Macy's Inc said it will eliminate more than 2,000 jobs and consolidate operations after reporting weak holiday sales, highlighting a downturn in apparel demand that has likely taken a similar toll on other department stores and clothing chains. Macy's said comparable sales at stores open for more than a year tumbled by 4.7 percent in November and December, far worse than what it had estimated in November, and it cut its earnings outlook for the second time in two months.
Macy's, which operates the upscale Bloomingdale's chain as well as its namesake Macy's department stores, estimated that 80 percent of the fall was due to unusually warm weather, which discouraged purchases of sweaters, coats and gloves. It also blamed the strong dollar for keeping tourists from visiting the United States and spending money at its flagship stores.
The company's shares rose 2.8 percent to $37.15 in after-hours trading on Wednesday as investors cheered its plan to reduce costs by $400 million by consolidating regions and call-centers. The jobs to be eliminated include 3,000 store workers, though about half of those employees will be put in other positions, as well as hundreds of back-office and senior executive posts, the company said in a press release. “Macy’s is cutting the fat, becoming a leaner organization," said Lisa Haddock, marketing lecturer at San Diego State University, of why the shares rose.
But Haddock said Macy's, like many other traditional bricks-and mortar retailers, faced an uncertain future as more and more consumer demand shifted online. "Macy's doesn't seem to have a unique spot in consumers' minds," she said. Macy's cut its earnings forecast for the full year to end-January to $3.85-$3.90 per share, excluding charges associated with the cost-savings program, from its previous forecast of $4.20 to $4.30 per share. In November Macy's had also blamed warm weather and low spending by tourists in cutting its guidance for the year and flagging a build-up of unsold apparel inventory.
"The holiday selling season was challenging, as experienced throughout 2015 by much of the retailing industry," Macy's chief executive, Terry Lundgren, said in Wednesday's press release.
The latest warning from Macy's also reflects ongoing shifts in the retail industry, analysts said. A growing number of consumers are refraining from buying discretionary items such as clothes and cosmetics, while spending more on electronics, cars, home goods and travel. At the same Amazon.com Inc (AMZN.O) has revolutionized shopping habits, conditioning shoppers to expect deeper discounts than what brick-and-mortar retailers can afford, while speeding up delivery in an effort to lure shoppers.
"It's really concerning news that a company as well managed as Macy's is having such a tough time growing sales," said Burt Flickinger, managing director at retail consultancy Strategic Resource Group. "It's a broader issue. It's an acceleration of a retail ice age." Flickinger said other department stores and specialty clothing stores are likely facing similar troubles with apparel demand. Macy's said it expects a 2.7 percent drop in same-store sales for the year ending January, bigger than the 1.8 percent-2.2 percent decline it previously forecast.
Macy's said it will close 36 of its 770 stores early this spring, in line with a previously announced plan. In addition to store employees, it said it would cut 600 back-office jobs, with about 150 of those positions to be reassigned. The company will shut its St. Louis call center in the spring, affecting about 750 employees, while adding 640 positions to other call centers. It will also offer a "voluntary separation program" for 165 senior executives at Macy's and Bloomingdale's. Macy's said it would record about $200 million in charges related to the cost-savings program.
(Reporting by Yashaswini Swamynathan in Bengaluru and Nathan Layne in Chicago; Additional reporting by Abhijith G in Bengaluru; Editing by Sriraj Kalluvila and Leslie Adler)