At first glance you might think that the recent announcements from Macy’s and Wayfair about pretty big staff layoffs – thousands of employees at each, representing mid-teens of their workforces – were similar, part of some bigger picture of retail’s ongoing post-pandemic decline.
You’d be wrong.
In fact each of these announcements has very different reasons behind them, reflecting the specific situations these two big players find themselves in and their timing is quite important in understanding why each did what it did. Sure, the overall retail sector – other than Walmart, Costco, TJX and perhaps one or two others – has been slow to recover from all the craziness of the past three years but for Wayfair and Macy’s, the stakes are particularly high.
For Macy’s it’s no coincidence that it made its staff reduction announcement both before incoming CEO Tony Spring takes over from Jeff Gennette and only days prior to its refusal to negotiate with two private equity firms that have put in an offer to buy the big department store chain and take it private.
The layoffs coming under Gennette make him the bad-guy in this story and don’t taint Spring taking over. From that perspective it’s pretty smart – also pretty standard business practice 101 – to make the new guy look good. I don’t think Gennette has been the most popular leader, both internally or externally, so what’s one more piece of bad news, right?
But there’s also the turndown of the takeover offer. Macy’s can now go to Wall Street and say, hey, we know we’re not perfect but we understand we have too much overhead and too many stores (a handful of locations will also be shut down) and we are working to address both. Whether it’s enough to keep the barbarians away from the gate remains to be seen but it does buy the company a little breathing space.
And Spring will need it. He has to figure out a way to make Macy’s more relevant to shoppers who have given up on the department store as a place to buy things while coming up with a cost structure that allows it to throw off more profits…without mortgaging its stores. That’s what the outside investors are likely to do and in the entire history of retail, that has never worked in the long run. There’s no reason to believe that will be the answer for Macy’s either.
Up Interstate 95 from Herald Square in the Boston area where Wayfair is based, the layoffs are an entirely different matter. The online home furnishings seller has never gotten its cost structure to sync up with its revenues, even during the deep days of Covid when it finally showed a profit for a few quarters.
Wayfair continues to tell an Amazonian profitability tale where it claims to be making money…if you exclude a few lines of the balance sheet and do a little voodoo accounting. That worked for Amazon back when nobody else was spinning this yarn and eventually it became profitable, albeit thanks to its non-retail business in web services and advertising. Selling stuff – be it its own or somebody else’s – is largely a loss leader and it works because those other pieces generate some serious bottom line results.
But Wayfair doesn’t have those things and in fact has a lot of added expenses ahead of it in building out a credible network of physical stores as well as distribution facilities. We’re not talking adding on a few more programmers or buying some additional bits and bytes. This is real estate and buildings and the people who work there. Wayfair has a long way to go to get this ratio right and having fewer bodies at corporate headquarter is the least of it.
When you see similar announcements about two companies in the same field doing like things, you may be tempted to call it a trend. In this case, don’t.
WarrensReport 
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