Overhead Cost Variances Force Macy’s to Shop
for Changes in Strategy1
Managers frequently review the differences, or variances, in overhead
costs and make changes in the operations of a business. Sometimes
staffing levels are increased or decreased, while at other times
managers identify ways to use fewer resources like, say, office
supplies and travel for business meetings that don’t add value to the
products and services that customers buy.
At the department-store chain Macy’s, however, managers analyzed
overhead cost variances and changed the way the company purchased
the products it sells. In 2005, when Federated Department Stores and
the May Department Store Company merged, Macy’s operated seven
buying offices across the United States. Each of these offices was
responsible for purchasing some of the clothes, cosmetics, jewelry, and
many other items Macy’s sells. But overlapping responsibilities, seasonal
buying patterns (clothes are generally purchased in the spring and fall)
and regional differences in costs and salaries (for example, it costs more
for employees and rent in San Francisco than Cincinnati) led to frequent
and significant variances in overhead costs.
These overhead costs weighed on the company as the retailer
struggled with disappointing sales after the merger. As a result,
Macy’s leaders felt pressured to reduce its costs that were not directly
related to selling merchandise in stores and online.