Survival instinct

  • Article by: JACKIE CROSBY , Star Tribune
  • Updated: February 6, 2008 - 10:21 PM

The restructuring of Macy's streamlines operations, but will it be enough to save the retailer's effort to create a national brand?

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Brian Godfrey from All-Brite Sign took down a Marshall Field’s sign in downtown Minneapolis after the department store was replaced by Macy’s after the chain was sold in 2006.

Photo: Cheryl Ann Guerrero, Star Tribune

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Did Macy's effort to create the first national brand just hit a bump in the road, or has it taken a more fatal turn?

Analysts and consultants don't seem ready to write off the effort, despite Wednesday's announcement from Cincinnati-based Macy's Inc. that it would cut 2,300 jobs nationwide by consolidating seven regional divisions into four. The Minneapolis headquarters, which dates to Dayton Hudson Corporation's founding in 1903, will lose 950 jobs as part of the $150 million consolidation.

"It makes a lot of sense," said Jeffrey Klinefelter, an analyst with Piper Jaffray in Minneapolis. "They're trying to bring efficiencies and become truly a national retailer, in similar ways to the strategy pursued by Kohl's, Wal-Mart, Target."

In addition to rolling the Minneapolis office into the eastern regional operations in New York, regional headquarters in St. Louis and Atlanta also will be closed. Macy's North, which operates 64 stores from Michigan to the Dakotas, has seen several cutbacks in the past 15 months. In mid-January, Macy's laid off about 271 people in the division, with about 100 of those cuts in the Twin Cities. Two previous layoffs lopped about 815 jobs from Macy's North.

Macy's also announced Wednesday that same-store sales were down 7.1 percent in January compared with last year. It is the ninth month of same-store sales declines in the past year. The stock has also continued a downward slide all year, closing Wednesday at $23.94.

"What we're seeing is a frustration on the part of Macy's management that, not just here but elsewhere, the magic of Macy's just hasn't occurred," said Fred Marx, a former department store executive and partner at Marx Layne & Co., a public relations consulting firm in Farmington Hills, Mich. "It's just one sales event after the next."

As part of the restructuring, Macy's will set up 20 newly formed districts made up of 10 stores, instead of the 16 to 18 currently. The idea, CEO Terry Lundgren said, is to make regional stores more flexible and responsive to local consumer tastes.

"The only way you can capture market share is to make sure that when the customer comes into our stores in Minneapolis or any of our markets, that they believe we are in tune to their needs and desires and we're providing them with the brands they want, the colors they want, the weight and fabric they want, the sizes they want," Lundgren said in an interview.

Minneapolis will get two of these districts (one will be made up of eight stores, another will have nine) and about 40 new people will be hired, including store sales staff and merchandising planners. The transition is expected to be completed in early May.

Lundgren said timing for the restructuring was crucial, as the economy continues in its vulnerable state. "I don't expect the consumer is going to be in any better shape over the next six months than she's been in over the past six months," Lundgren said. "Rather than waiting for the economy to miraculously improve, our sense is that it's going to continue to be challenging. Now is the time to put into place a responsive store structure that puts more power into this organization ... and more decisions [will be ] made at the consumer level; now's the time to get ourselves organized."

The retailer's acknowledgement that it needs to better respond to customer differences offers some evidence that it can't use a one-size-fits-all approach. The chain faced a backlash from some customers after it changed the name of venerable department stores, including Marshall Field's, Hecht's and Filene's, to Macy's in September 2006. Macy's had bought many of the brands the previous year when it bought St. Louis-based May Department Stores for $11 billion plus the assumption of $6 billion in debt. At least some former Marshall Field's customers locally and in its Chicago birthplace have continued to perceive Macy's as a step down.

"It hasn't gained traction in the formerly May stores, particularly the former Marshall Field's stores," said David Brennan, head of the Center for Retailing Excellence at the University of St. Thomas. "With the horrendous holiday shopping period, it was really the death knell to the regional headquarters."

Macy's said the consolidation will save about $60 million in overhead costs this year, and about $100 million a year beginning in 2009.

Stan Pohmer, a Twin Cities retail analyst, said he's in favor of the localization strategy in theory. "But it's all in the execution. Will the central buying staff be able to accommodate all the individual store requests in the entire chain?"

Frank Guzzetta, chairman and CEO of Macy's North, will retire in the spring. Amy Hanson, who is vice chairman and director of Macy's North, will supervise the transition. Afterward, she will be reassigned to a senior position within the company.

Guzzetta, 62, took over the helm at Macy's North in February 2006, and has been one of the most visible boosters for revitalizing downtown Minneapolis.

Guzzetta did not return calls seeking comment.

Staff writer Chris Serres contributed to this report. Jackie Crosby • 612-673-7335

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