Macy's Inc. said Wednesday it will cut about 2,300 management jobs as the department store operator consolidates three regional divisions and decentralizes buying in a bid to reduce costs and boost sales.
The announcement came as Macy's announced separately that it had a steeper-than-expected drop in sales in January at established stores and that earnings in its fiscal year would be below Wall Street estimates. Shares fell almost 5 percent on the news.
The Cincinnati-based retailer has been struggling with disappointing sales and resistance from shoppers in some markets where the Macy's name replaced local favorites it absorbed as part of its acquisition of May Department Stores Co. in 2005 amid efforts to build a national brand.
Macy's said it will immediately begin consolidating its Minneapolis-based Macy's North headquarters into its New York-based Macy's East, its St. Louis-based Macy's Midwest organization into its Atlanta-based Macy's South and its Seattle-based Macy's Northwest headquarters into its San Francisco-based Macy's West.
The consolidation of the office organizations expected to be completed in the second quarter of 2008 will affect 950 positions at Macy's North, 850 positions at Macy's Midwest and 750 positions at Macy's Northwest in Seattle.
The company said executives currently in the those offices will be considered for positions in the new local market organization or for open positions elsewhere and laid-off employees will receive severance benefits and outplacement assistance. At the same time, Macy's said it also will be adding 250 new management positions at its stores to better tailor its product offerings to specific regions.
The net effect would be a reduction of 2,300 jobs in Macy's current work force of about 188,000.
Macy's Chief Executive Terry Lundgren told The Associated Press on Wednesday that the new localization and regionalization efforts don't contradict Macy's focus on building its national brand, which he said remains critically important.
"But we have to be sure we are totally tuned into the customer and individual stores while carrying the national brand," Lundgren, also chairman and president, said.
As part of its new strategy, Macy's locations will be grouped into 20 newly formed districts of about 10 stores, compared with an average of 16 to 18 currently overseen by each regional manager. Districts will be based in cities including Chicago, Cincinnati, Salt Lake City and Seattle. The district-based executives will be empowered to make more local decisions in such areas as service and visual merchandising, which the company believes will help improve execution. More resources also will be provided to local markets for special events and to ensure customer service.
Lundgren said the changes will take about three months to complete and Macy's may get some benefit by the fourth quarter, but more likely that will come in 2009.
"We believe it's good for investors because the real answer is going to be our ability to grow comp store sales, and when we grow comp store sales, that will be good news for investors," Lundgren said, referring to sales at stores open at least a year, which are a key barometer of a retailer's health.
Macy's said that same-store sales fell 7.1 percent in January. Analysts surveyed by Thomson Financial had expected a 5.9 percent drop.
In guidance for fiscal 2008, Macy's is predicting $1.85 to $2.15 a share, excluding costs. Analysts surveyed by Thomson Financial expected $2.33 a share.
Shares of Macy's fell $1.16, or 4.6 percent, to close at $23.94 on Wednesday. They recovered to 24.20 in after-hours trading.
The consolidation move is good for investors in the long term, according to Dan Hess, founder and CEO of Merchant Forecast, a research company. But in the short-term, the consolidation is "going to create turmoil." He added that he fears there could be missed deliveries and other mistakes being made as the company digests these changes.
"This is a time of year that you don't want disruption," said Hess.
Lundgren acknowleged that some confusion is to be expected in any consolidation where people are changing jobs and going to new positions.
"But we have done this before and we have experience," he said.
Lundgren said that at the same time that Macy's is lowering its cost structure - as some analysts have been encouraging them to do, the bigger idea behind the changes is to satisfy customers and drive sales.
Asked if the management cuts announced Wednesday indicate future plans to cut other employees, Lundgren would only say that Macy's believes the new structure is the right one.
"We think it is one that will get us back to the place where we can take market share and grow our business back," Lundgren said.
Macy's also says it expects to reduce expenses by about $60 million this year and by about $100 million a year starting in 2009.
The company plans to take a one-time charge of $150 million dollars this year for expenses related to the consolidation.
Macy's now expects fourth-quarter earnings to be $1.75 to $1.80, excluding merger integration costs of about $70 million. Analysts surveyed by Thomson Financial expected $1.71 a share on that basis.
The company is scheduled to report earnings on Feb. 26.
Macy's Inc., which had fiscal 2007 sales of $26.3 billion, operates more than 850 department stores in 45 states, the District of Columbia, Guam and Puerto Rico under the names of Macy's and Bloomingdale's. The company also operates macy's.com, bloomingdales.com and Bloomingdale's By Mail.