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Macy’s Unveils $100 Million Cost-Cutting Plan Following Mixed Q4 Results

Macy’s Unveils $100 Million Cost-Cutting Plan Following Mixed Q4 Results

Macy’s is asserting that it will continue to build on its recent string of investments to reshape its business in 2019, but the department store will have to do so by cutting $100 million in annual costs. Under a new restructuring plan, Macy’s is reorganizing its upper management team, cutting 100 VP-level or above roles within the company.

Overall, the retailer saw mixed results for Q4 2018, one month after revealing that its November-to-December same-store sales only increased 1.1%. In the complete holiday quarter, the retailer saw:

  • Adjusted earnings per share of $2.73 on net income of $740 million, higher than expectations of $2.53 per share;
  • Same-store sales growth of 0.7%, short of 0.9% expectations; and
  • Full-year same-store sales growth of 2.0%.

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In 2019, Macy's anticipates overall same-store sales will range between flat and 1%, with net sales expected to be flat. Earnings are expected to fall between $3.05 and $3.25 a share, largely due to the company’s continued investments across channels.

Building on last year’s “Growth 50” plan, which involved Macy’s upgrading the lighting, fixtures and merchandise in 50 of its most profitable store locations, the retailer will do the same for 100 more stores in 2019. Additionally, the retailer will double the number of The Market @ Macy’s pop-up shops within its stores; open 45 more off-price Backstage locations; and invest in “destination” categories where it believes it can gain market share: dresses, fine jewelry, women's shoes and beauty. Macy’s saw stores with Backstage concepts achieve 5% sales lifts in 2018.

Macy’s also nearly doubled its online SKU count via its “Vendor Direct” program, which enables third-party brands to fulfill orders on Macys.com and ship directly to customers. The retailer will continue an “aggressive” expansion of vendors and SKUs within the program in 2019.

"Mall traffic declines will continue to weigh on the retailer, and likely factor into its restructuring plans — but Macy's will have to be careful not to try and cut its way to growth,” said Andrew Lipsman, Principal Analyst at eMarketer in commentary provided to Retail TouchPoints. “Ultimately its efforts to accelerate its e-Commerce business and overhaul another 100 stores are what will help it maintain relevance with customers in the face of other consumer headwinds."

One major technology investment that has so far paid off for Macy’s is VR-based furniture selling.Using a headset, customers can enter a virtual replica of their home to see a 3D representation of what a couch would look like in their living room. The tech, deployed in 100+ stores, has increased basket sizes of shoppers who use the headsets to buy furniture by 44% and reduced return rates 25%, according to Macy’s CEO Jeff Gennette.

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