As cuts hit Macy's, will it trim Cincinnati headquarters?
CINCINNATI — Stalling sales have slashed Macy's share price, prompted its longtime leader to retire and forced the retailer to close stores around the country.
But it's hard to imagine that a company with a long legacy of Cincinnati community involvement would retreat from its local headquarters, right?
Macy's' (M) roots in Cincinnati date back to the 1830 founding of Shillito’s department store. Today, the Fortune 500 company employs 4,000 people in the region and spends millions of dollars with local non-profit groups and enterprises.
Cobbled from dozens of regional department store chains, Macy’s has maintained dual corporate offices in downtown Cincinnati and New York City for more than two decades. But industry woes have placed the company's real estate assets and expenses under a microscope.
Even with another New York-based CEO taking over next year and fewer top Cincinnati executives, experts are still divided on whether Macy's might alter its corporate footprint as it responds to changes in shopper tastes and a rise in online shopping. On one hand, consolidating locations could help the company be more efficient. However, the cost of any personnel shifted to a higher-cost market such as New York and the distractions from any changes might eliminate benefits.
"In today's age where the dollar is king, they could sever their historical ties to benefit the bottom line," said Andy Stout, managing director of investments at Simply Money in Sycamore Township, Ohio.
"They've long had dual operations — I suspect they're pretty happy with the Cincinnati office," said Jan Kniffen, a Greenwich, Conn.-based retail consultant.
In a statement, a Macy's spokeswoman said the company currently has no plans to alter its dual headquarters structure. However, the statement, prompted by questions from The Cincinnati Enquirer, did not address whether more jobs or functions could be shifted away from Cincinnati.
Big Apple hasn't devoured Cincinnati operations
So why does Macy’s, the nation’s largest operator of department stores, call Cincinnati home? New York City is the de facto U.S. fashion capital and the nation’s most populous city. It also has a long history in retail merchandising and marketing.
Part of the story lies in the company’s lineage, with Macy’s being an amalgamation of brands led by its forerunner Federated Department Stores. Federated moved its base to the Queen City 70 years ago.
Federated bought Macy’s, then a recently bankrupt retail chain, in 1994. The company spent several years phasing out its regional nameplates such as Lazarus in Cincinnati, Rich's in Atlanta and Burdines in Florida. When Federated bought its largest rival, St. Louis-based May Department Stores in 2005, it rebranded 400 acquired stores to Macy's, including Chicago's Marshall Field's.
Under the dual headquarters structure, the company's merchandising and marketing functions remain in New York and corporate functions such as accounting, legal, human resources and real estate are largely managed in Cincinnati. Macy's owns its 317-foot-tall, 21-story headquarters at 7 W. Seventh St. and the flagship Herald Square property on 34th Street in Midtown Manhattan.
The company has had three chief executives since 1990, two of whom have been based in New York City. Jeffrey Gennette, who will become CEO early in 2017, will probably be based in New York.
Few other members of Macy's corporate, or C-suite, call Cincinnati home too. Macy's has 15 executive management team members, but The Enquirer could only find two — Chief Financial Officer Karen Hoguet and chief human resources officer Sherry Hollock — who list personal addresses in Greater Cincinnati, according to public records searches.
Sales dips, investor pressure push change
Macy's was a Wall Street darling in the years after the Great Recession as it managed to grow both sales and profits until 2015. Since the company's stock peaked at an all-time high of $73.61 in 2015, the company's stock price has been cut in half after several quarters of missed sales forecasts.
Sales at Macy's are expected to close the year at $26 billion, down from the 2014 peak of $28.1 billion.
Investor pressure came to a head early this year when hedge fund investor Jeffrey Smith's Starboard Value claimed Macy's total real estate assets were worth $21 billion — worth more than the company's $13 billion of outstanding stock.
To mollify investors, Macy's in two separate 2016 announcements unveiled plans to shutter 140 stores. The company has yet to release a complete list of about 100 stores it plans to close.
In the last two years, Macy's has announced a string of deals to get more money out of its real estate. Last month, the company tapped Brookfield Asset Management to spend two years to study development opportunities at 50 undisclosed sites.
While Macy's is making several real estate changes, altering its Cincinnati corporate presence doesn't look like a money maker to many real estate pros.
Selling off all or parts of department stores on prime real estate in pricey metropolitan areas appears to be an easier way to free up corporate cash. Deals announced since 2015 are expected to raise $800 million. The Cincinnati headquarters building is valued at $30 million, according to the Hamilton County auditor's office.
Selling a nearly 40-year-old office building probably would result in a big tax bill for Macy's. Since the company also leases space inside its building, it would forego revenue it could use for building upkeep. It probably would take a major enticement to get Macy's to desert its downtown spot, but if the company stayed in the region, there would be a short list of places where it would go, experts said.
If functions are shifted to New York, relocating or hiring new talent also could increase costs.
"It doesn't make any sense to move support jobs to New York — those labor costs would jump 20%, $3,000 to $5,000 a head," said King White, chief executive of Dallas relocation firm Site Selection Group. "We consider Cincinnati a good, low-cost tier 1 market."
Retail consultant Kniffen agreed. He said many apparel retailers left corporate offices in New York in decades past to lower costs. Kniffen's former employer May Department Stores, where he was treasurer and a finance executive, was one of them.
Kniffen said May lost some talent by moving out of New York and consolidating its headquarters to St. Louis. He said it made sense for Macy's to keep its dual structure. While Macy's CEOs and more senior executives have gravitated more toward New York, he was skeptical of a broader Macy's exodus to the Big Apple.
"That would cost a friggin' fortune," Kniffen said.
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