Federated to Ease Up On Pace of Changes

So far it's been a challenging road for Federated since its takeover of May Department Stores Co. two years ago.

CINCINNATI — “There’s been too much change too quickly.”

That was how Terry J. Lundgren, chairman, chief executive officer and president of Federated Department Stores Inc., summed up the progress of converting 400 May doors to Macy’s. The message came down at Federated’s annual meeting here Friday, when shareholders also approved changing the corporate name to Macy’s Inc.

So far it’s been a challenging road for Federated since its takeover of May Department Stores Co. two years ago. “The rate of change may have been too fast,” Lundgren admitted.

“We need to make sure consumers can keep pace,” he added at a press conference after the annual meeting, which was among Federated’s most crowded in years, drawing about 200 shareholders. “We threw a lot of change to May Co. stores very quickly.”

Federated is bracing for an all-important fall season when it marks the first anniversary of the conversion of the May doors to Macy’s; rolls out the Martha Stewart collection, seen as crucial to lifting the retailer’s sagging home business, and returns the May doors to a promotional calendar that is close to that of the premerger days.

“We’re strengthening the calendar for fall so that it is closer to the number of promotions we had last fall at May Co. and Marshall Field’s, but I still believe over time we will get back to a common calendar,” meaning one that is in sync with the legacy Macy’s doors, Lundgren said.

The chairman said Federated will change the media mix to “get back to being more public.” That implies more newspaper and television advertising, although the ad budget will remain at $1.7 billion.

Lundgren also stressed the importance of tweaking the merchandising, saying that certain new Macy’s doors need to trade up more, while others need to have more complete moderate-priced offerings.

Despite last week slightly lowering its sales forecast for the second quarter, Lundgren said Federated is projecting 2 to 3.5 percent same-store sales gains for fall, giving the retailer “plenty of opportunity to meet earnings guidance.” At the meeting, the board of the $27 billion Federated declared a 2 percent increase in the quarterly dividend to 13 cents an outstanding common share. The dividend will be paid on July 2 to shareholders of record on June 15.

This story first appeared in the May 21, 2007 issue of WWD.  Subscribe Today.

Lundgren described this year “as a year of intense execution for our strategy. There’s been so much that’s new and so much change.”

Regarding the women’s business, Lundgren cited dresses, juniors and modern and traditional ready-to-wear businesses as performing best. Asked about Liz Claiborne Inc., Lundgren said: “The company has a lot of great brands — Juicy Couture, Lucky, C&C and Ellen Tracy and Dana Buchman — that we’re in close dialogue with. It’s no secret the Liz Claiborne brand has been struggling. We’re trying to find the right balance of supply and demand. We’ll do plenty of business with [Liz Claiborne] and totality in the future.”

He stressed tailoring merchandise assortments by door and that Bloomingdale’s has “emerged as a very strong performer serving the upscale, contemporary customer.”

He described the home business as “very challenging in all divisions,” and worse in the former Marshall Field’s and other former May locations.

“We have a lot of work to do there. We’re counting on the Martha Stewart launch, our single largest launch. It’ll cover many categories with affordable and reachable price points to a broad base of customers,” he said.

Fifteen percent of Federated revenues are generated through home categories. Men’s also has been difficult. “It’s a similar story,” Lundgren said.

The chairman disputed notions that Macy’s on State Street in Chicago, the former Marshall Field’s flagship, is struggling, however. “State Street is doing fine,” he said, though he noted the location is challenging due to a lack of enough retailing around it. “It didn’t help that Carson’s closed down,” Lundgren said, referring to the former Carson Pirie Scott flagship that was also on State Street.

Speaking of other initiatives, Lundgren said Federated will launch a three-year point-of-sale rollout involving 50,000 new NCR cash registers rigged to capture detailed data on sales and customers.

Elsewhere in technology, the high-tech vending machines selling iPods and other electronics have done extremely well when placed in high-traffic and high-visibility spots, the chairman said. They’re in 150 Macy’s locations and are being expanded to sell more Apple Inc. products. But Lundgren said the technology won’t get to 400 or 500 stores.

Lundgren also wants to grow Macy’s food business by establishing eateries or bistros offering quick in-and-out service and high-quality food.

In response to a question from corporate gadfly Evelyn Y. Davis, Lundgren said the corporation is “absolutely not” considering selling Bloomingdale’s.

Davis dominated the Q&A portion of the meeting and opposed the name change to Macy’s.

“Why not M&B?” she suggested as an alternative that recognizes both Macy’s and Bloomingdale’s.

“It just didn’t roll off my tongue,” Lundgren replied. He added the name change “demonstrates that we are a consumer-driven company and increases awareness of Macy’s.”

Macy’s accounts for 90 percent of the corporation’s gross revenues and profits; Bloomingdale’s accounts for 10 percent of each.

Davis also complained about the black uniforms of both Bloomingdale’s and Macy’s associates, but Susan Kronick, vice chairman, said Macy’s associates do have choices of blouse colors and that Bloomingdale’s has been asked to consider more variety in blouses. Finally, Davis asked Lundgren to guess the label on her jacket.

“Akris Punto; my wife has the same jacket,” Lundgren said.