Macy's doubles down on digital growth strategy amid latest restructuring

The retailer on Tuesday announced​ another major restructuring that includes the closing of 125 stores over the next three years and a 9% reduction of its corporate workforce.

Department store giant Macy's is once again turning to store closures and job cuts to cope with shrinking in-store sales and shifts in consumer behavior.

The retailer on Tuesday announced (another) major restructuring that includes the closing of 125 stores over the next three years and a 9% reduction of its corporate workforce. Macy's will also shutter some of its technology offices in Cincinnati and San Francisco, cutting overall about 2,000 jobs. If all goes as planned, Macy's expects to generate about $1.5 billion in annual savings, which will be fully realized by the end of 2022.

Store closures have become routine occurrences in the Macy's survival playbook. The company has been shutting down lower performing stores almost every year since 2015, using the savings from a reduced real estate footprint to focus spending on its highest-growth-potential locations, alternate store formats and new digital tech. 

The retailer wants to find ways to capitalize on its remaining real estate assets to bolster its e-commerce business, which Macy's said generates more than $6 billion per year in sales.

Like other department store chains with deep brick-and-mortar roots, Macy's has felt the sting of the rise of Amazon and struggled to evolve efficiently as an e-commerce player. Amazon is eating up sales of apparel, home goods and other staple items of the traditional department store, and brands like Macy's are now keenly aware that its customers are shopping elsewhere.

To deal with these ongoing challenges, Macy's will focus more efforts on gaining and retaining customers under 40 years old, and expanding its loyalty program and incentives. The company also intends to digitally target and personalize marketing to target the "occassionalist" shopper. 

"We have some legacy challenges," Macy's CEO Jeff Gennette told investors on Wednesday. "But we do have a lot on our side."

Macy's will continue to leverage its retail footprint as one of its key strategic advantages in omnichannel. The retailer wants to optimize in-store pickup and return processes for online customers, and improve the digital experiences on its app and website.

Meanwhile, as the retailer pushes ahead with a smaller store format called Market by Macy's, the company will look to real estate outside of shopping malls.

"We see a bifurcation of malls," Gennette said. "The lower-tier malls continue to decline rapidly."

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Macy's will also expand improvements to remaining physical stores, as well as investments in merchandising strategies, technology improvements, and supply chain optimization. On the supply chain side, Macy's said it is redesigning its fulfillment network to better centralize its distribution centers. The company will also introduce a private brand sourcing strategy that it said should reduce costs and improve speed.

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Going forward, New York City will become Macy's sole corporate headquarters. The company will also expand its presence in the Atlanta area, which will serve as the primary technology hub for the company.