Macy’s will reduce its corporate and management headcount by about 3,900 people as part of a restructuring plan.
The department store chain is another retailer that’s been hit hard by the effects of the widespread, COVID-19-prompted store closures in the spring. In addition to laying off corporate and management employees, Macy’s is reducing staffing in its stores, supply chain and customer support network.
The company will still bring back in July some of the employees who had been furloughed.
Jeff Gennette, Macy’s chairman and CEO, cited the significant impact of COVID-19 to its business and noted that the company expects to be a smaller one for the foreseeable future. It expects to generate expense savings of $365 million in fiscal 2020 and $630 million on an annualized basis, in addition to the expected $1.5 billion in annual expense savings it announced in February.
“While the re-opening 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,” he said. The savings, along with around $4.5 billion in new financing, will be used to stabilize the business.
GlobalData retail managing director Neil Saunders didn’t mince words on the outlook of department stores, calling it “bleak.”
“There are too many of them, and most of them do not meet the needs of the modern consumer, in that they are too large a space where little thought has been given to the mix of products and services,” he told RIS.
Sales were already dropping before COVID-19, and health concerns and stay-at-home orders have has only exacerbated the issue; those who do venture out to shop often prefer local businesses over covered malls and big, enclosed department stores.
“To be fair, Macy’s is not in the worst position among department stores — mainly because it has a reasonably strong balance sheet and asset base,” he noted. “However, it has a lot of work to do to reinvent itself, and it doesn’t have the luxury of time to implement the necessary changes.”
Macy’s updated turnaround strategy, announced in February and dubbed Polaris, centered on accelerating digital growth, right-sizing its store fleet and growing its loyalty program, among other things. As part of the strategy, the company was also moving its headquarters and tech offices.
While Polaris points the company in the right direction, Saunders expressed concerns on Macy’s ability to implement. “A lot of the plans in Polaris are things that Macy’s has talked about for a long time but has consistently failed to execute,” he said, citing private-label development as one long-standing ambition they should have done years ago.
Also of concern are whether store refurbishments might now be slowed or halted given the large amount of capital required. Although Macy’s current goal is to save rather than spend cash, the updates are long overdue and desperately needed.
“Macy’s needs to find a balance between being financially prudent and being ambitious about evolving its business model,” Saunders said. “Arguably one way for Polaris to be successful is for Macy’s to really shrink down as a business and focus its efforts on a much smaller base of stores. This does seem to be the general direction of travel, but the pace is extremely slow.”