By  on September 6, 2008

Edward S. Finkelstein shaped much of modern Macy’s.

With a flair for showmanship and innovation, Edward S. Finkelstein transformed Macy’s from a middling chain to a flashy money-maker, creating a storied crosstown rivalry with the high-flying Bloomingdale’s.

But as much as Finkelstein’s creativity and nurturing of talent took Macy’s to new heights, hubris and takeover mania in an era when debt was de rigueur led to an ill-fated leveraged buyout in 1986 that resulted in the chain filing for bankruptcy in 1992. Just a few months into the bankruptcy, Finkelstein departed from Macy’s after 44 years with the store.

For the former Macy’s chairman and chief executive, the LBO was a solution to some pressing concerns, among them top lieutenants possibly jumping ship to other retailers, and Macy’s stock was rising, triggering takeover speculation. The LBO would enable Finkelstein to hang on to his people, stir their entrepreneurial spirit as investors and circumvent a hostile takeover.

But it also meant Macy’s would have to satisfy big bank lenders instead of Wall Street, and come up with a game plan for quick sales and profits to pay off debt.

Shortly after the LBO was launched, Finkelstein, true to his style, staged a glamorous black tie gala by the Temple of Dendur in the Metropolitan Museum of Art. Initially the LBO was proceeding well and he was ready to  celebrate. But around 1990, losses started mounting, disproving overly optimistic projections that were used  to sell the buyout to the 300 or so Macy’s managers who invested by buying stock.

Today, looking back on the highs and lows of his career, the 83-year-old Finkelstein speaks in a tone that’s  mellow more than wistful, but with some of the bitterness surrounding the circumstances of his departure still evident.

“I was a very careful person about finance and didn’t like debt,” Finkelstein says. “But I finally came to the conclusion that since we were sitting with $800 million in real estate, spent so much on remodeling, and because we had a strong cash flow, we were a target.”

He says it took 11 months to raise the money for the LBO, which cost $3.6 billion and could have been a windfall for investors if the company was taken public again.

“We did very well at first, even though we had debt. Most LBOs collapse in a year or two. We were six years into it,” before the bankruptcy happened. “It was just too much debt and the Campeau bankruptcy [in 1990, after Canadian investor Robert Campeau bought Allied and Federated] didn’t help the feeling about retailing.…The bankruptcy was a low point. It was no fun,” recalls Finkelstein.

“The lowest point would mean talking about people who are still alive whom I consider Judases. I’m not going to talk publicly about them. There is more than one.”

He’s referring to a handful of executives whose careers he nurtured and reported to him. According to Macy’s sources, there were cases where individuals went around Finkelstein to influence the board, made decisions on  merchandise behind his back and ultimately capitalized on his loss of control by landing big jobs and severance arrangements after the company went bust and he left the scene. A few longtime friendships Finkelstein had with members of his team were destroyed.

There’s no question the willful Finkelstein demanded intense loyalty from his executives, though when asked about this he replies that wasn’t always the paramount criterion. “I was more concerned with talent,” he insists. “Loyalty with few exceptions — either I got it or didn’t get it. Mostly what I looked for was whether people had the talent to do the job.”

“Ed was not afraid of strong personalities; he encouraged debate,” says a former associate who requested anonymity. “He sought out creative energies of people with a wide array of backgrounds and interests. He often said, ‘I’m willing to live with the eccentricities of some people if they are loaded with talent and know how to move a business.’”

There’s no denying Finkelstein’s contribution as a merchant wizard had enormous impact on the business from the time he became a buyer to when he rose to president of Macy’s California in 1969, head of Macy’s New York  in 1973 and, in 1980, chairman and ceo of the entire corporation.

He started at Macy’s in 1949, after serving in the Navy in World War II and finishing Harvard Business school. He joined the Macy’s training squad in a program that lasted about seven months, much longer than these programs generally last today. It exposed him to several areas in the store, from receiving to selling.

“I was interested in retailing and the entertainment business,” and in those days, he recalls, Jewish men didn’t have much chance at developing careers in too many other industries, such as the automobile industry.

Having been born and raised in a New York suburb in Westchester County, “I decided I didn’t want to move, and  was offered training jobs at Macy’s and Abraham & Straus. Macy’s offered $25 more a month. So it was an easy choice for me. That was a lot of money in those days.”

After the training squad, Finkelstein became an assistant in the fabric department. “I was a slow starter,” Finkelstein admits. “I didn’t get out of there for eight years. My first promotion was when I became a merchandise administrator of budget ready-to-wear. Going from fabrics to budget ready-to-wear was like going to freedom. This was a tremendous opportunity.”

One of his earliest innovations was to split the moderate sportswear area into separate zones for active and regular sportswear, leading to a more profitable business, and promotions. In the Sixties, he started the nation’s first petite department. “It was hard to believe there was no place where the petite woman could go in and shop. We had to put [manufacturers] in business” with petites.

In 1974, Finkelstein cleared out a $10 million off-price business on the main floor that sold everything on tables, from mink stoles to silverware. The idea was to make space and lure cosmetics lines. Clinique came in  first and got the ball rolling. Finkelstein also got rid of a $30 million budget business in the basement to  re-create the Cellar, which bowed in Macy’s in San Francisco when he was running Macy’s California.

He was the first retailer to recognize the talent and relevance of Liz Claiborne. “She was just getting started then,” he remembers. “I insisted we give Claiborne extra space, extra promotion and extra attention. It was the mid-Seventies, and she understood what working women needed and understood what women wanted to wear casually. Sportswear was the growth category and she exploited it. She was a very clever, smart woman.”

Claiborne fit squarely into what Finkelstein felt Macy’s should represent — a store with a middle and upper-middle market appeal. “We never tried for the Saks or Neiman’s customer. But if you are selling moderate-price goods, the most important things were having [sales] information and presentation. When I was in Macy’s as a young person in ready-to-wear, we didn’t have computers. But I was kind of a bug on information, a real nut for it. I wanted information to make rational decisions.” He would get it from the vendors and people on the floor.

In the Eighties, Finkelstein started developing private brands, such as INC International Concepts, Charter Club and Alfani, that have endured and have become industry models. “A lot of the top merchants weren’t in favor of doing that,” Finkelstein says. “I think they weren’t as bright as they should have been. In some cases, it became important enough that we had to say goodbye. There are risks in private brand. It took a while to learn how to do it correctly. I thought it was very important we have a certain percentage of business that distinguished us from other department stores, that gave us some separate meaning. When Allen Questrom [then chairman and ceo of Federated] got hold of Macy’s in 1994, he took me to lunch and was nice enough to say one of the very attractive things was the private brand program he was inheriting. We were the forerunners.”

Finkelstein developed several new selling formats, among them the Little Shops for high-end designers and a lingerie world, and transformed the domestics department into a glittering showcase.

“I thought of Macy’s as a group of 12 to 15 specialty stores operations under one roof and that it had to be as good as specialty stores,” he explains.

He took the philosophy one step further by creating actual specialty stores called Aéropostale and Charter Club. “That’s where the profit was going to be in the future. Those were the days when Gap was doing well. My  feeling was that inherently a specialty store could grow faster and be more profitable.”

There was also a third specialty chain that he launched selling lingerie. “Vendors were making the most basic  dull lingerie. Victoria’s Secret had sexy lingerie. I felt there was room for a second lingerie chain and I still feel there is.”

None of his specialty businesses took off during his tenure, although Charter Club remains an important private brand for Macy’s and Aéropostale has become a public company.

Sixteen years later, Finkelstein acknowledges his style and agenda wouldn’t suit the much larger Macy’s as it exists in today’s stringently cost-conscious business climate. Those black-tie fund-raisers proceeding the Annual Flower Show would be hard to imagine nowadays.

“It’s different. The financial people need to play a more important role than before,” Finkelstein says. “The  nature of the business is you have to watch expenses and be very creative with expenses. I would find that hard because of the creative things we used to do.

“Right at the moment, we’ve got a lousy economy,” Finkelstein adds. “There is less reason to indulge in creativity. But I think [the economy] is going to turn around in six months to a year. We’re not going into another 1929. We have a government that’s willing to do things to see we don’t fall into a terrible state.”

He also has a positive outlook on the Macy’s-May megamerger and the ensuing consolidations and nameplate conversions. It’s something he can relate to. When he folded the Bamberger’s division into Macy’s New York in  1984, “It wasn’t an easy decision to change that all to Macy’s. But again, television became the key thing. It wasn’t easy to promote in the Tristate area with two different names. You could put two divisions together  and save a lot of salary. After we did that, a lot of other [retailers consolidated divisions].”

Finkelstein says there wasn’t much public outcry to the Bamberger’s consolidation. “Before we changed the organization, we just changed the name. I knew if Macy’s took it over [right away] they would crap it up. But  by and large, there were reasons why these things aren’t as bad as how they’re written about.” One of them relates to population shifts, he says, noting that a locality can have a 7 or 8 percent change in population or more, in a year. “A store constantly talks to new customers.”

Finkelstein believes Terry Lundgren, Macy’s current chairman, ceo and president, is doing a good job to make the Macy’s-May merger of 2005 stick. “He’s made Macy’s into a $30 billion business. [It’s actually $26.3 billion as of last year.] Macy’s really has become the national department store. That allows him to use television to tell the message, and makes him very important in terms of all the resources. It was a very courageous thing for him to do. He has gotten some criticism, and there has been a certain amount of indigestion,” converting May stores to Macy’s. “That had to be anticipated. Everyone thinks you can turn those [divisions] around in six months. You can’t. It takes time. He’s doing it without losing his cool and without jeopardizing the company. I think he is working quite effectively, and is surrounded by some pretty strong executives,” he says, citing Janet Grove, whom he knew when she was a young store manager in California, and Susan Kronick. They are both vice chairmen.

As far as those in Chicago who are upset over Marshall Field’s being renamed Macy’s, Finkelstein says, “Long-term, I don’t think many people will resent it.”

Among those who most influenced him in his career were Herbert Seegal, whom he considered a brilliant merchandiser, and Pierre Bergé of Yves Saint Laurent, whom he befriended in Paris and from whom he learned about fashion, quality and style. Finkelstein would later insist that buyers traveling overseas visit museums  and other points of interest, such as Capri, to see what was going on and develop fashion ideas.

The former Macy’s chairman has read and reread Peter Drucker’s books on management and learned the value of time, and its finiteness, something that seems obvious though not always taken into account by managers when they divide their time between tasks. Finkelstein learned how to reallocate his time to different tasks and priorities each time he rose to a new job. Yet even when he reached the pinnacle of the West Coast and East Coast Macy’s organizations, he made time at the end of each day, on his way home, to visit salespeople on the selling floor.

“I would ask them what they were selling, if they needed anything,” he says.

By showing interest, “They began to feel maybe their roles were important in our progress. The morale in both  our downtown San Francisco and New York stores improved.”

Finkelstein lives in Thousands Oaks, Calif., and has three sons and six grandchildren. He’s on the board of Urban Brands Inc., and remains a music and opera lover, attending performances at Carnegie Hall and Lincoln Center in Manhattan. He also utilizes a small gym at a tennis and swim club where he has a trainer and works out four times a week. He does grapple with some arthritis, and years ago tore a rotator cuff, so he no longer plays tennis.

But he has a positive outlook. “For someone who is 83, I feel awful good,” he says.

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