Macy's looking to cut costs

NEW YORK (Fortune) -- Keep an eye out for a restructuring at Macy's -- the retailer is planning further consolidation of its buying offices, a move that could save tens of millions of dollars a year, according to industry sources.

The plan, which has yet to be announced and could still change, would roll the four remaining divisional buying offices into two, eliminating hubs in Atlanta and Miami, sources said. That would leave Macy's with buying offices in New York and San Francisco. These are the departments that decide what merchandise appears in which stores.

Macy's, which declined to comment, has over the past year aggressively reduced expenses by closing laggard stores and trimming inventory -- one reason it is in a better position to ride out the recession than some of its peers.

The company has been reducing corporate overhead ever since its 2005 acquisition of the May Department Store Company. A year ago, Macy's, which operates more than 850 stores, consolidated what were then seven divisional buying offices into the four it operates now -- a move the company says saved $60 million in 2008 and will save a further $100 million in 2009.

Analysts have long argued that Macy's should go even further and consolidate all of its buying offices into a single centralized division, which is how many large chains operate, including J.C. Penney (JCP, Fortune 500) and Kohl's (KSS, Fortune 500).

Inside Macy's there has been some debate over the merits of a centralized plan. Macy's CEO Terry Lundgren believes that despite the chain's national footprint, it's important to keep a localized flavor to stores.

That is one reason behind a program called My Macy's, in which a team of merchants gauges local buying habits.

For instance, merchants overseeing Cleveland-area stores noticed that in addition to Cleveland Browns loyalists there were some Pittsburgh Steelers fans in the market. They ordered Steelers football jerseys, helping to boost sales at stores in the region. "If you're far away buying by computer, you wouldn't necessarily pick up on that subtlety," says Macy's spokesman Jim Sluzewski.

At the same time, however, Wall Street is pressuring all retailers to keep costs down. And Macy's has higher operating expenses than J.C. Penney and Kohl's.

One way to cut costs is to consolidate those divisional buying offices. "I don't think Macy's wants to do it," says Guilford Securities analyst Bernard Sosnick, "but times being what they are, they've got to keep expenses down."

Like shares of other retailers, Macy's (M, Fortune 500) stock has taken a beating. Although it has rallied somewhat in the first few weeks of 2009, the stock is down nearly 60% from a year ago.