Store closings not in Macy's plans - yet

  • Article by: JACKIE CROSBY , Star Tribune
  • Updated: February 9, 2008 - 6:17 PM

Some analysts call the planned cuts a start, but say that under-preforming stores should be shuttered. "That's the next step," one said.

Macy's Inc. has a new plan for building a national department store chain: hyper-localization.

But some wonder whether the strategy, announced Wednesday, will be enough to turn around the fortunes of the 850-store behemoth, and whether store closings will be the next logical step.

Macy's Chairman and CEO Terry Lundgren insisted that's not part of the current plan.

"There's absolutely no connection between what we're doing here and any store closings," he said in an interview Wednesday, the day he announced the localization strategy and the company's plan to shed 2,550 jobs.

In Minneapolis, 950 employees of the northern division headquarters were given pink slips, as Macy's pared its seven regional centers to four. Buyers, accountants and senior executives, including Macy's North CEO Frank Guzzetta, lost their jobs. About 40 new jobs will be created in May as part of the restructuring.

By 2009, the company expects to save $100 million a year from the cuts.

Target Corp., Kohl's and Wal-Mart Stores Inc. have used this business model for years, where operations are run out of a central location and the offerings are managed locally, within certain parameters.

J.C. Penney Co. Inc. has spent the past decade centralizing its structure, and had been reaping the rewards until recent economic woes dampened sales and growth.

"I think Macy's is just behind in the game," said Lauri Brunner, a retail analyst with Thrivent in Minneapolis. "They should've made this move years ago."

Whether it'll be enough, particularly in an economy that shows no signs of improving until late this year, will play out in the coming months. Macy's plans to use savings from job cuts to jump-start sales by homing in on the unique needs of each store.

"We're not doing enough to react locally to the wants and needs of consumers in each market, including Minneapolis," Lundgren said.

Macy's has made other streamlining efforts since its $17 billion acquisition of May Department Stores Co. in 2005. It closed or sold about 70 of the 80 stores that duplicated locations, and recently announced plans to close nine more. But Brunner said that's not enough. A 5 or 10 percent trim of under-performing stores would make a real impact, she said.

"That's the next step," Brunner said. "That's what people are waiting for."

Citigroup Global Markets analyst Deborah Weinswig also sits in that camp, predicting in a report last month that consolidation was coming to Macy's, but also that stores would close.

In the Twin Cities, one of the two Macy's stores at Ridgedale Mall in Minnetonka could be ripe for demolition. Nordstrom has signed an agreement to open a store at the mall in 2011, and has indicated a preference for one of the Macy's spots.

Downtown St. Paul, long considered a weak performer, could also be in the cross hairs, though Macy's would have to pay a hefty price to close it. In 2000, St. Paul taxpayers floated a $6.3 million loan to renovate and upgrade the store, and attached some strings. The loan would be forgiven if Macy's stayed downtown through Dec. 31, 2012. If Macy's pulls out before then, it will have to repay the loan plus a $630,000 penalty for every December the store is dark during the agreement term. The penalty would be $6.8 million, according to the city of St. Paul.

That might have been enough to keep Marshall Field's from leaving. Or even May Co., which bought Marshall Field's. But for a company the size of Macy's, which has a $1.1 billion capital expenditures budget for 2008, the penalty to shutter downtown St. Paul is less than 1 percent of the capital budget, Brunner said.

Guzzetta said St. Paul isn't on the chopping block at the moment, but "if it doesn't improve, any business has to look at what's happening and whether you can sell off the lease in under-performing spaces."

Macy's wouldn't be the only retailer to close stores or scale back new store openings. Ann Taylor announced recently that it will shut 117 of its stores and reduce its workforce by 13 percent in the next three years. Talbots will close all its 78 kids' and men's stores by September. Penneys has slowed the pace of its ambitious expansion, and recently said that it will lay off 200 workers to merge its buying and marketing operations.

Lundgren and Guzzetta hope the new micro-merchandising strategy will stave off store closings by allowing Macy's to do a better job of staffing and picking out styles, sizes and colors for stores in small towns and downtowns.

"It's like ordering up a Chinese menu," said Guzzetta, who will retire this spring. "You'll say, 'Here are the dresses that will be better in Southdale, these are better in Rosedale, these in Burnsville,' and distribute them that way.

"It's the strategy du jour," he added. "Everyone has some form of it. But if we don't localize, we can't win."

The new structure won't be fully implemented until May, and Lundgren said he didn't expect to see results until the fourth quarter at the earliest, but more likely into 2009. And the strategy, known as My Macy's, is only being tested in stores that lost their headquarters to consolidation.

A new district based in Minneapolis will oversee 17 stores in Minnesota, Wisconsin and part of the Dakotas. A team of buyers and planners will be responsible for responding to local tastes.

Some, such as David Brennan of the Center for Retailing Excellence at the University of St. Thomas, are skeptical, saying that Macy's already has failed to captivate the former Marshall Field's loyalists.

"They got rid of popular private label brands from Marshall Field's and went with Macy's brands," he said. "They made choices of who their vendors would be from a national standpoint, not a local standpoint.

"That's one of the problems you have when you become a national department store. To gain the economies of scale and the marketing punch that you want, you have to have things that are pretty close to the same nationwide."

Jackie Crosby • 612-673-7335

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