By  on August 25, 2014

Macy’s Inc. appears headed for an international breakthrough.

Senior executives are said to have flown out to China last week, raising speculation that the $28 billion department store chain was close to signing a deal there.

Meanwhile, in the Middle East, reports center on Macy’s and Bloomingdale’s opening department stores in an Abu Dhabi mall. This would represent Macy’s first full-line store abroad and Bloomingdale’s second.

Macy’s and Bloomingdale’s could be headed to the $1 billion, 2.3 million-square-foot Sowwah Central megamall, which is scheduled to open in 2017 and will include two anchor tenants. Gulf Related, the Middle East unit of Related Urban, based in New York, is developing the project in Sowwah Square on Sowwah Island in Abu Dhabi’s Central Business District.

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Bloomingdale’s has a successful unit in Dubai, operating under a licensing arrangement with Al Tayer Group LLC.

“As you know, we never discuss where we may or may not be looking at store locations,” said Jim Sluzewski, senior vice president of corporate communications for Macy’s Inc., in response to the query on the Middle East. “When we have something to announce, we do.”

In China, Macy’s chairman and chief executive officer Terry J. Lundgren has long wanted to break into the market, either through opening a Macy’s department store or pursuing a private brand strategy there and specialty stores featuring top in-house brands such as INC, Charter Club, Alfani, Material Girl and American Rag.

“Terry Lundgren has already made several trips to China,” said one retail source. “Executives from stores, finance and marketing are going over. I believe [Lundgren’s] got someone who wants to build Macy’s stores there.”

“I really can’t say much,” said one supplier who is close to the company. “They are exploring opportunities to expand. Terry wants to maximize his brands, and bring INC and other brands there. He is definitely smelling out the opportunities and has spoken to a bunch of entrepreneurs there. They are doing some due diligence, exploring how to maximize their brands — that includes bringing the [Macy’s] box and private brands.”

Tim Adams, Macy’s chief private brand officer, is among those who flew to China last week.

In China, Related is involved in new construction and the acquisition of residential, retail and mixed-use developments.

One international real estate executive saw Abu Dhabi as a likely place for Macy’s opening its first overseas full store, as well as Bloomingdale’s opening its second full-line store overseas. Sources close to the situation said a deal for both to open in the Abu Dhabi mall is close.

As far as opening a full-line store in China, “It’s very difficult to do,” said the real estate executive. “The only way is if they are going to be a partner with an existing store,” such as Wangfujing, a traditional department store in Beijing. Getting a couple of hundred thousand square feet, which Macy’s requires, would be very challenging in China, given the limited real estate opportunities.

Bloomingdale’s officials this month denied that they are opening a store in China.

On Friday, Sluzewski responded to WWD’s inquiry about executives en route to China, stating, “Not unusual. Our senior folks travel internationally regularly to shop stores in other countries, understand global fashion-consumer trends and touch base with our sourcing offices. They find it valuable to see, listen and learn what is happening around the world. As you well know, we are interested in doing more business internationally at some point, but nothing specific at this time.”

The possibility of taking Macy’s abroad in one form or another is something Lundgren has mentioned on several occasions, saying that he was looking for an international partner there.

At last year’s WWD CEO Summit, Lundgren said: “I do believe at some point in time both brands [Macy’s and Bloomingdale’s] will have an international footprint.”

Bloomingdale’s in Dubai started out slowly when it opened five years ago, but was tweaked and its performance has improved greatly. “The primary reason for opening the store was to learn how to do business in a foreign country,” Lundgren said.

“I would be the first to say there have not been a lot of success stories out there” with U.S. retailers going abroad, Lundgren said at the WWD summit. “You could put your name on a leased operation. But if you want the store to portray your brand the way you believe it should be portrayed, you have to put some money up. You’ve got to put your people up. That’s hard and challenging, to think that through.”

Back in 2010, at the Annual Retail & Luxury Goods Conference at Harvard Business School, Lundgren characterized China as a “sweet spot” for Macy’s.

At an analysts’ meeting last year, Lundgren said, “If we’re going to do it, we’re going to do it with our talent making sure our footprint is represented. That’s what’s happening with Dubai,” and Bloomingdale’s. It doesn’t look like a leased operation. Maybe that’s why we’re slow. It’s hard to do this way. I’m glad we weren’t quick to pull the trigger on [Dubai] five years ago. When there was construction in China, people would say, ‘Would you mind if we put a Macy’s name on this building?’ We would have made big, big mistakes. We want to make sure we do things the right way. If we go, we’d go with a different perspective and more knowledgeable My Macy’s [localizing strategy] approach.”

Macy’s Merchandising Group, which develops the in-house brands, is about a $5 billion vertical business. “They have margins like everyone else. It would be very, very smart to bring their brands to China,” observed one New York consultant. “If I were to bet on this, they would bring their private brands to China in a joint venture with a big player, and not franchise it.”

Macy’s timing for China parallels the growing interest in the country among other retailers. In April, Nanjing Cenbest, a Chinese department store otherwise known as Nanjing Xinjiekou Department Store Co. Ltd., agreed to acquire U.K. department store group House of Fraser. The deal allows House of Fraser’s management team to continue to grow and invest in the business in the U.K. and Ireland and provide a platform to expand the brand in international markets.

Yuan Yafei, chairman of Sanpower Group, the largest shareholder in Nanjing Cenbest, said at the time the deal was unveiled: “We have always been looking to invest in strong brands like House of Fraser, and take them to the next level of growth. With House of Fraser, we see significant opportunities to develop the business further and replicate the already successful model in international markets, in particular in China.”

Another U.K. retailer, Harvey Nichols, has built up its stake in China, having opened a flagship in Hong Kong in fall 2011, in the high-end shopping mall Pacific Place, after opening its first store in Hong Kong in 2005 at The Landmark shopping center.

A year ago, Galeries Lafayette opened a 350,000-square-foot department store in Beijing, the first project in a 50-50 venture between Galeries Lafayette and Hong Kong-based I.T Limited that includes plans for the opening of 15 department stores throughout China in the next few years.

Around the same time, Lane Crawford opened a Shanghai flagship in downtown Huaihai Lu, one of Shanghai’s premier shopping streets. In Hong Kong, Lane Crawford is located at IFC mall in Central, Canton Road in Tsim Sha Tsui, Times Square in Causeway Bay and Pacific Place in Admiralty with a dedicated home store. In China, the stores are located at Times Square in Shanghai, Seasons Place and Yintai Centre in Beijing.

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