Macy’s, Inc. announced an updated strategy and three-year plan designed to stabilize profitability and position the company for growth.

“We have a clear vision of where Macy’s, Inc. and our brands, Macy’s, Bloomingdale’s and Bluemercury, fit into retail today. We are confident in our Polaris strategy, and we have the resources required to return Macy’s, Inc. to sustainable, profitable growth,” said Jeff Gennette, chairman and chief executive officer of Macy’s, Inc. “We will focus our resources on the healthy parts of our business, directly address the unhealthy parts of the business and explore new revenue streams. Over the past three years, we have shown we can grow the top-line; however, we have significant work to do to improve the bottom-line. We are confident the strategy we are announcing today will allow us to stabilize margin in 2020 and set the foundation for sustainable, profitable growth.”

“We are taking the organization through significant structural change to lower costs, bring teams closer together and reduce duplicative work. This will be a tough week for our team as we say goodbye to great colleagues and good friends. The changes we are making are deep and impact every area of the business, but they are necessary. I know we will come out of this transition stronger, more agile and better fit to compete in today’s retail environment,” continued Gennette.

The five major components of the Polaris strategy are outlined below.

Strengthen Customer Relationships

The company is focusing on building customer lifetime value, accelerating personalization and monetization programs and expanding its loyalty program. This includes the launch of the next phase of its already successful Macy’s Star Rewards Loyalty program later this month. Loyalty 3.0 is expected to increase the engagement of occasional Macy’s customers and to bring new customers into the brand.

Curate Quality Fashion

Customers come to Macy’s for a compelling curation of the latest trends, exclusive products and the best brands at great value. Macy’s is driving disciplined merchandise product category roles to be the top destination for the best brands, while balancing sales and margin. As part of the merchandising strategy, the company is committed to a more focused approach to its higher-margin private brands business with plans to build four $1 billion brands.

Accelerate Digital Growth

The company has a scaled and growing digital business across its brands that generates more than $6 billion per year in sales. Macys.com contributes to overall operating profit, and the company will continue to invest in its websites and mobile apps to deliver a superior fashion experience, accelerate growth and further strengthen profitability.

The macys.com headquarters will relocate from San Francisco to New York City, the heart of the fashion industry. This will allow for better coordination and increased collaboration and better access to Macy’s brand partners. The company will also expand its presence in the Atlanta area, which will serve as the primary technology hub for the company. This includes adding positions to its current Johns Creek, GA, facility, as well as opening an office in Atlanta.

Store Closures and Staffing

The company completed a rigorous evaluation of Macy’s store portfolio. This included a store-level assessment of each store’s overall value to the fleet, including predicted profitability based on consumer trends and demographics. As a result, Macy’s plans to close approximately 125 of its least productive stores over the next three years, including approximately 30 stores that are in the process of closure now. These approximately 125 stores currently account for approximately $1.4 billion in annual sales.

Across the remaining store fleet, the company is adjusting its staffing with reductions in some stores and increases in others.

The updated stores strategy better serves today’s shopper who expects a consistent experience whenever and wherever they encounter the Macy’s brand.

“Our customers expect convenience and a tailored experience across all channels. We have an opportunity to build a broader yet integrated Macy’s experience within a metropolitan area by investing in our magnet stores, building freestanding Backstage locations and testing new, off-mall store formats,” said Gennette. “The more convenient, brand-right touchpoints we have, the greater loyalty and engagement we engender. This will enable us to grow with the next generation of American shoppers.”

Growth Treatment

Macy’s will expand its Growth treatment to the remaining store portfolio, including upgrading an additional 100 stores in 2020. The Growth treatment includes improvements to the physical store, as well as investments in merchandising strategies, technology improvements, talent and local marketing. To date, this treatment has been applied to 150 stores, which account for approximately 50% of 2019 total stores’ sales. These stores continue to outperform the balance of the fleet.

Off-Price Expansion

Macy’s, Inc.’s off-price offerings, Backstage and Bloomingdale’s The Outlet, have been a highlight of the company’s performance. Macy’s will continue to expand Macy’s Backstage over the next three years. In 2020, the company plans to open an additional 50 Backstage store-within-store locations and 7 additional freestanding, off-mall Backstage stores.

New Store Format

The company is also testing a new store format, Market by Macy’s1. This new format is smaller than an average Macy’s store and will be located off-mall in lifestyle centers. Market by Macy’s will feature a mix of curated Macy’s merchandise and local goods, as well as local food and beverage options and a robust community events calendar. The company will open its first Market by Macy’s in Dallas on February 6, 2020.

In 2018, the company launched ‘Market@Macy’s’ a retail-as-a-service (RAAS) concept with dedicated space in 13 stores. In 2020, the company will be rebranding RAAS and incorporating it into the storewide category merchandising strategy.

Supply Chain Modernization

The company is further reshaping its supply chain to support omnichannel customer behavior and the company’s new retail ecosystem. The company is implementing a new private brand sourcing strategy that is expected to reduce costs and improve speed. Additionally, the company is redesigning its fulfillment network, which is expected to improve inventory productivity through increased sell throughs and lower markdown rates.

Beginning in 2020, the company expects the Polaris strategy to generate annual gross savings of approximately $1.5 billion, which will be fully realized by year-end 2022. For 2020, the company anticipates gross savings of approximately $600 million, some of which will flow to the bottom line in order to stabilize operating margin. The company expects to invest some savings back into the business, with a focus on the Growth treatment, Backstage, off-mall expansion and continued improvements to the digital business, as well as technology investment focused on analytics and automation that will drive further productivity improvements.

The company currently anticipates total costs related to Polaris of approximately $450 million to $490 million, the majority of which will be recorded in 2019. Approximately $270 million to $290 million of these costs will be cash.