Macy's Focusing on Local Stores

Macy's Inc. hopes to tailor individual stores to the needs of customers by concentrating more managers in local markets where they will make more decisions _ a move that means combining three regional divisions and cutting about 2,300 management jobs.

The announcement came as Macy's said it endured a steeper-than-expected drop in January sales at established stores and said earnings in its fiscal year would fall below Wall Street estimates. Shares slid almost 5 percent on the news.

Macy's Chief Executive Terry Lundgren told The Associated Press on Wednesday that he believes the new business structure is the right one.

"We think it is one that will get us back to the place where we can take market share and grow our sales," said Lundgren, also Macy's chairman and president.

The Cincinnati-based retailer has been struggling with disappointing sales and resistance from shoppers in some markets where the Macy's name replaced local favorites it absorbed when it bought May Department Stores Co. in 2005.

Macy's said regional headquarters in Minneapolis, St. Louis and Seattle will be consolidated into offices in New York, Atlanta and San Francisco, respectively.

Affected executives will be considered for positions in the new local market organization or for other open positions, the company said. Laid-off employees will receive severance benefits and outplacement assistance. Macy's also will add 250 management positions in local markets adopting the model to better tailor product offerings to specific regions.

The net effect would be a reduction of 2,300 jobs in the company's current work force of about 188,000.

Lundgren said the new structure doesn't contradict Macy's goal of building up the brand nationally, which he said remains critically important.

"But we have to be sure we are totally tuned into the customer and individual stores while carrying the national brand," Lundgren said.

The consolidation is good for investors in the long term, according to Dan Hess, founder and CEO of Merchant Forecast, a research company. But in the short-term, it is "going to create turmoil." He fears there could be missed deliveries and other mistakes as the company digests the changes.

"This is a time of year that you don't want disruption," Hess said.

Lundgren acknowledged that some confusion usually accompanies any consolidation as people change jobs and go to new positions, but he said Macy's has done it before.

Under the new strategy, Macy's locations will be grouped into 20 new districts of about 10 stores, compared with an average of 16 to 18 currently overseen by each regional manager. The district-based executives will make more decisions in areas including service and visual merchandising. Local markets also will get more resources for special events and customer service.

Lundgren said Macy's may see some benefit of the changes by the fourth quarter, but more likely in 2009.

Meanwhile, Macy's reported that sales at stores open at least a year, a key barometer of a retailer's health, fell 7.1 percent in January. Analysts surveyed by Thomson Financial had expected a 5.9 percent drop.

For fiscal 2008, Macy's is predicting profit of $1.85 to $2.15 a share, excluding costs, versus analysts' forecasts of $2.33. The company plans to take a one-time charge of $150 million dollars this year for expenses related to the consolidation.

Macy's now expects fourth-quarter earnings to be $1.75 to $1.80, excluding merger integration costs of about $70 million. Analysts surveyed by Thomson Financial expected $1.71 on that basis.

The company is scheduled to report earnings on Feb. 26.

Macy's shares fell $1.16, or 4.6 percent, to close at $23.94 Wednesday. They fell another 44 cents in after-hours trading.

Macy's Inc., which had fiscal 2007 sales of $26.3 billion, operates more than 850 department stores in 45 states, the District of Columbia, Guam and Puerto Rico under the names of Macy's and Bloomingdale's. The company also operates macys.com, bloomingdales.com and Bloomingdale's By Mail.

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