Will store closings and layoffs fix what ails Macy’s?

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Photo: RetailWire
Jan 07, 2016

Macy’s, Inc., like many of its department store peers, found tough going in 2015. In response, the owner of Macy’s and Bloomingdale’s has announced that it will close 40 stores (four were previously announced) and eliminate more than 4,500 positions as part of its corporate restructuring.

The company saw same-store sales decline 4.7 percent in November and December, which it blamed primarily on unseasonably warm temperatures in much of the U.S. Terry Lundgren, chairman and CEO of Macy’s, Inc., estimated that 80 percent of the decline could be attributed to unsold cold weather goods such as coats, scarves and gloves.

Mr. Lundgren described the decision to close stores as a simple response to the needs of the markets it serves.

“Our company is committed to operating great Macy’s and Bloomingdale’s stores in the best locations — both to serve shoppers who walk through the door and to fulfill orders that are shipped directly to customers around the country,” said Mr. Lundgren. “In today’s rapidly evolving retail environment, it is essential that we maintain a portfolio of the right stores in the right places. So we will continue to add stores selectively while also being disciplined about closing stores that are unproductive or no longer robust shopping destinations because of changes in the local retail shopping landscape.”

Macy’s was quick to downplay the number of job cuts. According to the company, it is looking to eliminate an average of three to four jobs at each of its 770 stores. While 3,000 will be affected, roughly half of those are expected to find jobs in other positions within the company. Individuals working in about 150 of 600 back-office positions that are being eliminated will also be reassigned.

While acknowledging belt tightening, Mr. Lundgren said Macy’s, Inc. would continue to invest in its omnichannel operations and other areas that will help realize his long-term vision “as a dynamic retailer that serves existing customers and acquires new ones through innovative approaches to the marketplace.”

What is your assessment of the challenges that face Macy’s, Inc.? Do you approve of the company’s response in terms of store closings and layoffs?

Braintrust
"This is the only sensible short-term fix. Long-term, department stores have a problem. It’s been out there for years but now it’s becoming very prominent. They’re just not very shoppable."
"The current announcement on store closings and headcount reduction may seem severe, yet these moves are necessary to shore up Macy’s balance sheet and get them with the right stores in the right locations with an eye to a stronger performance in the future."
"If you’ve shopped at a physical Macy’s store it’s obvious what their problems are, and they have nothing to do with meteorological or climate circumstances."

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29 Comments on "Will store closings and layoffs fix what ails Macy’s?"

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Dick Seesel
BrainTrust

Macy’s sales problems didn’t start in the fourth quarter; their same-store trend has been flat to down for awhile. While I agree that the store closings and layoffs will trim some fat from their operating model, what drives Macy’s is top-line sales.

The company is dealing with a stale promotional platform and an increasingly confused point of view in its merchandise assortments. At the same time, its service standards are challenged by the re-engineering of its brick-and-mortar stores to be omnichannel fulfillment centers.

Until Macy’s addresses these issues (all central to its brand identity), the expense cuts and the rollout of its off-price strategy are likely to produce only marginal improvements.

Bob Phibbs
BrainTrust

The store closings and layoffs are miniscule for a company of this size. The bigger issue is that the promotional strategy used for so long simply is an ineffective lever.

Warm winter aside, from my experience in their store the week before Christmas — where two employees were trying to decide which products to order online at their discount while another hapless woman could barely figure out how to ring up my simple order while asking if I wanted to put on my Macys card (which apparently because I hadn’t used in over a year was gone) and after 15 minutes, ultimately using my Visa — much more structural issues are out of whack.

Omnichannel can’t fix that, only a commitment to their people and customers over promotions will.

Max Goldberg
BrainTrust

Macy’s faces a challenge in its core story. What is Macy’s and what does it stand for with consumers? Mostly it represents a continuous sale. It’s not unique. Even being one of the best in omnichannel won’t make up for lack of positioning and message. Store closings and layoffs won’t lead to a core message or profitability.

Paula Rosenblum
BrainTrust

This is the only sensible short-term fix.

Long-term, department stores have a problem. It’s been out there for years but now it’s becoming very prominent. They’re just not very shoppable.

If you’re a brand fan, either you’ll buy online from that brand or you’ll go to their stores (easier). If you’re a low-price discount fan, you’ll go to a fast-fashion retailer.

The best way to re-organize department stores would be across brands, to lifestyle sections. But contracts don’t really allow it.

I’m not feeling all warm and fuzzy about the future for these guys.

Mohamed Amer
BrainTrust

The heyday of traditional department stores has long passed. What Macy’s is doing is re-inventing the space and experience that consumers sought when they went to their department store.

The current announcement on store closings and headcount reduction may seem severe, yet these moves are necessary to shore up Macy’s balance sheet and get them with the right stores in the right locations with an eye to a stronger performance in the future. Their ongoing omnichannel initiative is a big positive and points to executing on local consumer expectations as the company continues to invest in technology and talent.

Despite the strong headwinds, I still would not bet against Macy’s and Mr. Lundgren, they’re doing what it takes to re-position the format to be successful in today’s and tomorrow’s challenging retail environment.

Patricia Vekich Waldron
BrainTrust

Macy’s problems are twofold: First they have trained customers never to buy at full price and second they have not differentiated their assortment. With a mad mixture of merchandise — poorly displayed — customers are not incented or inspired to view Macy’s as a premium shopping destination.

Tom Redd
BrainTrust

Knowing Macy’s well, this was hard for them — but it must be done to trim the stores that are just not rolling forward hard enough. Macy’s has a strong team of store leaders and regional merchants that are doing a great job at tuning assortments and store environments to their specific locations in the U.S. Many people do not see the strength that this brings to Macy’s and the regional/local market shift is not done across the U.S. yet.

Macy’s is a strong retailer that still maintains good relationships with their store customers. Visit Arizona someday and see their store in Tucson. Buses full of shoppers from Mexico love that store — the store is tuned in designs and products that they love and aligned with promo programs that keep them coming.

Some can toss in their negative reads on Macy’s, but visit some of the stores first. See their women’s footwear department at the Herald Square store. People will see the changes Macy’s is making and will not be so boilerplate negative when Macy’s makes their next change.

Cathy Hotka
BrainTrust

All of the points made here are correct, and I’d add another. It’s difficult to police big stores in busy times, and the result is a sloppy appearance. I cruised a Macy’s juniors department last year with my daughter and found that the music was too loud and too many clothes were on the floor. To survive, department stores are going to need to curate collections and focus like a laser on the customer experience.

Marge Laney
BrainTrust

Bob and Paula hit the nail on the head leaving not much more to add. Macy’s has been so promotional for so long that they’ve trained their customers to never buy at full price. Add in the mid-market problem of relevancy of the brand and you’re left with an unsustainable operating model long-term.

Camille P. Schuster, PhD.
BrainTrust

Is Macy’s a fashion store (emphasis on new design and fashion), a middle-price department store (with a large range of products), or a discount store (with the constant sales and deals)? You cannot attract a loyal following with no clear direction. Closing 40 stores does not solve the problem.

Anne Howe
BrainTrust
Macy’s management talks about an innovative approach to the marketplace. I say how about a tour of stores over the holidays for the executive team? My blog post from January 5 brings to light a big mess at one upscale Macy’s that left me on an emotional roller coaster going downhill fast. Macy’s team says warm weather is the reason for lack of sales. I say the stores need to figure out how to manage that unsold inventory in a way that keeps the department floors and fixtures clean and visually appealing to shoppers. Again, reference my blog post. I was so seriously disappointed by my recent visit that I have to get on my soapbox today. Many retailers need more humans in the stores to keep them tidy and to engage with shoppers in a way that has some positive emotional context. If retailers think the only thing upscale shoppers care about is price, they are wrong. And if they think online shopping is the customer’s default, it’s because the store experience continues to be dismal and forgotten. Shopping is a complex deep-seated emotional behavior, and the social and visual aspects are critical, but largely ignored by retail executives… Read more »
Donna Brockway
Guest
Donna Brockway
7 months 16 days ago

Macy’s should be closing more like 100 stores — there continues to be an overwhelming glut of stores countrywide when you consider how much of the actual in-store shopping is going online. The numbers prove it. Macy’s isn’t alone in this, but the over-retailing needs to stop, and soon, or there will be more retail bankruptcies ahead. Yes there is a market for Macy’s, but not at the numbers they think. That was then, this is now.

Gene Detroyer
BrainTrust

Paula said it very clearly: “Long-term, department stores have a problem. It’s been out there for years but now it’s becoming very prominent.”

There is no long-term fix. There is a life cycle to every concept. The department store has been successful for 80 years. It has been a nice ride. It will be around for 20 more, but it will follow retail trends that we have historically seen disintegrate and be replaced by something else.

Tony Orlando
BrainTrust

All brick-and-mortar stores will be facing this sooner or later, as online is easier to use without the hassles for the most part. Yes Macy’s runs continual deals, but in order to move merchandise today you must stay aggressive. Walmart didn’t become number one in the world by charging too much, and with the excess retail space the discounts will continue.

Macy’s online is growing. My wife uses it for cosmetics and stuff she needs for gifts, which keeps her out of the store, and she is not alone. Yes I’m old fashioned, but I can see where this is going for many retailers, and unless they up their game with omnichannel, they too will have to cut jobs.

UPS and Fed Ex are the winners, along with Amazon, which will continue to grow and make brick-and-mortar stores even weaker. Macy’s will be fine, but they need to really look at how they are doing business, and I’m sure many of our BrainTrust panel can help them with this. The future is bright only for the smartest and sharpest stores, and yes customer service should be outstanding both in the stores and online to keep the customers coming back.

Kai Clarke
BrainTrust

Macy’s is clearly in a declining category and is willing to cut costs to ensure that it continues to operate profitably and service both its customers and its shareholders. Macy’s challenges continue to be about how they will shift their model to embrace a new consumer who is Internet savvy and price sensitive.

Mark Heckman
BrainTrust

Closing stores is almost always a short-term fix for much deeper, longer-term woes.

Macy’s is not alone. They and other large-footprint retailers have common problems. High inventory holding costs, too many retail square feet to manage and an increasingly archaic approach to merchandising their offerings to a shopper who is becoming increasingly enamored with the shopper-assisted environment found online.

Compounding the bigger-footprint retailers’ problems is the continued growth of smaller, more convenient specialty stores that continue to devour Macy’s business category by category.

In the remaining stores, Macy’s must consider re-thinking the store design and their departmental layouts, expanding the roles of branded merchandise and focusing on a more shopper-centric environment. If not, this will not be the last closing announcement from Macy’s in 2016.

Lee Kent
BrainTrust

I wasn’t going to jump into this conversation but while I was reading something about grocery, it got me to thinking. When I think grocery, Kroger, Publix, even Whole Foods, aren’t they too department stores?

These chains of grocery stores have something for everybody. They all offer some high-end goods as well as bargain-priced. And like department stores, they are being nipped at by the likes of dollar stores, farmers markets, etc.

My point? We aren’t talking about the demise of the grocery store yet we are talking about the demise of the department store. My husband still stops at Kroger almost daily. That is not going to change any time soon. Smart grocers are going to know what their loyal customers buy from them and put their focus there.

If department stores are going to survive, don’t they need to do the same thing? And perhaps that is what Mr. Lundgren knows too and why he is doing what he is doing. He is one of the smartest retailers I have come across in my 40 years. Let’s see what he has in mind.

For my 2 cents.

gordon arnold
Guest
7 months 16 days ago

Macy’s financial woes are not news for those that can and do read financial reports and can see between the lines. What is a problem is separating the difficulties they and several others are having from the core problems facing the huge majority of retailers. As a community, we would rather point to the ineptness of the officers of companies suffering the most in our expanding economic depression. This may serve to divert market attention away from the mainstay of the retail participants but not for long. As those companies in the most trouble start to go away a new group of the worst of the leftovers will arise. Without addressing the needs of the economy, this new group will most likely be larger than what we see today.

It may be time to throw away the cookie cutters and learn 21st demographics by allowing store management to market to their local consumers. It might be time to employ sales and marketing experts to search for profitable omnichannel expansions. But it is time to face the economy and engage what we have left to find opportunity.

Li McClelland
Guest
Li McClelland
7 months 16 days ago

There have simply been way too many Macy’s stores out there in too many locations to allow the brand to be perceived as special or for the stores to be a magical shopping adventure. But there have been too many stores because Terry Lundgren wanted it that way. He consolidated regional brands because he wanted many, many Macy’s stores in order, he has said, to take advantage of economies of scale in suppliers and advertising.

Closing underperforming Macy’s stores is the right move, although the loss of retail jobs involved with that is sad. But I also think it’s long past time for the company to take an honest look at its promotional profile, and additionally that Macy’s-Bloomingdales would do well to try someone else at the helm.

Carlos Arambula
BrainTrust

It’s an operational necessity but Macy’s problems began years ago when its identity was changed as a quick solution to declining sales. Currently Macy’s has positioned itself in the same space at Kohl’s and other budget department stores and has abandoned premium brands for celebrity brands that hold no appeal to what used to be its core consumer.

Aside from addressing operational necessities, Macy’s needs to begin the migration back to it’s original positioning, moreover, it needs to eliminate the low-end celebrity merchandise that contributed to their fall from the premium space they once occupied.

Craig Sundstrom
Guest

More than 5% of the store base is hardly “miniscule” but the volume that those stores represented — about 1% — could be called that, and the mismatch points out the obvious: Macy’s has too many unproductive stores. (Indeed, cynics might argue ALL of them are unproductive). Still, I’m not sure where that leaves us; continuously cutting costs is not a successful business model.

(A side note: the closings include Suburban Square, on Philly’s Main Line, opened in 1930 as one of the Nation’s first branch stores, and downtown Spokane, one of their few remaining downtown stores … so much for the “nostalgia” idea discussed yesterday.)

Phil Rubin
BrainTrust
7 months 16 days ago

If you’ve shopped at a physical Macy’s store it’s obvious what their problems are, and they have nothing to do with meteorological or climate circumstances. If that were the case, closing stores and layoffs wouldn’t be the solution, unless they were closing stores in inconsistently cold weather markets and laying off the buyers beyond their winter goods.

Macy’s is Macy’s in brand only and it’s been interesting to watch as they have made select investments in data and customer intelligence but not translated those into a differentiated customer experience. Even if they had, mass promotion undermines that strategy.

When Macy’s was Macy’s, now so long ago (ca. 1980s), One Day sales were infrequent and Macy’s priced goods above Federated. It was considered “The Harvard of Retailing” and it attracted some of the best and brightest. Obviously, that was indeed decades ago and just like Sears, there’s no easy or short-term fix, if there’s one at all.

Martin Mehalchin
BrainTrust

The store closings are probably a much needed jolt of short-term discipline. In the long term, the bigger problem is that the department store format has become very tired and the whole experience needs reinventing to remain relevant to the consumer.

Ed Dunn
Guest
Ed Dunn
7 months 16 days ago

This is a not a Macy’s problem — looking at the locations for which Macy’s is announcing closure are symptoms of a bigger regional economic issue.

rebecca smith
Guest
rebecca smith
7 months 16 days ago

This is not surprising; it is the result of a long-time issue of a relevant value proposition in the department store format. I survived (1985-1992 Lazarus/Federated) and left the department store industry as chains became increasingly homogenized and promotional. I’ve hardly stepped in a department store since. The world has changed — people don’t have the time or interest to stroll the malls as they seek relevant, specific solutions and experiences.

Christopher P. Ramey
BrainTrust

I realized after reading the news that I haven’t been in a Macy’s for a very long time — probably two years. As with any love affair (I started as an assistant buyer in their Executive Management Training Program after college) you find the love is gone. It’s not the weather, and it’s not omni-channel. There’s something far deeper in the merchandising and communicating that’s gone awry.

My colleagues’ comments are right because so much is wrong with Macy’s; it requires revisiting everything.

Turning around a ship this size is no small feat. Worse, the concept is fading as their customers choose other channels and brands. Is Macy’s too big to innovate?

William Passodelis
Guest
William Passodelis
7 months 15 days ago
Ms. Hotka is correct, focus and also curate. The assortment is a disaster. It is great to have such a large offering as you will please most people. However, the physical store must accommodate that. Being promotional might be okay, but the stores must be de-cluttered Clear out the mess. If you knock things over trying to walk through, then there is too much in there. Think about the old days with Bonwit’s or Altman’s or some of the other long-gone names. Bonwit’s was a specialty store, Altman’s was a upscale department store — at least on 5th avenue with respect to Altman’s, the stores were clean and the merchandise chosen and minimal. Macy’s is making some physical stores smaller by closing portions. Use that as a store room and get the product off the sales floor — this is NOT Kmart. (Put out 5, sell those, put out 5 more — not 72) But also, the assortment needs to be curated. This incarnation of Macy’s is unrecognisable compared to Mr. Finkelstein’s Macy’s. That was a completely different store, as Mr. Rubin reminds us. This Macy’s doesn’t even really reflect the Federated approach as far as I can remember. I was in a LOT… Read more »
joe mazloom
Guest
joe mazloom
7 months 15 days ago

I think when the one Macy’s strategy was implemented in 2009 along with a host of other initiatives, they bit off more than they could chew. This impacted customer loyalty by removing local management and merchants and replacing them with districts and regions that cannot accurately reflect the needs of the customer in their unique markets. In essence, all they accomplished was a small payroll savings because of the creation of a host of district and regional jobs.

“The more you overtake the plumbing, the easier it is to stop up the drain”!

Kate Blake
Guest
Kate Blake
7 months 14 days ago

Crowded, dirty stores with no sales help have made Macy’s hell to shop. I haven’t shopped there in three years. Nordstrom’s and Carson’s are my new standbys.

wpDiscuz
Braintrust
"This is the only sensible short-term fix. Long-term, department stores have a problem. It’s been out there for years but now it’s becoming very prominent. They’re just not very shoppable."
"The current announcement on store closings and headcount reduction may seem severe, yet these moves are necessary to shore up Macy’s balance sheet and get them with the right stores in the right locations with an eye to a stronger performance in the future."
"If you’ve shopped at a physical Macy’s store it’s obvious what their problems are, and they have nothing to do with meteorological or climate circumstances."

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