By  on September 6, 2008

Four years ago, soon after he became Macy’s East chairman and chief executive officer, Ron Klein challenged his team to come up with “the next big idea.”

He was seeking something on the order of Macy’s Fourth of July Fireworks, Flower Show or Thanksgiving Parade. They’re hard acts to follow, and senior staff did consider a huge charity fashion show at Madison Square Garden that never materialized.

Yet Klein, on a walk-through of the Herald Square flagship, before the 10 a.m. opening and before the racks and rounders get picked apart by the shopping hordes, insists that showmanship and the next extravaganza must always be part of the Macy agenda.

“If you are not forward-thinking, you are dead. We aim to be alive,” he states.

“The 150th anniversary celebration will be a big thing in October. We will celebrate the 150th in all 800-plus locations in varying degrees, with personal appearances by celebrities and designers and parades. There will be lots of festivities.”

Other issues—integrating systems, merchandise programs and executive suites in the aftermath of a string of mergers and consolidations—have been priorities. So has weathering the poor economy, which has complicated the rigors of inventory management and planning for the seasons ahead. Since Klein took the helm, Macy’s East has mushroomed from a 104-unit $4 billion chain to 250 units and $9 billion in volume, putting more responsibilities and strains on his team.

And when pressed for a big idea after the anniversary, something like the fireworks that will become a Macy signature, he responds, “That’s a work in progress.” He’s not about to tip his hand too much, at least on this tour of the store. It’s more about showing than telling, to demonstrate that Macy’s, despite difficult times and the distractions of mergers, can still move forward.

At selected stops on the 100,000-square-foot main floor, Klein highlights several recent changes—a new area for fashion and bridge jewelry that opened in June; space increases for handbags including double the square footage for Michael Kors, and a modern new bay for sunglasses with a cool designer aura and brands such as Gucci, Fendi and Coach. There’s also a Tumi shop, opened earlier this year.

“Do you play golf?” Klein asks on the Seventh Avenue side of the main floor. “There’s a Ghurka golf bag for $6,500,” in the Ghurka shop, also opened this year.

Then he twists around and points to a stack of Club Room polos, retailing 50 percent off, for $15. At first, it seems incongruent to have a moderate-priced private label brand in close proximity to a luxury accessory brand. However, Klein regards that as part of the Macy’s appeal. “We are a company of breadth. The approach is wide. The strength of a department store is the ability to expand and contract on a multitude of businesses.”

It’s a different feel upstairs on the ready-to-wear floors, where there’s a smoother flow to the merchandising.

“Time and money have been invested in educating planners and merchants on the concept of lifestyle merchandising,” Klein explains. “We’ve identified four lifestyles to build assortments around: traditional customers; the neo-traditional; contemporary, and fashion or trendier customers.” It’s resulted in changes on the selling floor, and logical brand adjacencies for selling synergies. So for example, Polo, Tommy Hilfiger and Nautica shops are organized side-by-side in men’s wear on the second floor.

For the trendier or avant-garde customer, there’s Ed Hardy, with its embroidered Goth look, merchandised close to the Japan-based Evisu jeans, priced at $300. They’re two looks that not long ago Macy’s East didn’t carry. “Ed Hardy is doing extraordinarily well,” Klein reports.

He also emphasizes that Macy’s has made strides in its Impulse contemporary department on the section floor, with an assortment that includes Betsey Johnson, Manoush, Vivienne Tam and Hoss, among other labels. With competition from the likes of sister company Bloomingdale’s and Barneys Co-op, it isn’t easy for Macy’s to lure contemporary lines, even though Macy’s East, based at the Herald Square flagship, is the largest division of the 850-unit Macy’s Inc.

The next stop is Starbucks on the third fl oor. There are three others in the Herald Square flagship. “It’s an aspirational coffee brand,” Klein says, that fits with the chain’s efforts lately to sell higher-grade goods and a wider scope of products including toys, food and even iPods.

“Herald Square does more volume with the largest number of vendors” than any other store in the world, he boasts, citing MAC, Clinique and Coach, which he says operates its largest in-store shop at Macy’s Herald Square.

Other key brands are Tommy Hilfiger, with which Macy’s has the exclusive in apparel, Calvin Klein, Kenneth Cole, Kors Michael Kors, DKNY, Ralph Lauren, Jones New York, the private labels I.N.C. and Charter Club and the exclusive Martha Stewart Collection line of home goods.

Big volumes are a given, since the flagship receives 20 million visitors a year. In its 1.1 million square feet of selling space, the flagship does an estimated $800 million in annual sales. It’s still considered the largest store in the world, and one of the city’s top tourist attractions.

But it’s also a shopping mecca that’s often criticized for its shopping experience, sometimes even by its own vendors. By lunchtime, the store can appear more like a cluttered warehouse than a retail showcase, and it can be difficult to navigate or find service.

“Macy’s needs to wow the consumer with a better customer experience,” observes Paul Rosengard, group president of premium brands at Perry Ellis International. “They can’t beat Kohl’s or Penney’s on the pricing game. They have to compete on fashion, brand exclusivity and service, and they have to have affordable fashion in at least a pleasant shopping experience. Herald Square is different from any other Macy’s store. It has more tourists and more inner city shoppers. I would carry greater levels of better product and fashion. I would flood that store with customer service. I would make it the centerpiece.

“Everyone walks Herald Square,” Rosengard adds. “To open on the main floor with handbags and cosmetics is absolutely on target. But if you are looking to do something bold, what if on the Seventh Avenue side for men’s, you brought collection brands down to the main floor—Polo, Tommy, Perry Ellis, Nautica,” instead of the more moderate classification presentation.

Rosengard admits this idea could lead to greater shrinkage and may not be a volume driver. “But something has to be done to change the face of the store. You know the presidents of Bon Ton, the Belk brothers, as well as presidents of brands from here and Europe—we all walk Herald Square, and if I am a high-end brand and I walk Herald Square, I’m not so sure I want my brand in that store. If you make Herald Square more beautiful, maybe there’s a ripple effect for your other doors.”

“Is Macy’s a better store or a moderate store?” asks one former department store principal, speaking on condition of anonymity. “The thing is, Macy’s promotes like Kohl’s and Penney’s, so how can they talk to a better customer, while they promote the hell out of the business? Macy’s is still a great name. It still stands for fashion, for pizzazz and excitement, and adding a lot of exclusives is the way to go,” he says, referring to the Martha Stewart Collection and Tommy Hilfiger products sold only at Macy’s. “Historically, Macy’s has done best in apparel and accessories. But it’s been three years since the May merger. Where’s the beef? Macy’s still has a tough time competing for contemporary brands, and you have to question whether Macy’s understands how to merchandise smaller stores,” such as those May operated in certain locations. “Many are $15 million to $25 million stores, whereas most of the Macy’s are $40 million or $45 million doors.”

To such accusations, Klein responds that there have been and will be further improvements. “We know we have a long way to go, but we have come a long way too,” he says.

As far as the housekeeping and customer experience, he replies: “In a significant number of doors, we have gone to overnight maintenance—people who are recovering the floor at night after store hours end. Our customer services are improving, but they are not where we want them to be.”

Fitting rooms have been enlarged, three-way mirrors installed and lighting improved. Rest rooms and service departments such as MBA personal shopping and bridal, according to Klein, are also being upgraded.

Such upgrades are as critical as ever, with Macy’s seeking to woo consumers who shopped former May regional nameplates converted to Macy’s. According to Klein, the Downtown Crossing store in Boston, formerly Filene’s, is remodeling cosmetics and adding FAO Schwarz, as are many other Macy’s units. At the former Marshall Field’s in Chicago on State Street, men’s is being remodeled. And the former Hecht’s in Metro Center in Washington is expanding better sportswear and suits. Key stores in New York, Boston, Chicago, Philadelphia and Washington are slated to continue to see renovations and new merchandise concepts.

There have been other changes since Klein became ceo of the division. The store rebuilt its fashion office with new personnel to get on the trends and coordinate with merchants and marketing and visual executives to shape the mix and the presentation.

Macy’s East has also launched fashion catalogues in coldweather accessories and contemporary sportswear, focusing on certain items, and tries to push better product. In one denim campaign, for example, the goal was to convey that Macy’s sells more than just Levi’s, and featured brands selling for as much as $250 to $300.

“Listen, the economy is very difficult and we think that gaining market share has got to be the number-one priority,” Klein says. “In many areas we are pleased with the direction we are going in.

“Most important is the necessity to be relevant to customers in every location. It’s our primary challenge,” says the 59-year-old Klein, who began his retail career in 1974 as a buyer for Bloomingdale’s, rose to Federated Merchandising’s men’s general merchandise manager, chairman of the former Stern’s, executive vice chairman of Macy’s East and chairman of the Atlanta-based Rich’s/Lazarus/Goldsmith’s division, where he presided over the 2003 integration into Macy’s.

“The needs of the customers at Rockefeller Center are different from those in Norfolk, Va., which are different from those in Chicago,” Klein points out. “If you don’t hone it, you’re dead. The addition of Macy’s North to the Macy’s East portfolio highlights even more the necessity to be relevant on a by-location basis.” That combination was part of a sweeping consolidation this year that brought the Macy’s chain down to four operating divisions from seven.

My Macy’s, the corporation’s program to tailor the merchandise, door by door, by taking closer reads on what each unit sells and what the consumer wants and needs from each location, “shows that Macy’s is becoming more aggressive…on people and processes, by location, than ever before,” Klein says.

“We have added significant human resources to analyze our business and merchandise at the point of sale. For the 59 locations added through the this year’s consolidation of Macy’s North into Macy’s East, two teams in Minneapolis, two teams in Detroit and two teams in Chicago were added. District merchants were added who are responsible for a narrow range of classifications and ensuring that the right product gets to the right store at the right time. Each district merchant handles about nine or 10 doors. We need people that know when back-to-school should begin in their area,” Klein says. “We need people that know the color of the high school team, that know how rabid the community is about the local sports team.”

There are about 400 individuals working in the My Macy’s program for Macy’s East, Macy’s Central and Macy’s West, covering a total of 20 markets. If deemed effective, then My Macy’s will roll out to additional markets across all divisions.

Some industry experts challenge that approach. “I think localizing probably applies to 15 percent of the assortment that might need to be different by location. Probably 85 percent of the assortment works in every Macy’s store across the U.S. The focus should be on getting the 85 percent right,” says Bob Grayson of The Grayson Company, a retail consulting firm. “I would focus on the things that should be right in every store. The payback is much greater.”

Klein, however, strongly disagrees. “In my opinion, the one-size-fits-all [strategy] will not work in the 21st century,” he says. “We can go to our store in Flushing, or we could take you to a Macy’s in Brooklyn or Douglaston. There are size differences and taste differences that defy the 85 percent rule….My Macy’s is a game changer.”

And for now, it’s the big idea to guide the chain into the future.

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