Macy's, Inc. (M) has adopted extensive restructuring activities, including store closures and layoffs, to enhance its sales and profitability. The company will be merging the merchandising and marketing operations of its stores and online portal into one. The same will also be applicable for its Bloomingdales brand.
This step was necessary as shopping preferences have changed radically over the last couple of years. Most customers now prefer the convenient option of online shopping. Subsequently, developing omni-channel retailing capacities is becoming a must for every retailer to survive in the market, a fact that Macy’s has very well understood.
Therefore, to cater to such shoppers, a central merchandising and marketing center would be a requisite as it would speed up things by removing a lot of redundant activities and having more effective partnership with vendor resources.
Moreover, at local district level, Macy’s will put an end to district planner positions and build new regional teams to better understand needs of merchandise localization. The changes are likely to put at risk 265 positions at central offices of Macy’s and Bloomingdales and at local markets across the U.S. The company is looking to absorb some of this workforce into its other divisions.
Also, Macy’s will be overhauling its store and field operations. As a part of this, the company will be closing 14 Macy’s stores by spring 2015. These 14 stores generate annual revenues of $130 million on an average. Moreover, it intends to lay off 2,200 employees at various store levels following the store rationalization.
The company plans to divert the savings from these restructuring activities to further develop its omni-channel capacities, build superior security infrastructure and enhance direct-to-consumer fulfillment capacity in all full-line Macy’s and Bloomingdale’s stores and at the five fulfillment centers situated at Tennessee, Arizona, California, Connecticut and West Virginia.
We believe the restructuring measures are impressive and in the right direction. Though it will result in $140 million in annual cost savings, beginning 2015, a cost of $100—$110 million will be incurred to implement the same, which might prove a drag.
Currently, Macy’s carries a Zacks Rank #3 (Hold). Better-ranked retail stocks include Restoration Hardware Holdings, Inc. (RH), Bebe Stores, Inc. (BEBE) and Rite Aid Corp. (RAD). All these stocks sport a Zacks Rank #1 (Strong Buy).
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