Macy’s Unveils a 5-Year Recovery Plan
R. H. Macy & Co., struggling to survive amid staggering losses, unveiled a five-year business plan Thursday aimed at slashing costs, increasing efficiency and wooing back legions of less-affluent customers that it abandoned in the last decade.
Myron E. Ullman III, Macy’s co-chairman and co-chief executive, also said the department store concern may close more of its 19 I. Magnin stores, centered on the West Coast. But the company is committed to its Bullock’s chain and is not contemplating mass closures or a sale.
Macy’s, which entered Chapter 11 bankruptcy last January, unveiled the restructuring plan just a week after reporting a $1.25-billion loss for the year ended Aug. 1. Although sales remain off from last year, the retailer said the pace of losses was slowing and cash flow was improving because of drastic cost-cutting.
The new business plan is aimed at persuading creditors and vendors that the chain is capable of paring costs and improving efficiency enough to survive beyond the next six months in a hostile economic climate. Macy’s executives said creditors responded favorably to the plan in a meeting Thursday. They said that lenders providing financing since the bankruptcy filing agreed to ease financial requirements to help the retailer get through 1993.
Retail analyst Walter F. Loeb of Loeb Associates said Macy’s should survive. He said the company’s plan takes long-needed steps to lower costs, especially by spending less on advertising and using computers to improve the flow of merchandise.
“There’s very little it leaves out,” Loeb said.
A cornerstone of the business plan is to improve sales by efficiently allocating merchandise through use of a new category of executives known as “planners.” The planners will act as intermediaries between buyers and individual stores to track sales data and respond quickly to demand. The arrangement involves use of a new computer system that links directly with certain vendors so that orders for hot-selling merchandise can be filled quickly.
The goal “is to get the right goods in the right stores at the right time,” Ullman said. Macy’s also plans to quickly move marked-down merchandise to new close-out outlets, so that older discounted items do not compete with new merchandise.
In presenting the plan, Ullman and Mark S. Handler, co-chairman and co-chief executive, acknowledged that Macy’s had erred in the 1980s by focusing its advertising and marketing on the wealthiest class of customers.
“We walked away from a certain amount of our core customers,” Ullman said.
The plan aims to improve the company’s cash flow by about $600 million annually by its fifth and final year to $811 million, or 9% of sales.
The company also said it will lower advertising expenses through careful targeting of its core customers. Macy’s expects to cut its ad costs by about 30% over the five years, a move it said would add $91 million to its annual cash flow.
Handler contends that the business plan is realistic because it is based on conservative projections. For example, the plan doesn’t assume any growth in sales before 1994.
“It’s not a hope plan,” he said. “It’s a very doable plan.”
