Retail

Macy's Labor Woes (And Why The Rest Of Retail Should Watch)

So far 2016 has just not been Macy's year. Earnings during the holiday season were disappointing, followed by Q1 results that were potentially best described as devastating.

Macy's, of course, was not alone in having a rough run in Q1. They were one of many retailers pegged with a constellation of issues that seemed to be stuck on some kind of particularly punitive version of repeat this year. Many retailers that dominated much of the latter half of the 20th century are now seeing falling foot traffic, slumping same-store sales, and growing but not remarkable (or remarkably well managed) eCommerce operations.

But Macy's has had the unfortunate distinction of rising above the pack in terms of visibility. In its last earnings report, Macy's coughed up 7 percent declines in year-over-year sales and an accompanying 15.2 percent loss in stock price. While Target's losses were in the 5 percent range, Macy's were big enough (and Macy's itself is a big enough retail tent pole) to spook investors.

“You heard one after another during the earnings season talk about the difficulties — they’re cutting, they’re closing stores,” noted Quincy Krosby, market strategist at Prudential Financial, in an interview with Reuters. “The fact of the matter is there have been questions about retail spending, and valuations overall in consumer discretionary were rich.”

And those are just the systemic problems. Macy's has also had some unique features of its rather rocky road through the first half of the year. The nation's largest apparel retailers have seen Amazon swim directly into competition with its surprise retail launch earlier this year, and the near universal agreement of the marketplace is that within a year of launch Macy's will have been fully dethroned by Amazon.

CEO Terry Lundgren has noted he thinks those existential threats might be a tad overstated — given the extreme difficulties of managing high-volume returns prevalent within apparel sales sans a networks of physical stores to expedite that process — and on the whole kept up a fairly chipper attitude through the season. But Lundgren has had issues of his own, too. As the year has worn on, he saw his salary very publicly slashed by over $1 million over Macy's poor performance. The firm is increasingly beset by activist investors that would prefer to see Macy's spin off its more valuable real estate holdings into shareholder value maximizing trusts.

And then on top of all that was the possibility of a major strike looming over its flagship New York stores. And while that outcome seems to have been diverted for now, the story is worth watching. Because, as has been the case so far, Macy's issues today could be moving through retail en masse soon.

Workers' Troubles 

Macy's contract with the Retail, Wholesale and Department Store Union — which represents workers in four of Macy's New York locations including its flagship in NYC — ran out on May 1, with no new contract on the table. The central issues were on Macy's health care policy, which the union contends was more expensive than 3/4 of the store's staff could afford, and issues around Macy's commissioning structure and how long returns could count against individual associates sales figures. More peripherally, questions about holiday scheduling and wages were negotiated.

As of the contract's expiration, things deteriorated remarkable fast. Workers at Macy’s stores in Manhattan, the Bronx, Queens and White Plains voted to authorize their first strike since 1972 if a new deal could not be reached by June 15. Macy's placed ads seeking new employees, indicating they were taking the possibility of strike seriously. The union accused Macy's of trying to terrorize their employees by threatening their jobs. Macy's responded by saying it was a "practical solution," given 5,000 members of their workforce in the most populous city in the country was threatening not to come to work.

Negotiations went down to the wire — and then over the deadline on Wednesday. But, as the sun was rising on this week, reports were circulating that a deal had been reached, and that everyone on all sides was either happy about it, or will to pretend to be in public.

“It raises the bar for what retail jobs can be and should be,” said the union’s president, Stuart Appelbaum. “It’s a major step forward for the entire retail industry, and it shows the importance of what our union does to empower retail workers.”

Appelbaum went on to tout the negotiations “major victory” for organized labor that included “substantial wage increases,” a more affordable health care plan and new scheduling rules that would not require employees to work on holidays, including Thanksgiving and Christmas.

Macy's, for its part, was less effusive in its descriptions of the deal.

"We are pleased with the outcome of our overnight negotiations,” noted Macy's spokeswoman Elina Kazan.

As of yet, the specific details of the deal have not been made public.

The Commission Program And What To Watch 

The good news for Macy's in this case seems to be that the worst news was avoided — they didn't end up with disruption of a strike, or all the delightful publicity that goes with it.

However, there are at least two things worth considering in parting, though this time the strike was avoided.

The first is one of the more esoteric issues being negotiated, which is the commission policy. While health care, wages and time off are basically de rigueur issues in labor negotiations, the commissions issue throws some light on the changing world of apparel retail.

Under Macy's existent policy, any merchandise returned within six months can count against a worker’s sales, which are used to calculate commissions. Retail apparel returns over the last few years, according to labor officials, and those commission recalculations are taking big bites out of employee paychecks. Among issues the union was negotiating for was a reduction in the window for how long such returns could count against employees.

On that issue, according to Macy's, there was no change. The commission policy remains the same.

The issue is worth watching because the issues plaguing Macy's workers — the spike in retail returns, particularly when purchases came via digital channels — is also taking a bite out of Macy's (and Nordstrom's and most clothing retailers). Generous return policies have also become a non-negotiable part of retail.

Which leads to the bigger issue: As the costs get bigger, the negotiations between workers, who make rational demands, and retail employers, whose falling funds are increasingly less able to meet those demands, may not end so nicely. Walmart has already reported that rising labor costs are pushing store closings and a shrinking workforce automation can fill expensive roles held by humans in the past.

Which means for the workers that remain, the deals with employers may be getting better, but perhaps at the cost of fewer workers remaining at all.

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