Macy’s Inc. Restructuring with Omnichannel in Mind

Macys_Logo-300Macy’s, Inc. today announced a series of initiatives to evolve its business model and invest in continued growth opportunities as consumers change the way they shop. Actions include a restructuring of merchandising and marketing functions at Macy’s and Bloomingdale’s consistent with the company’s omnichannel approach to retailing, as well as a series of adjustments to its field and store operations to increase productivity and efficiency.

Macy’s also announced that its comparable sales on an owned plus licensed basis rose by 2.7% in the months of November and December 2014 combined, compared with the same period last year.

“Our business is rapidly evolving in response to changes in the way customers are shopping across stores, desktops, tablets and smartphones. We must continue to invest in our business to focus on where the customer is headed – to prepare for what’s next,” said Terry J. Lundgren, Macy’s chairman and chief executive officer. “Macy’s, Inc. has benefited in recent years by having invested early and aggressively in our M.O.M. strategies (My Macy’s localization, Omnichannel integration and Magic Selling customer engagement). This has included talent, technology, omnichannel infrastructure and fulfillment capability.

“We remain committed to M.O.M. as our strategic roadmap. We are continuing to learn from our experiences and to mold our business model and M.O.M. strategies around what our customers are telling us and how they are behaving so that we can continue to succeed in this environment. We are moving quickly. In many ways, this is a race to remain best-in-class – and to win with the customer. We fully expect to remain an industry leader and innovator,” Lundgren said.

With changes being announced today, Macy’s, Inc. will be increasing its workforce in some functions and locations while decreasing in others so all of the company’s resources can be deployed for maximum results. In total, the Macy’s, Inc. workforce is expected to remain at a level of approximately 175,000 associates.

Restructuring in Merchandising and Marketing

Both Macy’s and Bloomingdale’s are restructuring their respective central merchandising and marketing functions so each brand can develop and present its assortments seamlessly across channels and provide a single omnichannel view in all product categories. Going forward, one unified merchandising and marketing organization – a hybrid of store and online buying – will support the entire Macy’s business to encourage both store and digital growth. The same is true at Bloomingdale’s. Previously, store and online assortments were bought and marketed by separate organizations at Macy’s and at Bloomingdale’s. These changes support continued growth and an enhanced shopping experience online and via mobile, as well as in stores.

“Going forward, Macy’s and Bloomingdale’s will be better able to move more quickly and nimbly to select merchandise, assort inventories and serve total customer demand, no matter how, when or where the customer shops. Some redundant activity also can be avoided to accelerate speed to market, partner more effectively with vendor resources and ensure the merchandising organizations are more responsive to the marketplace in making and implementing decisions,” Lundgren said.

Simultaneously, Macy’s will make selected changes to its merchandising-related functions in local districts (administrative grouping of Macy’s stores) around the country as it continues to improve its ability to localize assortments by size, color, fabric weight, style, fit, category and brand. The company will discontinue district planner positions and reinvest in new regional teams devoted to specific themes of merchandise localization. These teams will intensify Macy’s successful warm-weather strategies, as well as address topics such as meeting the needs of more traditional customers who live in northern climate zones, and better understand and support the diverse needs of multicultural customers. Macy’s field team will continue to represent a significant competitive advantage in reacting quickly to changes in customer demand and in gaining market share.

These changes in merchandising and marketing are expected to affect approximately 115 associates in Macy’s and Bloomingdale’s central offices in New York City, as well as about 150 associates in local markets nationwide. The company is working to place as many affected associates as possible in other open positions.

Adjustments in Stores and Field

Macy’s and Bloomingdale’s are adjusting certain aspects of store and field operations and refocusing the staffing in each store location to facilitate growth, increase productivity and improve efficiency. Selling service and support is being modified to match business opportunity in each department. An average of two to three associates will be affected in each of Macy’s and Bloomingdale’s approximately 830 stores (out of an average workforce of approximately 150 associates in each store), for a total of about 2,200 affected associates nationwide. The company is working to place as many affected associates as possible in other open positions.

Also, two existing Macy’s stores districts are being merged into nearby districts – thus reducing the ongoing number of stores districts to 58 from the current 60.

Growth Investments Planned for 2015

The company will reinvest savings from merchandising, marketing, store and field initiatives so it can continue to invest for growth as it focuses its resources and molds its business model around emerging customer preferences. Plans for 2015 include:

Creating a team within the company to explore potential opportunities for a Macy’s off-price business. While this exploration is in its early stages, the company believes that Macy’s omnichannel infrastructure and insight could lead to innovative ways to deliver value to additional segments of the customer marketplace.

Continued progress in digital retailing, including further developing the technology, speed and customer experience of macys.com and bloomingdales.com as they are accessed via desktop, smartphones, tablets and apps. In 2015, Macy’s is expected to grow its San Francisco-based digital technology organization by hiring more than 150 people.

Advancements in business systems and information technology, including security infrastructure, to deliver the information and functionality required to support a growing Omnichannel business.
Increasing direct-to-consumer fulfillment capacity in every full-line Macy’s and Bloomingdale’s store and at the five existing dedicated fulfillment centers located in Arizona, California, Connecticut, Tennessee and West Virginia. In addition, as many as 1,500 new year-round and seasonal associates will be hired this year at a new 1.3 million-square-foot direct-to-consumer fulfillment center now being built in Tulsa County, OK. Initial operations at the Tulsa facility are expected to begin in April 2015, with a total workforce of more than 2,500 associates (1,500 year-round associates and more than 1,000 holiday seasonal associates) expected in future years as the fulfillment center reaches full capacity.

Opening new Macy’s, Bloomingdale’s and Bloomingdale’s Outlet stores as opportunities arise in new and existing markets. New stores to be opened in fall 2015, as previously announced, include a Macy’s in Ponce, PR, which will employ about 275 associates, as well as a new Bloomingdale’s in Honolulu, with an expected workforce of 250 associates.

Store Closings/Openings

Macy’s, Inc. today also detailed a series of adjustments to its portfolio of stores across the country.

“Our omnichannel strategy depends on great Macy’s and Bloomingdale’s stores that not only welcome shoppers through the door and deliver an outstanding shopping experience, but that also fulfill orders that are shipped directly to customers around the country. In 2014, about $1 billion of Macy’s and Bloomingdale’s direct-to-customer shipments originated from Macy’s and Bloomingdale’s stores. Moreover, our process for Buy Online Pickup in Store has established a new dimension in customer access and convenience,” Lundgren said. “We continue to maintain a very strong nationwide network of stores through an ongoing process of selectively adding new locations while also trimming those that no longer meet our performance requirements, where the real estate can be redeployed to more productive uses, or where our leases were not renewed.”

The company today also announced two new stores. Seven other new Macy’s and Bloomingdale’s stores are currently planned and/or under construction, as previously announced. The company also is announcing today that it will close 14 Macy’s stores Once all of these changes have been implemented, Macy’s, Inc. will operate about 830 stores in 45 states, the District of Columbia, Puerto Rico and Guam.

Financial Impact

Changes being announced today are estimated to generate savings of approximately $140 million per year, beginning in 2015. The company expects to reinvest savings into technology and growth initiatives, including those described above, as well as to offset higher expense expected in health care and retirement plans.

In conjunction with the implementation of the merchandising and marketing restructuring and store and field adjustments, as well as store closings and asset impairment charges, an estimated $100 million to $110 million of charges, of which approximately $80 million to $90 million is expected to be cash, will be booked in the fourth quarter of 2014. These charges were not previously included in earnings guidance provided by the company.

Macy’s, Inc., with corporate offices in Cincinnati and New York, is one of the nation’s premier retailers, with fiscal 2013 sales of $27.931 billion. The company operates about 840 stores in 45 states, the District of Columbia, Guam and Puerto Rico under the names of Macy’s and Bloomingdale’s, as well as the macys.com and bloomingdales.com websites. The company also operates 13 Bloomingdale’s Outlet stores. Bloomingdale’s in Dubai is operated by Al Tayer Group LLC under a license agreement.