By Lenore Fedow
Macy’s store in Herald Square. The retailer announced a turnaround plan, which includes shuttering 125 locations over the next three years.
New York—Macy’s Inc has announced plans to close 125 stores over the next three years and lay off 2,000 employees, as part of its new strategy to promote profitability and growth.

Dubbed “Polaris,” the three-year plan is expected to cost between $450 million to $490 million, most of which will be recorded in 2019.

It is estimated to save the company $1.5 billion and expected to be realized by the end of 2022.

“We will focus our resources on the healthy parts of our business, directly address the unhealthy parts of the business and explore new revenue streams,” said Jeff Gennette, chairman and chief executive officer of Macy’s, in a statement.

Macy’s detailed plan to reinvent itself encompasses store and office closures, a revamped merchandising strategy, an updated loyalty program, and a new store concept.

These are the five steps that may save the retail giant:

Strengthen Customer Relationships

The retailer said it will focus on building lifetime customer relationships via more personalization and an expanded loyalty program.

The next phase of its Star Rewards loyalty program, set to launch later this month, is expected to increase engagement from the occasional shopper and also invite new customers, said Macy’s.

Curate Quality Fashion

Macy’s is rethinking its merchandising strategy as it looks to be “the top destination for the best brands.”

The retailer is shifting its focus to its higher-margin private brands, setting a goal of building four $1 billion brands.

Accelerate Digital Growth

Macy’s will continue to grow its digital business, which it said rakes in more than $6 billion annually in sales, by investing in its website and mobile app.

Its website’s headquarters will relocate from San Francisco to New York City to be closer to its fashion brand partners. 

The company will expand its presence in Atlanta, opening an office there and dubbing the city its primary technology hub.

Positions will also be added to its existing facility in Johns Creek, Georgia.

Optimize Store Portfolio

After evaluating its store portfolio, the retailer opted to close 125 stores over the next three years. Those stores account for $1.4 billion in annual sales, said Macy’s.

The company broke down its plan to improve its store portfolio into five additional subcategories: store closures and staffing, growth treatment, off-price expansion, new store format, and supply chain modernization.

For staffing, there will be staff reductions in some stores and increases in others. The company is cutting its workforce by 9 percent, or 2,000 corporate and support function positions.

The retailer is planning to upgrade 100 of its remaining stores, revamping the stores physically as well as updating merchandising strategies, technology, talent, and local marketing.

Macy’s said 150 stores have already been updated and that these stores outperform the others, accounting for 50 percent of 2019 total store sales.

Its off-price offerings will continue to expand, with plans to open 50 Backstage in-store locations and seven free-standing Backstage stores in 2020.

Macy’s described its off-price offerings, which include Backstage and Bloomingdale’s The Outlet, as “a highlight of the company’s performance.”

There’s also a new store format in the works called Market by Macy’s, an off-mall store that’s smaller than the average Macy’s.

The store will offer curated Macy’s merchandise alongside local goods, including food and beverages, as well as a community events calendar.

Macy’s began testing the idea in 2018, launching the service in 13 stores. The first official location will open in Dallas Thursday.

To modernize its supply chain, Macy’s plans to revamp its fulfillment network to boost inventory product productivity.

The retailer’s plan includes working toward increased sell throughs—the rate representing the amount of inventory a retailer receives from a supplier versus what gets sold—and lower markdown rates.

The company will use a new private brand sourcing strategy in an effort to reduce costs and improve speed.

Reset Cost Base

The reduction in employee headcount falls into this category, with plans announced to close offices around the country.

Macy’s offices in San Francisco, downtown Cincinnati and Lorain, Ohio will close.

Its customer contact center in Tempe, Arizona will also shutter, consolidating the operations to its centers in Mason, Ohio, which will increase its employee headcount, and Clearwater, Florida.

More employees will be hired at its Progress Place facility in Springdale, Ohio as well.

New York City will be the company’s sole corporate headquarters.

Changes are also coming to its senior management team.

John Harper, former chief stores officer, will take on the role of chief operations officer, taking on expanded responsibility for stores, technology, supply chain, and brand experience.

Filling Harper’s vacant seat as chief stores officer is Marc Mastronardi, former senior vice president of store operations and customer experience.

Danielle Kirgan, chief human resources officer, will add chief transformation officer to her current role, overseeing the company’s transition.

Looking Ahead

The retailer described 2020 as a “transition year,” expecting negative comps as a result of the business trajectory over the past six months, continued challenges in mall-based stores, and disruption as it implements its turnaround plan.

Net sales are expected to decline as a result of the store closures.

At the end of the plan, fiscal 2022, Macy’s may not be out of the danger zone.

Sales are expected to be within a range of $23.2 billion to $23.9 billion with same-store sales, accounting for owned plus licensed brands, down one percent to flat.

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