Cost reduction plans

On January 6, 2016, Macy’s (M) announced a number of measures to enhance its productivity and improve its performance. Macy’s aims to bring down its selling, general, and administrative expenses by $400 million through initiatives it will start implementing in early 2016.

Macy’s operating margin declined in each of the first three quarters of fiscal 2015 on a year-over-year basis. It fell to 4.4% from 6.8% in 3Q14 due to asset impairment charges of $111 million related to planned store closures, lower sales, and investments in growth initiatives. Operating margins of Nordstrom (JWN), Kohl’s (KSS), and Dillard’s (DDS) came in at 4.7%, 7%, and 5.8%, respectively. Macy’s and these three department stores account for 4.4% of the SPDR S&P Retail ETF (XRT).

Macy’s Announces Productivity Measures, Massive Job Cuts

Consolidation and store closures

Macy’s plans to consolidate its current stores into five regions and 47 local districts. Its present structure has seven regions and 58 local districts. The company plans to create a flatter structure that would involve a smaller portfolio of stores and new technologies and techniques for managing the store business.

In its January 6, 2016, press release, the company provided a list of the 36 stores it will close in early spring 2016. In September 2015, Macy’s announced its intention to close 40 stores. It closed four stores in 2015. These 40 stores account for ~$375 million in annual sales. Macy’s expects some of these sales to be retained in nearby stores and through online and mobile sales.

Job cuts

Macy’s has also announced its plan to lay off three to four positions in each of its 770 stores, which represents about 3,000 jobs nationwide. Most likely, the company will place about 50% of the affected associates in other positions.

Macy’s productivity initiatives also include a voluntary separation plan for about 165 senior executives. The company doesn’t plan to replace about 35% of them.

Macy’s will be reducing an additional 600 positions in back-office organizations through streamlining. About 150 of these associates will be reassigned to other positions.

Macy’s will also be closing its call center in St. Louis, Missouri, in spring 2016. It will consolidate its four existing credit and customer service center facilities into three. This move is expected to impact about 750 employees. About 640 positions will be added at Macy’s other three centers, which will be taking up the work performed by the St. Louis center.

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