Macy’s And Wayfair Are Downsizing And Walmart Is Adjusting As Retail Readies For A Reset

Following a year when retail grew 3.5% overall and November-December 2023 holiday sales were even more robust, advancing 3.8%, retailers are going into 2024 with wind in their sales.

Yet, Macy’s, Wayfair
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, and Walmart
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are among the retailers announcing layoffs and store closings as these forward-looking retailers ready for a reset in 2024.

Good News, Bad News

“Consumer spending was remarkably resilient throughout 2023 and finished the year with a solid pace for the holiday season,” said National Retail Federation chief economist Jack Kleinhenz as he took a victory lap announcing holiday retail results, excluding motor vehicles, gasoline stations and food services categories.

“Although inflation has been the biggest concern for households, the price of goods eased notably and was helped by a healthy labor market, underscoring a successful holiday season for retailers.”

Yet, just a week before, a more sober-minded Kleinhenz warned retailers that the positive tailwinds in consumer spending is “not necessarily sustainable,” as he noted that tighter credit and higher borrowing rates will put a crimp in consumers’ spending ability, as will a tightening labor market.

2023 Retail Winners And Losers

Health and personal care stores garnered the highest rate of growth in 2024, up 8.5% to reach $433 billion. This gain is notable since three major drug store retailers – CVS Health, Walgreens and Rite Aid – together accounted for nearly 20% of the 4,600 retail store closures last year, according to Coresight Research.

Online and non-store retailers also made great strides in 2023 with sales up 8% to $1.4 trillion. By contrast, furniture and home furnishings stores were the biggest loser, with revenues down 5.4% to $134 billion.

The pandemic and its aftermath impacted both sectors, but in different ways. Consumers made significant investments in their home spaces over the past three years, which is now abating. On the other hand, e-commerce got a boost as shoppers developed the online shopping habit.

Also losing ground last year was the $499 billion building materials and hardware sector, off 3% and department stores, down 2.7%. However, the $875 billion general merchandise sector, which includes department stores’ $133 billion in sales, was up 2.6%.

Miscellaneous store retailers, which includes office supplies, stationery, gift and used merchandise stores advanced 3.2% to $185 billion, but virtually all the gains are credited to used merchandise stores, up 5.1% through November, a sign of the tough economic times. Gift stores were off 1.8% and office and stationary stores down 3.5%.

Food and beverage stores pulled out a 2.5% increase to $986 billion and clothing and clothing accessories stores rose 1.6% to $313 billion. Basically flat in 2023 were electronics and appliance stores at $93 billion and sporting goods, hobby, musical instrument and book stores at $103 billion.

While the NRF doesn’t report food services in its retail numbers, it is remarkable that the sector rose 11.3% in 2023, reaching $1.1 trillion. It signals consumers’ experiential turn; rather than shopping, they’d prefer to eat, drink and gather with friends.

Walmart’s Moves

After shuttering 24 stores last year, Walmart has two more San Diego area stores slated to close in early February. The company told TheStreet that it couldn’t reach an agreement with property owners to renew those leases, so the more than a dozen Walmart stores in the region are expected to pick up the slack and the affected workers.

Potentially more impactful from a futures perspective is the closing of its new concept incubator division called Store No. 8, as reported by Wall Street Journal. It is named after the physical store where founder Sam Walton tested ideas, but in its current incarnation, it is a dispersed team.

The innovation group grew out of the $3.3 billion Jet.com acquisition in 2016 that brought Marc Lore to the company. Jet.com closed in May 2020 and in early 2021, Lore exited, though many of Lore’s hires stayed on as part of the Store No. 8 team. Senior vice president Scott Eckert, who headed up the unit, is also leaving the company.

According to Walmart, the innovation mission of Store No. 8 has now been embedded throughout the organization. “The responsibility to shape the future of retail is now shared by all segments,” CFO John David Rainey wrote in a memo the WSJ reviewed.

Dispersing innovation across the organization might be the right move from a financial point of view and new ideas can and should come from anywhere in the company. But to take ideas and transform them into applications takes a disciplined, dedicated team.

While Walmart seems to have its technology innovation in order now, as CEO Doug McMillon announced at the recent Consumer Electronic Show, a company as large as Walmart with 2.1 million associates, operating 10,500 stores and numerous online websites in 19 countries and with $611 billion in revenues last year, might eventually regret not devoting a dedicated team like Store No. 8 to incubating new service innovations.

Macy’s Layoffs And Closures

Coming off a disappointing third quarter with net sales down 7.1% to $4.9 billion, adding to a year-to-date drop of 7.5%, Macy’s just announced it will layoff 3.5% of its employees, approximately 2,350 positions.

It will also shutter five stores in Arlington, VA; San Leandro, CA; Lihue, HI; Simi Valley, CA; and Tallahassee, FL, according to Wall Street Journal. The layoffs will hit corporate staff the hardest, experiencing a 13% reduction in force.

Macy’s president Tony Spring is set to assume the CEO position in February about the time the company reports its full-year earnings. He will inherit a smaller organization than outgoing CEO Jeff Gennette ran. Since 2016, the company has closed about 170 stores in total.

Today it operates about 560 Macy’s stores, 58 Bloomingdale’s and 158 Bluemercury beauty specialty stores. In the third quarter, Bluemercury was the only nameplate to post growth, up 2.5%, while Bloomingdale’s was down 2.6% and Macy’s off 7.9%.

Its current year-end guidance forecasts revenues between $22.9 billion and $23.2 billion, down between 6% and 7% from last year.

While the company closes big-box stores, it will literally continue to downsize with plans to open 30 small format Macy’s locations through Fall 2025 and a still-to-be-determined number of Bloomie’s locations. Today the company operates 12 small-format Macy’s and three Bloomie’s.

Wayfair Cuts 13% Of Staff

As the home furnishing market adjusts to the bust after its pandemic-driven boom, Wayfair, the online market share leader in home goods, announced it was laying off some 1,650 employees, 13% of its workforce. Like Macy’s, the corporate staff will take the brunt of cuts, losing 19% of its corporate team.

A perennial money loser, the company reported through the first three quarters of 2023 a net loss of $564 million on revenues of $8.9 billion. However, it reported its adjusted EBITDA was a positive $241 million.

No guidance for year-end results was provided, which will come toward the end of February. It also will incur approximately $70 to $80 million in employee severance and benefit costs which will be reported in the first quarter 2024.

In a letter to Wayfair team members, CEO Niraj Shah explained the company had not applied sufficient staffing discipline during 2017 through 2019. It lost focus and was forced to downsize in February 2020, right before the pandemic hit and annual sales doubled from $9 billion to nearly $18 billion.

That necessitated more aggressive hiring, but by mid-2022, the company was once again top heavy and since then, it’s undergone two “significant corporate restructurings,” with another one necessary now.

This time, Shah said it was taking a different approach to downsizing. Rather than aim for specific cost reductions, it took a bottoms-up approach to determine the right number of people needed to perform high-value tasks with the ability to flex as needed.

It is aiming to eliminate secondary and tertiary tasks and gain greater efficiencies across groups and up and down the corporate hierarchy. Shah suggested that the company had too many senior people with too much idle time on their hands.

He also noted the technology group had a “engineering partner function team to engineers” ratio problem that was being corrected to result in “better technology outcomes” rather than the opposite as has been the case.

Shah’s new found discipline and drive toward managerial and staffing efficiency is much needed, but after more than two decades in business and nearly ten years as a public company, it is surely overdue; too little, too late.

Retail Reset

While the economy dodged a recession bullet in 2023, it is not out of the woods yet. The Conference Board said that despite the prospects for a ‘soft landing’ are on the rise, “It is more probable that the U.S. economy will slip into a short and shallow recession in 2024.”

It warned of consumer spending headwinds coming from interest rates, rising debt and falling savings. It also noted a cooling labor market and that inflation continues at a rate well above the ideal at or below 2%.

And NRF’s Kleinhenz’s words of warning that the current pace of growth consumer retail spending is “not necessarily sustainable” must be heeded. It suggests that last year’s retail growth of 3.5% looks unlikely to be achieved in 2024.

“The labor market looks set to cool further this year, which will impact consumer expectations for employment and wage growth, and, in turn, affect spending decisions. Spending is elevated relative to current income, and maintaining the recent pace of growth will be increasingly difficult,” he concluded.