Macy's cost cutting to save $400mn in SG&A

08 Jan '16

3 min read

US apparel retailer Macy's said it will reduce SG&A expense by approximately $400 million while still investing in growth strategies, particularly in omnichannel capabilities at Macy's and Bloomingdale's.

“The actions represent progress toward the company's previously stated goal of re-attaining over time an EBITDA rate as a per cent of sales of 14 per cent,” a Macy's press release stated.

As part of the program, the retailer will consolidate the grouping of existing Macy's stores into five regions and 47 local districts, down from the current structure of seven regions and 58 local districts.

“This reflects a smaller portfolio of stores and new technologies and techniques for managing the store business and tailoring assortments to local customer preferences,” the company added.

Adjusting staffing levels at each Macy's and Bloomingdale's store will be in line with current sales volume to increase productivity and improve efficiency.

An average of three to four positions will be affected in each of Macy's and Bloomingdale's approximately 770 going-forward stores, out of an average workforce of around 150 associates in each store.

However, Macy's also added that roughly 50 per cent of affected store associates are expected to be placed in other positions.

It will also consolidate the four existing Macy's, Inc. credit and customer services center facilities into three and the call center in St. Louis will be closed in spring 2016, affecting around 750 employees.

Work currently performed in St. Louis will be divided among existing credit and customer services centers in Tempe, AZ, Clearwater, FL, and Mason, OH, where a total of about 640 positions will be added.

The company has begun a search for a senior-level real estate executive to join the company to oversee and manage real estate activities, including the leadership of any partnerships or joint ventures.

The company listed 40 Macy's store closings out of a current total of about 770 Macy's stores and of the 40, 36 will be closed in early spring 2016, consistent with its announcement in September 2015.

The 40 Macy's stores being closed account for approximately $375 million in annual sales, some of which are expected to be retained in nearby stores and with online or mobile sales.

According to Macy's, the implementation of cost reductions is estimated to generate annual SG&A savings of approximately $400 million, beginning in 2016.

This will help the company to achieve modest improvement in its EBITDA rate as a percent to sales in 2016 compared with 2015 excluding gains from the expected sale of real estate in Brooklyn.

In conjunction with the announcements, as well as incremental asset impairment charges related to store closings, around $200 million of charges, of which around $165 million is expected to be cash.

These charges were not previously included in earnings guidance provided by the company and are in addition to the $111 million, or 20 cents per share, booked in the third quarter. (AR)

Fibre2Fashion News Desk – India

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