderate department store was uninformed by the shopper. Since buying irrelevant and flagging department stores across the U.S., the aggregate is no more relevant. Aggressive off-price promotion to drive traffic and liquidate too large inventories proved that Macy’s did not offer a relevant national value. Personalization, local relevance, a rewarding brick-and-mortar experience and Amazon have checked “national buying power” for Macy’s. To win today, Macy’s needs to shut down markets, not just stores. Certainly the massive urban locations, accumulated from the buying spree, have ceased to be profitable even without the regular facility upgrades these ancient shopping temples require. Focus on the northeast where the brand remains important. And continue to serve the balance of the country with a robust digital presence and selected outposts for media value and to handle returns. Its digital investments and deployments accord Macy’s a “genius” rating by L2. Would the decomp be even worse without these tactics? Like Kohl’s, who also posted a holiday decomp, more stuff… Read more »
Jasmine Glasheen
Staff
Jasmine Glasheen
Contributing Editor
11 months 10 days ago

In the department store Hunger Games, Nordstrom and Saks took the high-market department store clientele, Boston Store took the mid-tier (and essentially became off-price through discounting).

The Macy’s target demographic is getting older. Macy’s had better focus on modern shopping channels if they want to stick around.

Tom Dougherty
BrainTrust

No. Macy’s is a department store. They need to reinvent what that IS, just like all of their department store competitors. What they are doing is akin to cutting down on meals to save money for food.

This category needs a revolution. Not an evolution.

I have an idea of what the revolution should look like but the pain needs to be extreme before they realize that the baby NEEDS to go out with the bathwater.

Gene Detroyer
BrainTrust

I really like “What they are doing is akin to cutting down on meals to save money for food.” I am going to use that in my classes!

Ori Marom
Guest

I think that this is a wonderful comment by Tom. Macy’s is caught in a death spiral and is trying to look “better” by closing its worse performing stores.

By the way, why is the GROWTH of online sales so celebrated by retail executives these days? I think that this is an insult to investors’ intelligence. They do not make any money on online sales. This is exactly the signpost “to hell.”

Anne Howe
BrainTrust

I believe that Macy’s is making some smart moves, but I do hope they spend some of the savings on upgrading the store experience, especially as it relates to employees. I hate to say this as a Boomer, but even I don’t enjoy the lackluster, disinterested senior sales associates that really don’t have a “bead” on how to convert traffic to sales.

So if I feel that way, what about my two Millennial working daughters, who both get monthly clothing boxes from a stylist service? Add Amazon, Zappos, T.J. Maxx and a few upscale resale shops and they are all set. They use Macy’s for wedding gifts only if Amazon can’t match prices. Macy’s is a brand on an island that doesn’t really have a human bridge to the future.

Jeff Sward
Guest
I think it remains to be seen whether or not Macy’s is making the right moves to “turn around” the business. Closing unproductive stores and making speeches about omnichannel has nothing to do with solving the problems of the stores that will stay open. Closing stores is a slam dunk. Omnichannel is table stakes. Now talk about the shopping experience in the remaining stores. Make the POS sign read 50 percent off instead of 40 percent off? Add a One-day sale? Yawn … race to the bottom stuff. And there is no room on the calendar for any more so-called sales. I’ve mentioned Primark before but because they have so few stores at the moment, they don’t get much press. Ask Macy’s about their business in Primark malls versus non-Primark malls. Primark has won the race to the bottom. Period. Sure, Macy’s carries plenty of differentiating brands, but that’s already baked in. How are they going to change their behavior, the consumer perception of their brand, to stop the erosion of their traffic and conversion?
Dick Seesel
BrainTrust

I saw with a particular shudder that one of the Macy’s stores on the list is the “flagship” location in downtown Minneapolis — the old Dayton’s headquarters, where my wife and I both worked and eventually met. It’s hard to imagine that a store with an appropriately-sized footprint can’t thrive in downtown Minneapolis — full of office workers and residents — unless there is something fundamentally wrong with how Macy’s is running its business. I’ve shopped their stores from California to Florida to Nevada to Illinois over the past couple of years, and continue to be disappointed by the merchandise content, the physical condition of the stores and the service experience. Until Macy’s addresses these “Retail 101” issues, it doesn’t matter how many stores they close.

Jeff Sward
Guest

I have to believe that Dayton’s, or Filene’s, or Burdine’s, or Foley’s, or Bullock’s (where I started), or … would have figured out better market-centric evolutionary strategies. There would still be underproductive brick & mortar stores that would be closing in todays market, but there would also be better shopping and buying experiences.

James Tenser
BrainTrust
Macy’s store closures are a well-justified decision that, while necessary, is not sufficient. This contraction was foreseeable. In fact, the company has been fairly transparent about its intentions all year (as Tom Redd reminds us). Chairman Terry Lundgren, in his talk at last April’s Global Retailing Conference here in Tucson, was matter-of-fact about Macy’s excess square footage. He outlined how it would substitute “experiences” like spa services for merchandising floor space in some stores and bring in tenant boutiques in collaboration with brands like Sunglass Hut, and its own Blue Mercury cosmetics and Macy’s Backstage concepts. All in the name of making existing, over-large stores “more productive” (his words). My words for it would be to “reduce,re-purpose and diversify” its real estate portfolio. Not that this is a painless process. One Macy’s mall location here in Tucson is slated for closure. I would not be surprised to see it exit a few entire markets. While the loss of jobs is regrettable, an entity the size of Macy’s could not possibly be expected to stand pat… Read more »
Craig Sundstrom
Guest
This is, of course, only the beginning, or really more the middle of much deeper cuts. Macy’s has identified, albeit clumsily and perhaps inadverdantly, its “Top (150) Doors” and one has to think that in the end, those may be the only ones left. Will those be enough to form a viable chain? As for evaluating management’s response, the company is — for now at least — fundamentally tied to a business model that seems to be terminally ill. Department stores are dying, both here and in Europe — a few well-known tourist attractions notwithstanding. This makes it both hard and easy criticize. Hard because there are few peers to compare to and “what (else) can they do?” is an obvious response. Easy, because “anything else would have been better” is a similar rote response. One “anything else,” of course, relates to the decision to operate under a single banner (Bloomingdales notwithstanding). The Field’s rebranding was the symbol for this (potential mis)decision, but in a broader sense, it’s a problem of mushing together local chains… Read more »
Ed Rosenbaum
BrainTrust

Macy’s is making the right move. But there will be more work to do after the store closing. My concern is not for Macy’s, but for the 6,200 people out of work as the closings and management level changes start to take place.

Macy’s will continue to succeed. The name alone is a draw to the customers. In other posts today I read about Macy’s closings and layoffs, Sears getting another infusion of cash and Penney’s selling off their corporate campus. It appears retailers are taking serious belt tightening steps after the holidays. It makes one wonder just how good the holiday sales really were.

Adrien Nussenbaum
BrainTrust

Macy’s store closing and layoffs do not address the core problem, which is that Macy’s is investing in things like AI and personalization, and not in initiatives that will allow for significant growth improvements. These investments will fall short in 2017 because they are not traffic drivers, they are geared toward conversion and while they may help with conversion, they are not going to help retailers gain additional core traffic to their site or stores. Omni-channel retailers will differentiate from Amazon by offering a consolidated and curated brand experience that answers consumers’ lifestyle needs.

Phil Rubin
BrainTrust
11 months 9 days ago

Macy’s problems, like many others facing similar challenges, is broader than being over-stored. They are overly promotional. You can’t continually drive sales AND margin with markdowns, absent any sort of compelling differentiator to drive store traffic. Macy’s is working to fix things, but this is only one step.

Vahe Katros
Guest

This reminded me of an old Russian proverb: “The church is near, but the roads are icy; the tavern is far but I’ll walk very carefully.”

Anyone running a business that relies on someone getting off the couch, better have a compelling reason. People will endure difficulty if the concept is right. Successful retailers know this. Me-too retailing was the last gasp of a dying design.

Christopher P. Ramey
BrainTrust

Macy’s is doing what is necessary to remain profitable. It’s not clear that they’re doing what is necessary to remain relevant.

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Braintrust
"Given the extreme amount of M&A Macy's has executed, it's a miracle all those stores lasted this long."
"What they are doing is akin to cutting down on meals to save money for food."
"I grew up in the department store business. Federated to be exact. There are still miles to go and if anyone can do it, Macy’s can!"

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