Macy's to Cut 7,000 Jobs Amid Reorganization

Macy's announced yesterday that it will eliminate 7,000 jobs by May 1 as it undertakes a massive reorganization in the face of slumping sales and depressed consumer spending.

The cuts represent about 4 percent of the company's 180,000-person workforce. Stores will lose an average of five to six employees, while about 40 percent of management positions will be cut, Macy's said. The Washington region, however, is expected to get a boost of 70 jobs under the restructuring.

In addition, Macy's said it will begin repurchasing about $950 million in debt that will mature later this year, which should help reduce interest expense. It also said that it was lowering the quarterly dividend to 5 cents per share from 13.25 cents.

The company estimated that its cost-cutting will save $250 million this year and $400 million annually in the future. It is also slashing capital expenditures to $450 million from an original estimate of $1 billion, lowering contributions to employees' 401(k) plans and eliminating merit raises for executives this spring.

"We just believe that this is a time when nothing should be considered a sacred cow," Macy's chief executive Terry J. Lundgren said in a conference call with analysts. "[We] challenged ourselves to come up with an expense plan that we thought we could live with."

The 150-year-old department store chain -- which announced last month it would close 11 of its 840 stores -- is the latest in a long line of retailers shedding jobs and slashing costs as the recession continues its stranglehold on consumers' wallets. Just last week, Target, Best Buy, Home Depot and Starbucks announced significant staff reductions. Filene's Basement said this month that it would shutter 11 stores, including one in Tysons Corner, one in Columbia and two others in Maryland.

"I think there's a changing perspective on how long this is going to be, and that's why you're seeing the dramatic cuts," said Ted Vaughan, partner in the retail and consumer-products group at the accounting firm BDO Seidman. "I think you're seeing a very long-term resetting of sales levels."

Macy's has long been organized by geography, with separate buyers, planners and executives responsible for each area. As the company grew, the regions became large and unwieldy and fell out of touch with local customers, Lundgren said.

Under the new structure, all buying, merchandise planning, store operations and marketing will take place in New York. Corporate-related operations such as finance, human resources, law, property development and purchasing will be in Cincinnati.

However, Macy's executives said that decisions made there and in New York would be informed by a store-level initiative dubbed "My Macy's." The program clusters stores into groups of 10 or 12 so that managers can visit each location roughly every other week. Eight cities, including Washington, will serve as hubs for the new clusters.

"It's really starting from a blank piece of paper and really what you would do if you would start a company like this from scratch," Lundgren said.

Macy's began testing the program in 20 markets last year and has seen gains, he said. He cited a store at the Mall of America near Minneapolis that began selling swimsuits year-round and now boasts some of the best swim sales in the country. Lundgren said that about a dozen markets that have implemented the program are among the best-performing in the company.

In the Washington area, Macy's will use the former Hecht's headquarters in Ballston Common as its local office, spokesman Jim Sluzewski said. He anticipated that about 70 positions will be added as a result. Macy's bought Hecht's parent company, May Department Stores, in 2005 for $11 billion.

Macy's stock fell 36 cents, or 4 percent, to $8.59 yesterday. It said that it expects same-store sales for the year to drop 6 to 8 percent.

"We hope we can do better than this," Chief Financial Officer Karen Hoguet said during the call with analysts. "But in this current environment, we see no upside in planning more aggressively."