Will a smaller Macy’s be a better Macy’s?

Discussion
Photo: @elenalove via Twenty20
Jun 26, 2020
George Anderson

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:

  1. Up its private brand-building efforts with the goal of achieving $1 billion in annual sales for four of its lines;
  2. Launch the 3.0 version of its Star Rewards loyalty program to engage existing customers and attract new ones;
  3. 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.

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?

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Braintrust
"It is going to be a tough road to recovery. When companies shrink so much so quickly, the transition is not smooth."

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35 Comments on "Will a smaller Macy’s be a better Macy’s?"


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David Naumann
BrainTrust
David Naumann
CEO and President, Cogent Creative Consulting
9 months 19 days ago

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.

Dick Seesel
BrainTrust

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.

storewanderer
Guest
9 months 18 days ago

As we have seen time after time — you cannot cost cut your way to success. In retail, you need to drive revenue. Period.

Lee Peterson
BrainTrust

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.

Art Suriano
Guest
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… Read more »
Paula Rosenblum
BrainTrust

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.

Georganne Bender
BrainTrust

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.

William Passodelis
Guest

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.

Suresh Chaganti
BrainTrust

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.

storewanderer
Guest
9 months 18 days ago

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.

Jason Goldberg
BrainTrust

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.

Jeff Sward
BrainTrust

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.”

Lee Kent
Guest

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.

Jeff Sward
BrainTrust

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!

Neil Saunders
BrainTrust

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.

Andrew Blatherwick
BrainTrust

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.

Cathy Hotka
BrainTrust

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.

Jeff Weidauer
BrainTrust

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.

Stephen Rector
Guest

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.

Gene Detroyer
BrainTrust

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?

Harley Feldman
BrainTrust

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.

Ken Morris
BrainTrust

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.

Georganne Bender
BrainTrust

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.