Macy’s is undergoing a substantial business reorganization, including closing 125 locations and developing non-department store formats, accelerating digital growth, enhancing its loyalty program and consolidating headquarters and management staff.
The company said it had completed a rigorous evaluation of Macy’s store portfolio resulting in its decision to shutter 125 of its least productive stores over the next three years, including about 30 stores that are currently in the closing process. Those stores account for $1.4 billion in annual sales.
Macy’s will expand its growth treatment initiative to the remaining store portfolio, including upgrading an additional 100 stores in 2020. The move will entail physical store improvements as well as investments in merchandising strategies, technology improvements, talent and local marketing.
As its Backstage and Bloomingdale’s The Outlet operations have evolved, Macy’s said it will continue to emphasize its off-price concepts, with plans to open an additional 50 Backstage store-within-store locations and seven additional freestanding, off-mall Backstage stores in 2020.
In addition, Macy’s also is testing a new format, partly based on an in-store concept the company has trialed, that will be smaller than its department stores and developed for off-mall lifestyle centers. The Market by Macy’s will feature a mix of curated Macy’s merchandise and local goods, while also purveying locally sourced food and beverage options, and hosting community events. The first Market by Macy’s will debut in Dallas on February 6.
Even as it resets the store base, Macy’s is readying the next phase of its Macy’s Star Rewards Loyalty program for a February launch. The company looks for Loyalty 3.0 to increase the engagement of occasional Macy’s customers and to bring new customers into the brand.
At the same time, Macy’s is boosting e-commerce operations that it has scaled and grown to more than $6 billion per year in sales, the company noted, with investment in its websites and mobile apps to deliver a fashion experience, accelerate gains and further strengthen profitability. The Macys.com headquarters will relocate from San Francisco to New York City, allowing for better coordination and increased collaboration as well as better access to brand partners. Macy’s will expand its presence in the Atlanta area, which will serve as the primary corporate technology hub. Macy’s will add positions to its Johns Creek, GA, facility, as well as opening an office in Atlanta itself.
Corporate consolidation in New York will include making the city Macy’s sole corporate headquarters. Macy’s will close its San Francisco, downtown Cincinnati and Lorain, OH, offices, as well as its Tempe, AZ, customer contact center, consolidating customer service work into the company’s Mason, OH, and Clearwater, FL, facilities. The company will build colleague populations at its Mason location and at its Progress Place facility in Springdale, OH.
As part of the corporate reorganization, Macy’s John Harper, formerly chief stores officer, has become COO with expanded responsibility for stores, technology, supply chain and brand experience. Marc Mastronardi, who was svp/store operations and customer service, has become chief stores officer, reporting to Harper. Danielle Kirgan, chief human resources officer, is taking on an expanded role as chief transformation and human resources officer. As it streamlines the organization, Macy’s will reduce its corporate and support staff by 9%, or about 2,000 employees.
To support its changing operations, Macy’s intends to continue reshaping its supply chain to support omnichannel customer behavior and the new retail ecosystem. It also is implementing a new private brand sourcing strategy that the company expects to reduce costs and improve speed. Macy’s is redesigning its fulfillment network to improve inventory productivity through increased sell throughs and lower markdown rates.
Macy’s expects its strategy to generate $1.5 billion in annual gross savings beginning this year and becoming fully realized by 2022. For 2020, the company anticipates gross savings of $600 million, some of which will flow to the bottom line in order to stabilize operating margin. It expects to invest some savings back into the business, with a focus on the growth treatment, Backstage, off-mall expansion and continued improvements to the digital business, as well as technology investment. Macy’s anticipates total costs related to the strategy to come in at $450 million to $490 million, the majority of which will record in 2019, with $270 million to $290 million of the costs in cash.
Jeff Gennette, Macy’s chairman and CEO, said, “We have a clear vision of where Macy’s Inc. and our brands, Macy’s, Bloomingdale’s and Bluemercury, fit into retail today. We are confident in our Polaris strategy, and we have the resources required to return Macy’s, Inc. to sustainable, profitable growth. 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. 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.”
He added, “Our customers expect convenience and a tailored experience across all channels. We have an opportunity to build a broader yet integrated Macy’s experience within a metropolitan area by investing in our magnet stores, building freestanding Backstage locations and testing new, off-mall store formats. The more convenient, brand-right touchpoints we have, the greater loyalty and engagement we engender. This will enable us to grow with the next generation of American shoppers.”