November 18, 2008
Report: Macy’s Considers Cutting Regional Divisions
By Tom Ryan
According
to a report in Women’s Wear Daily, Macy’s is considering further
downsizing from four to
two divisions. Sources told the fashion trade paper that plans call for
the consolidation of Macy’s Florida in Miami and Macy’s Central in Atlanta
into the New York-based Macy’s East and San Francisco-based Macy’s West
divisions.
WWD said
the consolidation would "affect
hundreds of employees, save the corporation millions of dollars, and take
it one step closer to being totally centralized like most of its competition,
including Kohl’s Corp., J.C. Penney Co. Inc. and Sears Holdings Corp."
In February, Macy’s announced
plans to reduce its divisions from seven
to four by eliminating Macy’s North in Minneapolis,
Macy’s Midwest in St. Louis and Macy’s Northwest in Seattle. That consolidation,
which eliminated 2,550 jobs, was completed in the second quarter and is
expected to reduce expenses by $100 million annually by the beginning of
2009.
At the time, Macy’s
said it would set up smaller regional
offices in Chicago, Cincinnati, St. Louis and Seattle charged
with tailoring Macy’s stores to local tastes, an effort dubbed "My
Macy’s."
Although
some analysts had questioned the effectiveness of the new localization
effort, Macy’s
chairman and CEO Terry Lundgren said reacting
quickly to regional tastes is key to strengthening sales.
"We’ll
ultimately be judged on our performance in each and every individual store," he
told the Chicago Tribune at the time. "It’s wonderful to have
all these marketing opportunities with a national brand, but we have to
be locally relevant."
News of a possible further
consolidation comes as the
department store operator reported a net loss of $44 million in the third
quarter, and said it was cutting capital expenditures plans for 2009 almost
in half to $550 million to $600 million from around $1 billion.
Sources told WWD that
any new streamlining won’t happen until next year.
Typically, the trade paper said, consolidations affect back-office functions,
such as payroll, accounts payable, security, personnel, advertising and
credit. Although the cutbacks are dramatic, many employees get reassigned
and those at the surviving divisional headquarters assume greater workloads.
"If Macy’s does
come out with a lousy Christmas, this consolidation is something they can
show Wall Street and say that they haven’t been sitting still in this difficult
economy," said one source. "The hard part of all of this is telling
people they’re leaving. It’s hard."
Discussion Questions:
What are the pros and cons of Macy’s moving more toward a centralized
merchandising model? How will this impact localization efforts?
BrainTrust
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Discussion Questions
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Sadly, I think the downward spiral began when TPTB decided to take Macy’s down market. They flooded the stores with private label merchandise yet kept the same high price points. People aren’t stupid; they saw through that.
Also, it was a mistake to take over the May Co. department stores and try to make a national brand of Macy’s. They poisoned some of their markets–especially the upper Midwest–with the elimination of Field’s; Macy’s got off to a bitter nasty start with Chicago because of that and it hasn’t improved.
Unfortunately, I don’t see Macy’s around in 3 years, at least in their current business model. I believe that all of this could have been avoided if they stuck with the middle- to high-end format that Macy’s was known for.
The consolidation to one division (not two) should have been done a long time ago. There is no good reason in today’s world of sophisticated information systems that Macy’s needs four or more regional divisions to make smart allocation decisions by region. Target, Kohl’s, Penney and others figured this out a long time ago and Penney in particular had to wrestle with far more decentralization when the time came.
For Macy’s business model to work long-term, it needs to figure out how to turn a profit in tough times–most of its value-based competitors had profitable 3rd quarters under extreme circumstances even if their earnings were down. Even two regional buying offices is one too many in the world of 21st century retail.
Sad to say, but this seems more like slowly rearranging the deck chairs than doing the needed reinvention of itself.
I commend Macy’s for their plan. From the outside looking in I would say what is taking them so long? But, the operation is massive and doing is well by more slowly is prudent. Yes, localization efforts are important for retailers. But, how much of a national retailer’s operation is really local? Whether it be drug, mass, food, specialty or department store, my guess is that 90% or more of the merchandise is precisely the same throughout the country. Why would a retailer have 7 sets, or 4 sets or even 2 sets of buyers purchasing the same product?
Most types of retailers need nothing more than good planners with good information systems. Fashion merchants have a little more of a challenge, but Macy’s use of smaller regional offices to monitor local tastes makes ultimate sense. The successful national specialty chains did not grow up by operating diverse divisions throughout the country. They were successful in displacing local retailers by carrying a single merchandising philosophy from coast to coast and from A counties to D counties.
As an aside, I had an experience with one of the biggest drug chains in the country that also surprised me. This had to do with the introduction of an O-T-C contraceptive. This chain sent the same size displays to their stores in Scottsdale, Arizona, home of retirees and snowbirds as they sent to Tempe, Arizona, home of Arizona State University. Further, the stores in both locations had the same reorder metrics. The result was that months later the Scottsdale stores still had considerable inventory and the Tempe stores were always out of stock, despite the efforts of the local area manager of moving product from one set of stores to the other. An open ear by HQ would have helped all.
More centralization will reduce expenses and make them even less tailored to their local markets. This should help short-term profits but further weaken long-term sales. But, I guess if you don’t make any money you won’t be around to fight declining sales volumes.
Easy to say that it should’ve been done long ago, but the interesting question now–in this marketplace–would be, how do you centralize merchandising, yet tackle the daunting task of making each store unique? It sure seems right to say that you’re going to buy a sweater for all stores and gain advantage with scale, but what sweater works for Arizona and New York City and Seattle and Florida equally well?
If there’s one thing we should’ve learned from Urban Outfitters and Anthropologie by now, it’s that having unique stores with unique merchandise really, really works in this day and age. Customers are fed up with mass-mass-mass, same-same-same…they want “my” Macy’s, not everyone’s Macy’s.
So, clearly, the key to Macy’s success with a single buy-plan will be keeping that individual store unique-ness…you know, like they had before they bought and consolidated all the regional department stores, ahem.
Sales declines as recently acknowledged by Macy’s require that changes be made to expense structures. Unfortunate, but true. If the top line can’t be driven upward (and I doubt sincerely in this climate, given Macy’s positioning that this is even remotely possible) then management MUST cut costs. Period.
Consolidation does not preclude tailored assortments. The technology exists to allow centralized buyers to manage assortments based on store specific data. However, what this probably will NOT look like are unique brands found only in a relatively small handful of stores. I’m not sure this is even a requirement right now. In looking over the apparel marketplace, I really don’t find the compelling regional differences in brands and trends that we experienced in past decades.
However, I also agree with the sentiment behind “moving the deck chairs” around. A recession of this magnitude is extremely difficult for a promotional department store to weather. Macy’s has built its reputation on aspects of the consumer value proposition which may not be as important as they were in the past decade. Expense rationalization is an absolute must for Macy’s. So is assortment rationalization.
If this cost savings measure results in more chaos for consumers, then it may ultimately hurt Macy’s, regardless of short-term savings. I believe that Macy’s is at a competitive disadvantage in terms of product selection and access for consumers.
If a customer wants a different size or color of an item shown on the floor, she can go to the customer service desk and ask to have it located at another Macy’s. However, as a practical matter this doesn’t work well.
I was shopping at the flagship store in New York last week. (Note: you could never tell they were in trouble, judging by the mob scene last Thursday!) I asked for a different size of jacket. The clerk said that her computer showed that they had it, but commented that “it isn’t very accurate.” She came back empty handed.
At a different department, I wanted a smaller size top. I asked the staff to help me. The clerk said that another Macy’s had 6 of the item and they could ship it to me. I said that sounded fine. (It is standard practice to locate another size/color from a sister store and have the item sent to the customer or the local store. This is not a wild request.) The helpful, but embarrassed staff member said that she couldn’t call the other Macy’s because she didn’t have access to an “outside line.” I offered to her to use my cellphone. Ultimately I called the other store myself, while standing at the desk. The other store, which showed 6 of the item, couldn’t locate even one. The staff member wrote the item number and maker on a card for me. I went home and ordered it online from another retailer. (Why? Because Macy’s merchandise online is different from the merchandise shown on the floor. According to the clerk, it’s a separate buyer.)
I hope the consolidation results in improved back room operations for Macy’s. I like Macy’s and wish them well, but they must be enabled to compete in today’s environment.
Another day, another operational announcement by Macy’s. It really seems that most of the “reinventions,” “reorganizations” and “exclusive marketing arrangements” touted so breathlessly by the Macy’s PR people and dutifully reported in the media over the last few years have been for the shareholders’ consumption. Customers–long considered the lifeblood of retail–are rarely as obviously considered or served by Macy’s decision making and actions.
Surprised this didn’t happen sooner. But with all the flack received from the Chicago market, they probably wanted to parse out the customer rancor.
Back in the day, it was the CHIP program: cut help increase profits.
As we say, “Retail ain’t for sissies!”
Rick and Ilsa always had Paris; RW, it seems, will always have Macy’s (to fret over)…at least until they make one reorg too many.
But back on topic…it’s inconceivable that a company wouldn’t consolidate functions like P/R, A/P, etc from day one. I can see some excuse for separate buying offices, but the others…what are they (or aren’t they) thinking?
Maybe there’s one personnel cutback yet to be made…I have a suggestion as to who it should be.
This is a good start for Macy’s logistics, but it doesn’t solve the inherent issues that they are facing with pricing and product solutions. Macy’s needs to solve these issues to compete with the consumer’s shift to a higher-positioned mass merchant and club store. Until they resolve these product and pricing issues (along with customer service), Macy’s and the other department stores are embracing a model that is no longer valued by the consumer.
Rather than a topic for discussion, this is a question for an MBA case study. Sadly, though, lots of case studies are retrospectives of failures. It’s over for Macy’s. Sad, but the perfect storm of Macy’s ineptitude corresponded with a significant economic slowdown during a holiday sales period. Put a fork in them.
I will be the dissenting voice this morning. Macy’s has so centralized their policies that the value of the local stores which have been purchased has been lost. Macy’s continues to be surprised that some of the individual acquisitions’ sales have decreased once Macy’s purchased them. That is the direct result of changing local policies that consumers in that market valued to a centralized policy. More centralization is not a helpful solution for the long term because Macy’s has not been able to show flexibility for local adaptation.
Macy’s is in a position shared by many of their department store brethren. They need to find ways to cut more costs to remain viable, but in doing so they become less competitive. Macy’s has already proven over the past several years that the economies of centralization are a mirage.
The department store segment as a whole is in a similar place as the domestic auto industry. Organizationally bound up, lacking nimbleness, they are trapped in their traditional ways of thing about and doing things. They’ve lost the ability to be truly innovative.
The one difference between the industries is little difference at all. While the domestic automotive industry is tied up with structured payroll and benefit expenses, department stores have squeezed about as much payroll out as they can.
Neither are in a very good place.
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Sadly, I think the downward spiral began when TPTB decided to take Macy’s down market. They flooded the stores with private label merchandise yet kept the same high price points. People aren’t stupid; they saw through that.
Also, it was a mistake to take over the May Co. department stores and try to make a national brand of Macy’s. They poisoned some of their markets–especially the upper Midwest–with the elimination of Field’s; Macy’s got off to a bitter nasty start with Chicago because of that and it hasn’t improved.
Unfortunately, I don’t see Macy’s around in 3 years, at least in their current business model. I believe that all of this could have been avoided if they stuck with the middle- to high-end format that Macy’s was known for.
The consolidation to one division (not two) should have been done a long time ago. There is no good reason in today’s world of sophisticated information systems that Macy’s needs four or more regional divisions to make smart allocation decisions by region. Target, Kohl’s, Penney and others figured this out a long time ago and Penney in particular had to wrestle with far more decentralization when the time came.
For Macy’s business model to work long-term, it needs to figure out how to turn a profit in tough times–most of its value-based competitors had profitable 3rd quarters under extreme circumstances even if their earnings were down. Even two regional buying offices is one too many in the world of 21st century retail.
Sad to say, but this seems more like slowly rearranging the deck chairs than doing the needed reinvention of itself.
I commend Macy’s for their plan. From the outside looking in I would say what is taking them so long? But, the operation is massive and doing is well by more slowly is prudent. Yes, localization efforts are important for retailers. But, how much of a national retailer’s operation is really local? Whether it be drug, mass, food, specialty or department store, my guess is that 90% or more of the merchandise is precisely the same throughout the country. Why would a retailer have 7 sets, or 4 sets or even 2 sets of buyers purchasing the same product?
Most types of retailers need nothing more than good planners with good information systems. Fashion merchants have a little more of a challenge, but Macy’s use of smaller regional offices to monitor local tastes makes ultimate sense. The successful national specialty chains did not grow up by operating diverse divisions throughout the country. They were successful in displacing local retailers by carrying a single merchandising philosophy from coast to coast and from A counties to D counties.
As an aside, I had an experience with one of the biggest drug chains in the country that also surprised me. This had to do with the introduction of an O-T-C contraceptive. This chain sent the same size displays to their stores in Scottsdale, Arizona, home of retirees and snowbirds as they sent to Tempe, Arizona, home of Arizona State University. Further, the stores in both locations had the same reorder metrics. The result was that months later the Scottsdale stores still had considerable inventory and the Tempe stores were always out of stock, despite the efforts of the local area manager of moving product from one set of stores to the other. An open ear by HQ would have helped all.
More centralization will reduce expenses and make them even less tailored to their local markets. This should help short-term profits but further weaken long-term sales. But, I guess if you don’t make any money you won’t be around to fight declining sales volumes.
Easy to say that it should’ve been done long ago, but the interesting question now–in this marketplace–would be, how do you centralize merchandising, yet tackle the daunting task of making each store unique? It sure seems right to say that you’re going to buy a sweater for all stores and gain advantage with scale, but what sweater works for Arizona and New York City and Seattle and Florida equally well?
If there’s one thing we should’ve learned from Urban Outfitters and Anthropologie by now, it’s that having unique stores with unique merchandise really, really works in this day and age. Customers are fed up with mass-mass-mass, same-same-same…they want “my” Macy’s, not everyone’s Macy’s.
So, clearly, the key to Macy’s success with a single buy-plan will be keeping that individual store unique-ness…you know, like they had before they bought and consolidated all the regional department stores, ahem.
Sales declines as recently acknowledged by Macy’s require that changes be made to expense structures. Unfortunate, but true. If the top line can’t be driven upward (and I doubt sincerely in this climate, given Macy’s positioning that this is even remotely possible) then management MUST cut costs. Period.
Consolidation does not preclude tailored assortments. The technology exists to allow centralized buyers to manage assortments based on store specific data. However, what this probably will NOT look like are unique brands found only in a relatively small handful of stores. I’m not sure this is even a requirement right now. In looking over the apparel marketplace, I really don’t find the compelling regional differences in brands and trends that we experienced in past decades.
However, I also agree with the sentiment behind “moving the deck chairs” around. A recession of this magnitude is extremely difficult for a promotional department store to weather. Macy’s has built its reputation on aspects of the consumer value proposition which may not be as important as they were in the past decade. Expense rationalization is an absolute must for Macy’s. So is assortment rationalization.
If this cost savings measure results in more chaos for consumers, then it may ultimately hurt Macy’s, regardless of short-term savings. I believe that Macy’s is at a competitive disadvantage in terms of product selection and access for consumers.
If a customer wants a different size or color of an item shown on the floor, she can go to the customer service desk and ask to have it located at another Macy’s. However, as a practical matter this doesn’t work well.
I was shopping at the flagship store in New York last week. (Note: you could never tell they were in trouble, judging by the mob scene last Thursday!) I asked for a different size of jacket. The clerk said that her computer showed that they had it, but commented that “it isn’t very accurate.” She came back empty handed.
At a different department, I wanted a smaller size top. I asked the staff to help me. The clerk said that another Macy’s had 6 of the item and they could ship it to me. I said that sounded fine. (It is standard practice to locate another size/color from a sister store and have the item sent to the customer or the local store. This is not a wild request.) The helpful, but embarrassed staff member said that she couldn’t call the other Macy’s because she didn’t have access to an “outside line.” I offered to her to use my cellphone. Ultimately I called the other store myself, while standing at the desk. The other store, which showed 6 of the item, couldn’t locate even one. The staff member wrote the item number and maker on a card for me. I went home and ordered it online from another retailer. (Why? Because Macy’s merchandise online is different from the merchandise shown on the floor. According to the clerk, it’s a separate buyer.)
I hope the consolidation results in improved back room operations for Macy’s. I like Macy’s and wish them well, but they must be enabled to compete in today’s environment.
Another day, another operational announcement by Macy’s. It really seems that most of the “reinventions,” “reorganizations” and “exclusive marketing arrangements” touted so breathlessly by the Macy’s PR people and dutifully reported in the media over the last few years have been for the shareholders’ consumption. Customers–long considered the lifeblood of retail–are rarely as obviously considered or served by Macy’s decision making and actions.
Surprised this didn’t happen sooner. But with all the flack received from the Chicago market, they probably wanted to parse out the customer rancor.
Back in the day, it was the CHIP program: cut help increase profits.
As we say, “Retail ain’t for sissies!”
Rick and Ilsa always had Paris; RW, it seems, will always have Macy’s (to fret over)…at least until they make one reorg too many.
But back on topic…it’s inconceivable that a company wouldn’t consolidate functions like P/R, A/P, etc from day one. I can see some excuse for separate buying offices, but the others…what are they (or aren’t they) thinking?
Maybe there’s one personnel cutback yet to be made…I have a suggestion as to who it should be.
This is a good start for Macy’s logistics, but it doesn’t solve the inherent issues that they are facing with pricing and product solutions. Macy’s needs to solve these issues to compete with the consumer’s shift to a higher-positioned mass merchant and club store. Until they resolve these product and pricing issues (along with customer service), Macy’s and the other department stores are embracing a model that is no longer valued by the consumer.
Rather than a topic for discussion, this is a question for an MBA case study. Sadly, though, lots of case studies are retrospectives of failures. It’s over for Macy’s. Sad, but the perfect storm of Macy’s ineptitude corresponded with a significant economic slowdown during a holiday sales period. Put a fork in them.
I will be the dissenting voice this morning. Macy’s has so centralized their policies that the value of the local stores which have been purchased has been lost. Macy’s continues to be surprised that some of the individual acquisitions’ sales have decreased once Macy’s purchased them. That is the direct result of changing local policies that consumers in that market valued to a centralized policy. More centralization is not a helpful solution for the long term because Macy’s has not been able to show flexibility for local adaptation.
Macy’s is in a position shared by many of their department store brethren. They need to find ways to cut more costs to remain viable, but in doing so they become less competitive. Macy’s has already proven over the past several years that the economies of centralization are a mirage.
The department store segment as a whole is in a similar place as the domestic auto industry. Organizationally bound up, lacking nimbleness, they are trapped in their traditional ways of thing about and doing things. They’ve lost the ability to be truly innovative.
The one difference between the industries is little difference at all. While the domestic automotive industry is tied up with structured payroll and benefit expenses, department stores have squeezed about as much payroll out as they can.
Neither are in a very good place.