Culture of Growth Develops

Following several years of initiating significant changes to the company's structure and organization, the benefits began coming to fruition in 2010 as a culture of growth developed at Macy's, Inc. Same-store sales in fiscal 2010 were up 4.6 percent. Operating income rose by 78 percent to $1.894 billion in 2010 from $1.063 billion in 2009. (The increase in operating income was 32 percent, excluding asset impairments, store closing costs and division consolidation costs of $25 million in 2010 and $391 million in 2009.) Return on invested capital - a key measure of financial productivity - rose significantly in 2010 from 2009. The company believes that the strategies that led to success in 2010 are still in the early phases of implementation with plenty of runway ahead to produce further improvements in sales, earnings and cash flow as execution sharpens. Among the strategies driving growth are My Macy's localization, an increase in distinctive and exclusive merchandise, MAGIC Selling training (a new approach to customer engagement, rolled out to 130,000 associates in 2010), omnichannel integration and focus on the upscale customer at Bloomingdale's.

Debt Reduction

The company in fiscal 2010 continued to improve its balance sheet, paying down more than $1.2 billion of debt (including $1 billion retired early) and contributing $825 million to the pension plan. Macy's, Inc. ended the fiscal year with $1.5 billion of cash.

Investment in Omnichannel Integration

Macy's, Inc. continued to develop and expand its online capabilities in 2010 to accommodate future growth. This investment is part of the company's omnichannel strategy, which integrates the offerings in stores, the Internet and mobile technologies.

The mission is to serve customers' needs whenever and however they choose to shop, and to fulfill their orders from inventory no matter where it exists across the company. In 2010, the company announced that it will build a new 1.3 million-square-foot online fulfillment center near Martinsburg, WV, with operations beginning in April 2012 and order shipments beginning in summer 2012. In addition, Macy's is expanding its online order fulfillment center near Portland in Robertson County, TN. The expansion will add 374,000 square feet of space. The expanded facility, with a total of 974,000 square feet, is expected to be operational in fall 2011. Also being expanded are macys.com organizations in New York City and San Francisco, bloomingdales.com in New York City and related technology functions in Atlanta. Macy's, Inc. is building one of the largest, most efficient and resourceful e-commerce organizations in American retailing as part of our comprehensive omnichannel strategy. This is a business that thrives on unrelenting creativity and innovation. Having the right talent in the right place is vital as we seek to sustain and accelerate our sales growth online, as well as in the stores.

New Mobile Technology Adopted

Macy's, Inc. took several significant steps to advance its capabilities in mobile technology, which continues to gain acceptance with consumers in the United States. Macy's and Bloomingdale's optimized the ability for consumers to use any smart phone to navigate the company's e-commerce sites. When customers use an Internet-capable mobile device to visit macys.com and bloomingdales.com, they now see larger and clearer images and click-through buttons so using the sites is faster and easier. In addition, Macy's launched an upgraded iShop application for the iPhone and began piloting the use of Shopkick - a new location-based shopping app - at about 150 stores in the New York, Los Angeles, San Francisco and Chicago markets. In the fall season, a Bloomingdale's initiative allowed customers to check in at any Bloomingdale's store on Foursquare and be automatically entered for prizes.