8 Macys, Inc.

2009
Rochelle R. Brunson and Marlene M. Reed
Baylor University

M
http://www.macysinc.com
Macys sales for the first quarter of 2009 total $5.199 billion, down 9.5 percent from sales
of $5.747 billion in the first 13 weeks of 2008. On a same store basis, Macys, Inc.s first
quarter sales were down 9.0 percent. Online sales (macys.com and bloomingdales.com
combined) were up 16.2 percent.
Macys operating loss totaled $114 million or 2.2 percent of sales for the quarter
ended May 2, 2009, compared with operating income of $30 million or 0.5 percent of sales
for the same period last year. On May 15, 2009, the board of directors of Macys, Inc.
declared a regular quarterly dividend of 5 cents per share on Macys common stock.
Terry J. Lundgren, Macys chairman, president and chief executive officer, sug-
gested, We continue to successfully navigate the very difficult economic environment.
Our first quarter sales were consistent with our initial expectations, while earnings and
cash flow performance were better than expected. By the end of the first quarter, we com-
pleted rollout of our My Macys localization initiative. We have entered the second quarter
with our new organizational structure in place and expect to benefit from approximately
$400 million of annual expense savings beginning in 2010 (and $250 million in the partial
year of 2009). Meanwhile, we expect to see an improvement in sales trend from My
Macys beginning in the fourth quarter of 2009 and especially in spring 2010.
On June 11, 2009, Macys announced it would open two new Macys stores in the
Central Valley of California in the fall of 2009. Both are former Gottschalks locations for
which Macys submitted successful bids in the Gottschalks bankruptcy process.
Macys second quarter 2009 ended August 1 and showed an earnings drop of 90
percent to $7 million and a sales drop of 9.7 percent to $5.16 billion. For that quarter,
Macys said their sales of mattresses, furniture, and handbags remained very weak, while
their sales of apparel, cosmetics, and childrens clothing were up slightly. Due to reduced
orders from Macys, other retailers too are suffering. For example, Liz Claiborne considers
Macys to be its biggest customer. Liz Claiborne for the second quarter of 2009 showed
a sales drop of 29 percent to $683.8 million and an earnings loss of $82.1 million. Macys
needs a clear strategic plan for the future.

History
In 1851, Rowland Hussey Macy established a dry goods store in Haverhill, Massachusetts,
to serve the whaling community. Then in 1858, he moved to New York City and estab-
lished a new store named R.H. Macy & Company on the corner of 14th Street and 6th
Avenue. Later he expanded his store to 18th Street and Broadway, which was the elite
shopping district of that century.
After Rowland Macys death, Nathan Straus and his brother, Isidor Straus, bought the
store in 1893. Before purchasing the store, Nathan had held a license to sell china to the Macys
store. In 1902, the flagship store moved uptown to Herald Square at 34th Street and Broadway.
Macys went public in 1922 and opened additional stores around New York and
Long Island. In 1924, Macys began acquiring stores outside of the New York City region
84 ROCHELLE R. BRUNSON AND MARLENE M. REED

in such cities as Toledo, San Francisco, and Kansas City. Then in 1983, the company began
opening its own stores outside of New York.
In 1986, Macys chairman Edward Finkelstein led a $3.5 billion buyout of Macys
and took it private. The companys debt load increased into the early 1990s, and Macys
filed for bankruptcy in 1992. Three years later, Federated Stores bought the 82 Broadway
Stores and renamed 52 of them Macys in 1996.
In 2001, Federated Stores decided to convert 19 of its Sterns locations in New Jersey
and New York to its two strongest department store brands: Macys and Bloomingdales. In
the first half of 2006, five underperforming Lord & Taylor stores were closed and a sixth
was converted to a Macys store.
In June 2007, Federated Stores changed its corporate name to that of its most famous
brand, Macys. Along with its name, the department store operator changed its ticker
symbol to M on the New York Stock Exchange. In September 2007, the Martha Stewart
Collection of merchandise for the home (including bed and bath textiles, housewares, casual
dinnerware, flatware and glassware, and cookware) debuted in all Macys full-line stores. In
2007, Macys opened 10 stores and a single furniture gallery. Then in 2008, Macys cele-
brated its 150th birthday by opening four new Macys stores and one furniture gallery.
On August 30, 2005, Federated completed its $11 billion acquisition of rival May
Department Stores. Then in October 2006, Federated completed the sale of its 48-store Lord
& Taylor department store chain to NRDC Equity Partners LLC for nearly $1.1 billion. Lord
& Taylor operated stores in a dozen states and the District of Columbia.
In early 2007, the department store operator completed the divestment of its bridal
division with the January sale of Davids Bridal to buyout firm Leonard Geen & Partners
for about $750 million. In April of that year, Macys sold After Hours Formalwear to The
Mens Wearhouse for about $100 million.

Internal Factors
Basic Values
Macys has some well-published values intended to guide the behavior of all their employ-
ees, as follows:
We subscribe to ethical business practices in every facet of our business.
We will protect the interests of our shareholders.
We will provide quality and value to our customers in all dealings.
We will obey all laws.
We will treat others as we want them to treat us.
We will respect the rights and property of others.
We will be good corporate citizens.
Macys believes that the timeless values that made our nation strong are the same
values that make the company strong. These values are:
A belief in the promise of the future with the energy and determination to get us there.
A belief that our heritage mirrors the optimism, inclusion and integrity that provide
for both stability and growth.
A belief that taking advantage of the right opportunities will continue to lead us to
success in all that we do.

Organization
Macys has developed a new organizational strategy named My Macys based on cus-
tomer research and input from Macys store managers, senior division executives,
merchandise vendors, and industry experts. Exhibit 1 shows Macys divisional organization
chart, and Exhibit 2 provides Macys division review.

Merchandising
Macys strives to bring to customers niche brands and categories as indicated in Exhibit 3.
The company has recently rolled out fresh, handmade cosmetics, soaps, and bath products
 CASE 8 MACYS, INC. 2009 85

EXHIBIT 1 Macys Divisional Organization Chart

Terry J.
Lundgren, Chair.,
Pres. & CEO

Macys Central
-Ed. J. Holman

Macys East-
Ron Klein

Macys Florida-
Julie Greiner

Macys West-
Jeffrey
Gennette

Macys Home
Store-Timothy
M. Adams

Macys.com-
Peter Sachse

from Lush. The recent use of robotic machines to sell iPods, iPod accessories, and other
electronic products has been a very successful action plan. By 2008, private brands and
labels represented about 19 percent of Macys sales.
Macys has always been known as an innovator. They pioneered such revolutionary
business practices as the one-price system (the same item was sold to every customer at
one price), quoting specific prices for goods in newspaper advertising, introducing such
items as the tea bag, the Idaho baked potato, and colored bath towels. The company was
also the first retailer to hold a New York City liquor license. Macys also piloted new food
concepts in selected stores, many of which were developed from the Macys Culinary
Council. Several stores have recently launched quick-service concepts such as La Brea
Baker shops and newly developed Taste Bars.

Technology
Macys direct-to-consumer businesses, including Macys.com, continues to be the fastest-
growing part of the company. Two new 600,000-square-foot distributions centers in Portland,

EXHIBIT 2 Macys Division Review

Number of Total Store Number of

Division Stores Square Footage Employees
Macys Central 239 42,543 million 39,200
Macys East 253 52,896 million 57,700
Macys Florida 62 10,277 million 10,200
Macys West 259 40,507 million 46,700
86 ROCHELLE R. BRUNSON AND MARLENE M. REED

EXHIBIT 3 2008 Macys, Inc., Sales by Merchandise Categories

(as a percentage of sales)

2008 2007 2006

Furniture, Accessories, Intimate
Apparel, Shoes, & Cosmetics 36% 36% 35%
Feminine Apparel 27% 27% 28%
Mens & Childrens 22% 22% 22%
Home/Miscellaneous 15% 15% 15%
Total 100% 100% 100%

Tennessee, and Goodyear, Arizona, are part of a $300 million investment in direct-to-consumer
technology and operations. Macys recently began installing a network of 50,000 new regis-
ters and point-of-sale systems that will be fully in place by the end of 2010. New smart
registers are allowing sales associates to handle complex tasks more simply. The supporting
software for this system will enable multichannel retailing in the future.

Sustainability Issues
Macys has made a commitment to making a meaningful difference in improving the
natural environment. The company has been able to reduce its total energy consumption by
nearly 10 percent over the past five years. They have begun hosting solar panels on
28 Macys stores in California. In addition, their customer-oriented fund-raising programs
in the spring of 2008 benefited such organizations as the National Park Foundation and the
National Resources Defense Council.
Through Macys Rwanda Path to Peace Project, the company offers a collection of
colorful baskets hand made by Rwandan widows who are survivors of that countrys civil
war and genocide. The baskets provide a lifeline of sustainable income to these excep-
tional artisans while offering to their customers high-quality, unique baskets that are not
available anywhere else.
Many of Macys new products are eco-friendly, such as Haven by Hotel Collection.
These include products for the bed and bath such as organic cotton sheets and towels.
Macys has a stringent Vendor/Supplier Code of Conduct. This code sets out specific
standards and requirements for any vendor doing business with the company. All of the
companys vendors are required to sign written affirmations in which they agree to comply
with the companys Code of Conduct. In addition to other requirements, the code requires
Macys vendors allow unannounced factory inspections for contractual compliance as well
as compliance with child labor laws and regulations.
Macys has also adopted welfare-to-work programs with government and service
organization partners in cities from coast to coast. The purpose of such programs is to pro-
vide training that will help welfare recipients gain employable skills and move into gainful
employment. Macys provides employment for many of the participants in these programs.
Macys encourages charitable giving and employee volunteerism at both the national
and local levels. Contributions from the company and its charitable foundations totaled
$35.7 million in fiscal 2007. The company matched more than $4 million in employee gifts
to nonprofit organizations across the country. In addition, Macys efforts resulted in an
additional $42.7 million in contributions from employees and customer through United
Way drives, their Thanks for Sharing holiday campaign, Shop for a Cause charity shopping
days, Passport and Glamorama fashion events, and other programs.

Advertising
Macys uses network and cable television, fashion magazines, and an increasing amount of
digital and online media to provide for national brand advertising. They use a balanced
level of promotional advertising and direct marketing. The Macys Thanksgiving Day
Parade has had a worldwide impact. The most recent parade had 3.5 million live spectators
and a television audience of 50 million.
 CASE 8 MACYS, INC. 2009 87

Macys recently launched a series of breakthrough brand ads featuring more than a
dozen design celebrities behind unique merchandise sold in their stores and online. These
celebrities ranged from Martha Stewart and Donald Trump to Usher, Jessica Simpson, Tyler
Florence, Sean Combs, and Kenneth Cole. The campaign ads, which depict the celebrities
interacting inside Macys, are planned to continue into the future with new faces and themes.

Financial Performance
Macys has adopted the following financial objectives:
To accelerate comparable store sales growth.
To continue to increase the companys profitability levels (earnings before interest,
taxes, depreciation, and amortization) as a percentage of sales to a level of 14 percent
to 15 percent.
To effectively use excess cash flow through a combination of strategic growth oppor-
tunities and stock buybacks.
To grow earnings per share while increasing return on gross investment.
Macys financial performance in 2008 is provided in Exhibits 4 and 5.

Competitors
Macys considers Dillards, Inc., J.C. Penney Corporation, Inc., and Saks, Inc., to be its
closest competitors (see Exhibit 6). As compared with its closest competitors in 2008,
Macys 167,000 employees were considerably more than Dillards (33,433) and Saks

EXHIBIT 4 Consolidated Statements of Income

(millions, except per share data)

Jan. 31, 2009 Jan. 31, 2008

Net sales $24,892 $26,313
Cost of goods sold 15,009 15,677
Gross margin 9,883 10,636
Selling, general and administrative expenses (8481) (8,554)
Division consolidation costs and store closing
related costs (187) -0-
Asset impairment charges (211) -0-
May integration costs -0- (219)
Operating income 1,004 1,863
Interest expense (net) 560 (543)
Income from continuing operations before
Income taxes 444 1,320
Federal, state and local income tax expense (164) (411)
Income from continuing operations 280 909
Discontinued operations, net of income taxes -0- (16)
Net income $280 $893
Basic earnings (loss) per share:
Income from continuing operations $.67 $2.04
Loss from discontinued operations -0- (.04)
Net income $.67 $2.00
Diluted earnings (loss) per share:
Income from continuing operations $.66 $2.01
Loss from discontinued operations -0- (.04)
Net income $.66 $1.97
88 ROCHELLE R. BRUNSON AND MARLENE M. REED

EXHIBIT 5 Consolidated Balance Sheets (millions as of January 31)

2009 2008
Assets
Current Assets:
Cash and cash equivalents $ 1,306 $ 583
Accounts receivable 439 463
Merchandise inventories 4,769 5,060
Supplies and prepaid expenses 226 218
Total current assets 6,740 6,324
Property and Equipmentnet 10,442 10,991
Goodwill 9,125 9,133
Other Intangible Assetsnet 719 831
Other Assets 501 510
Total Assets $27,527 $27,789

Liabilities and Shareholders Equity

Current Liabilities:
Short-term debt $ 966 $ 666
Merchandise accounts payable 1,282 1,398
Accounts payable and accrued liabilities 2,628 2,729
Income taxes 28 344
Deferred income taxes 224 233
Total Current Liabilities 5,360 6,095
Long-Term Debt 8,733 9,087
Deferred Income Taxes 1,416 1,446
Other Liabilities 2,521 1,989
Shareholders Equity: stock
Total Shareholders Equity 9,729 9,907
Total Liabilities and Shareholders Equity $27,527 $27,789

EXHIBIT 6 Macys Closest Competitors

Macys Dillards J.C. Penney Saks

Market Cap 4.85 B 532 M N/A 5.19 B
Employees 167 T 33 T 155 T 10 T
Qtrly. Rev. Growth -7.70% -5.70% N/A N/A
Revenue 24.69 B 6.99 B 19.86 B 3.03 B
Gross Margin 39.70% 30.92% N/A 32.14%
EBITDA 2.68 B 166.17 M N/A 17.07 M
Operating Margins 5.63% -1.69% N/A -3.88%
Net Income -$4.08 B -$241.07 M $1.11 B -$122.76 M
EPS -$11.403 -$3.245 N/A -$1.120

T = thousand
M = million
B = billion
 CASE 8 MACYS, INC. 2009 89

(10,860) and 12,000 more than J.C. Penneys. Macys also leads in the area of total
revenues with $24.89 billion as compared with Dillards ($6.99 billion), J.C. Penney
($19.86 billion), and Saks ($3.03 billion).
In terms of gross margin, Macys also leads with 39.70 percent as compared with
Dillards 30.92 percent, and Sakss 32.14 percent. Penneys gross margin percentage is not
available for comparison. A review of the net income of Macys indicates that it had a loss
of $4.80 billion in 2008, Dillards lost $241.07 million, J.C. Penney had a positive net
income of $1.18 billion, and Saks lost $122.76 million.

U.S. Retail Clothing Industry in 2009

In an economic recession such as the 20072009 period of time, a comparison of same-
store year-to-year sales numbers becomes more important than in other economic periods.
The January 2009 sales changes for same stores as compared to January 2008 revenues for
selected retail clothing stores are as follows:

Store Name Change in Jan. 2008 to Jan. 2009 Revenues

The Buckle, Inc. +14.7%
Aeropostale +11.0%
Gottschalks +8.8%
Macys, Inc. -4.5%
Limited -9.0%
Chicos FAS -10.9%
Nordstroms -11.4%
Dillards -12.0%
Kohls -13.4%
J.C. Penney -16.4%
Neiman Marcus -18.3%
Abercrombie & Fitch -20.0%
Saks, Inc. -24.0%

Source: Barbara Farfan, January 2009 Same Store Sales Figures: Complete U.S. Retail Industry Report.
About.comRetail Industry. Available at http://retailindustry.about.com.

Because of the lack of sales growth among many retail clothing stores in 2008, the
following companies announced employee layoffs in January of 2009:

Store Name Number of Employee Layoffs

Saks, Inc. 1,100

Macys, Inc. 960
Neiman Marcus 375
New York & Company 310
Stein Mart 209
Chicos FAS 180
Gottschalks dozens

Source: Barbara Farfan, 2009 Retail Industry Job Cuts: Top U.S. Retail Employee Layoffs and Unemployment.
About.comRetail Industry. Available at http://retailindustry.about.com.

Conclusion
Macys press release of January 8, 2009, says the company was going to close 11 under-
performing stores as indicated in Exhibit 7. Chairman Terry J. Lundgren commented on
that revelation by suggesting, These closings are part of our normal-course process to
prune underperforming locations each year in order to maintain a healthy portfolio of
90 ROCHELLE R. BRUNSON AND MARLENE M. REED

EXHIBIT 7 Macys, Inc., Store Closings, 20082009

Facility Location City Square Footage No. of Employees

Ernst & Young Plaza Los Angeles, CA 135,000 136
The Citadel Colorado Springs, CO 195,000 105
Westminster Mall Westminster, CO 190,000 71
Mauna Lani Bay Hotel Island of Hawaii, HI 3,000 3
Lafayette Square Indianapolis, IN 160,000 84
Brookdale Center Brooklyn Center, MN 195,000 72
Crestwood Mall St. Louis, MO 166,000 76
Natrona Heights Plaza Natrona Heights, PA 73,000 124
Century III Furniture & Clearance West Miffin, PA 83,000 3
Bellevue Center Nashville, TN 211,000 76

stores. While new store growth has slowed in the current economy, our long-term strategy
is to continue to selectively add new stores while closing those that are underperforming.
A month later, a Wall Street Journal article on dated February 3, 2009, stated that
Macys intends to shed 7,000 jobs or 4 percent of its workforce. Macys also is cutting its
dividends by 62 percent, ending merit pay increases for executives, and slashing its 2009
capital-spending budget by another $100 million to $150 million. The original budget was
$1 billion (Dodes, 2009).
Retail consultant Howard Davidowitz suggests that Chief executives of retailers
with high debt levels are especially vulnerable. He pointed to Terry J. Lundren of Macys
as someone who needs to make significant progress after poor 2008 results and the ill-
timed acquisition of May Company (Bymes and McConnon, 2009).
On a more positive level, Macys corporate vision contains the following statements:
A belief in the promise of the future with the energy and determination to get us there;
A belief that our heritage mirrors the optimism, inclusion and integrity that provide for
both stability and growth; and
A belief that taking advantage of the right opportunities will continue to lead us to suc-
cess in all that we do.
In lieu of the companys optimistic vision statement and the serious economic down-
turn in the economy of the United States, which resulted in the closing of 11 Macys stores,
Lundgren and the rest of the company leadership were faced with determining an appropri-
ate strategy to avoid more layoffs and store closings.

References Cited
Bymes, Nanette, and Aili McConnon. Executives on a Tightrope. BusinessWeek
(January 19, 2009): 43.
Dodes, Rachel. Macys to Shed 7,000 jobs, Cut Payout by 62%. Wall Street Journal
(Februrary 3, 2009): B1.
Farfun, Barbara. Retail Recession News: Consumer Belief Makes It So. October 29,
2008. http://www.retailindustry.about.com
Farfun, Barbara. January 2009 Same Store Sales Figures: Complete U.S. Retail Industry
Report. January 29, 2009. http://www.retailindustry.about.com
Farfun, Barbara. 2009. Retail Industry Job Cuts: Top U.S. Retail Employee Layoffs and
Unemployment. January 2009. http://www.retailindustry.about.com
Macys, Inc. to Close 11 Stores. Macys Press Release, January 8, 2009.
Macys, Inc. Annual Report for 2008 (April 2009)
Macys, Inc. Web site, http://www.macys.com