By  on September 6, 2008

Like the store's giant balloons that float down Manhattan's West Side each Thanksgiving, Macy’s has had a larger-than-lifecharacter from its inception through most of its 150-year history.

Supercharged holiday events, black-tie galas, megamergers, product innovation, blockbuster sales—myriad merchandising andmarketing exploits—all date back to the store’s adventurous founder, Rowland Hussey Macy, and the merchant kings who subsequentlytook the store’s reins, such as Isidor Straus, Jack Straus and Edward Finkelstein.

Their tenures were marked by showmanship, hands-on management and focus on customers, as the Macy’s records show. With its 4th ofJuly Fireworks and lavish spring flower shows, Macy’s sought to appeal as much to high society as it did to the masses. Andbecause of that broad reach, Macy’s has endured in the rough-and-tumble retail universe.

“There were some fascinating personalities in charge for years and years,” observes Bob Rutan, Macy’s historian.

Stacks and stacks of media clips, letters, documents and photographs from the archives at Macy’s Herald Square tell aretail story filled with drama and irony, twists and turns, even some tragedy, notably the death of Isidor Straus and his wife,Ida, on the Titanic, and the 1992 bankruptcy that almost ended the business.

But overall, it’s a luminous history characterized by growth and acquisitions, and as Rutan says, “a series of firsts”that set the store apart.

According to the company, Macy’s was the first retailer to have a female executive, to operate on a cash-only basis forbuying and selling goods and to create Christmas windows. Macy’s was also the first to bring Santa Claus into the store to meetthe kids, whereas before, poor Santa always stood outside in the cold to usher in the crowds.

There’s a different complexion to Macy’s nowadays. Merger and economic issues, price promoting and inventory control havetaken as important a role in operations as product and entertainment. It’s also a much bigger company than the early operatorswould have ever imagined, with nonstop pressure from Wall Street and the investment community. Macy’s $17 billion takeover of MayDepartment Stores in 2005 could ultimately prove to be the defining moment in the company’s history. The deal has created one ofthe largest department store chains in the world—850 units and $27 billion in volume—and has taken Macy’s truly national.

Despite the issues confronting the corporation, and declining traffic in malls affecting all types of stores, therenaturally remains a positive view about the future. The company is exploring the possibility of taking Macy’s and its sisterBloomingdale’s division to locations overseas, and there’s a constant quest to bring exclusive brands and new labels to thestore.

Failure Breeds Success

The story begins with R.H. Macy, a native of Nantucket, Mass., born August 29, 1822. According to the archives, he was descended from a family of New England Quakers who were coastal traders and seafaring whalers, and his father ran a general store on the island catering to sailors and their families, giving him a taste for both retailing and the sea.

At age 15, Macy sailed from New Bedford aboard the whaling ship Emily Morgan, bound for Cape Horn and the Pacific on a four-year voyage. He returned to Boston with a red star tattoo on his arm. It would eventually become the symbol of his company.

At age 22, he married the sister of his brother Robert’s boss. In 1846, Macy entered retailing with a couple of dry goods and notions stores in Boston that failed. Undaunted, he went out West with his brother, Charles, leaving his wife and only child, Rowland Hussey Jr. The brothers sought to capitalize on the gold rush by opening a store catering to miners in what is now Marysville, Calif. It proved tough to do business in a frontier where merchandise was slow to arrive and population turnover was high. The business failed after just three months and was sold. So it was back to Boston and the family for the senior Macy, but along the route, he stopped in Wisconsin to dabble in real estate and doubled the money he earned from the sale of the company.

Continuing east, he took a fourth stab at retailing with a store in Haverhill, Mass., and, at a time when haggling over price was accepted, around the 1850s, Macy introduced the one-price system. But he may have been too far ahead of his time, as that store, too, ran into difficulty and was sold.

At age 36, and with some money in his pocket, Macy moved to New York City, where he opened a small dry goods store, 20 by 60 feet, on the corner of 14th Street and Sixth Avenue. It sold dressmaking materials and millinery trimmings such as ribbons, laces and embroideries. The records show that Macy’s first-day sales totaled $11.06; first-year sales were almost $90,000. That equates to roughly $21.8 million in today’s dollars, based on the Consumer Price Index and historical inflation rates.

Macy bought the goods, hired the employees, wrote the ads and operated the business. As the store grew, he began to delegate while staying close to the business. Margaret Getchell LaForge, a distant relative, was hired as a cashier and quickly promoted to bookkeeper, and then rose to store superintendent, becoming what the company says was retailing’s first female executive.

According to Rutan, Macy was also first with a cash-only policy for goods bought from vendors and sold to shoppers. “He never had debt, and never had creditors knocking at his door,” Rutan says.

In addition, Macy was also one of the first to lease space, as his shop expanded to 11 adjacent buildings over the years. A 25-by-100-foot basement area was leased to the Straus family, of Abraham & Straus fame, for its porcelain plates and crockery. It was a fateful move. The Straus family would eventually assume control over the entire Macy operation.

Leasing space was one way to expand the assortments beyond what competitors such as Lord & Taylor (America’s oldest department store) and B. Altman were carrying—the typical selections of ladies’ bonnets, bodices, dresses and sewing materials. Macy often traveled to Paris on buying trips, where he became enamored of European stores. “He was impressed by the size, scope and variety at Bon Marché,” Rutan points out.

Around 1860, he met and became a friend of P.T. Barnum, who influenced Macy’s style, imparting a sense of spectacle. Macy also had a love for mechanical toys. Juggling clowns, monkeys jumping through rings, horses leaping through hoops or Uncle Sam could be seen in the Christmas windows. And he liked to be front and center and feel the enthusiasm of shoppers. “He would always greet customers, was hardworking and entrusted the financial matters to others,” Rutan says.

In 1877, Macy died while on a trip to Paris for business and pleasure. The company does not know the cause of death, but it is believed Macy might have been in bad health before making the voyage, and had a will written just prior. The ownership was transferred to two of the oldest and most valuable employees, Abiel T. LaForge, who was Getchell LaForge’s husband, and Robert Macy Valentine, who was Macy’s nephew. They decided the corporate moniker would switch from R.H. Macy & Co. to LaForge and Valentine on January 1, 1879, but LaForge died of tuberculosis in 1878 before the name could be changed, and Getchell LaForge and Valentine died soon after. So the R.H. Macy name lived on.

For the next nine years, ownership went to Macy’s relatives by blood and marriage, including C.B. Webster, R.H. Macy’s first cousin, who retired in 1888 and sold the business to Lazarus Straus and his sons, Isidor and Nathan. Later that year, Lazarus died.

The Straus Dynasty

In 1896, Isidor and Nathan Straus, the two full partners of R.H. Macy & Co., brought major advancements to the store. Isidor three years earlier had bought into the Abraham & Wechsler store on Fulton Street in Brooklyn, and renamed the business Abraham & Straus (which, a century later, was renamed Macy’s), so the appetite for change was evident. The most dramatic at Macy’s was relocating to Herald Square on Broadway and 34th Street.

Starting in the 1880s, and up to around 1915, Macy’s assortment grew with imports from around the world, including China and Australia. The store had more than 20 buyers traveling the globe. Volume, at $7 million annually by the turn of the century, was increasing and more space was needed to sustain growth. It was a risky move to go that far uptown because the competition and most shopping was only as far north as 23rd Street. Yet the Strauses saw the city and its services moving north, too, anticipating that Herald Square would become an important hub. The new location opened on November 8, 1902.

Ten years later, Isidor and his wife, Ida, lost their lives on the Titanic. But they went down heroically, and romantically. Isidor declined to escape on a lifeboat so long as there were women and children on the ship. Ida also declined the offer, and stayed behind with her husband. She also gave her fur coat to her maid, who escaped death.

“He had a philosophy that you should be able to get anything you need for life, from the cradle to the grave,” whether that meant a baby rocker or a funeral shroud, Rutan says. “They even sold coffins, sheet music and horses from an uptown stable.”

Straus also instilled a policy that lasted from 1902 to the Thirties that if you could find a product for less, Macy’s would refund the difference. There is a record of one customer bringing in a toy bank that was 2 cents less at a store in Newark, N.J. A year after the Titanic disaster, Nathan lost his zest for retailing, retired to pursue philanthropic activities and sold the business to Isidor’s sons, Jesse, Percy and Herbert. The brothers led the store into a new era of growth.

The company went public in 1922 and began absorbing other stores. In 1923, the Toledo, Ohio–based department store LaSalle & Koch was acquired; the next year, Davison-Paxton in Atlanta was bought, and in 1929, the Newark-based Bamberger’s was purchased. All were ultimately renamed Macy’s.

In 1924, a slice of Americana was born with the start of the Macy’s Christmas Parade. Newspaper ads promised “a surprise New York will never forget.” Four years later, the parade was renamed the Macy’s Thanksgiving Day Parade.

Also in 1924, the first half of the Seventh Avenue side of the store’s expansion opened. Seven years later, the remainder of the Seventh Avenue expansion was completed, thus making Macy’s Herald Square the “world’s largest store” with more than 1 million square feet of retail space. Macy’s still makes the claim—and no other store contests it.

Mr. Jack's Style

A changing of the guard occurred in 1933 when Jesse was appointed America’s ambassador to France and Herbert died. Percy then became president, and chairman in 1940. He retired later that year and Jack Straus, Jesse’s first-born son, took over as president.

In 1941, the first branch store built by Macy’s opened in Parkchester, N.Y. During this time the company purchased O’Connor Moffatt in San Francisco and changed that nameplate to Macy’s.

But while expanding the business, Jack Straus, or “Mr. Jack,” kept a close eye on the store and its employees. “He did daily tours of the store. If you worked at the store for more than six months, by that time he would know your name, your birthday, your children’s names or if your wife was expecting,” Rutan says. “He knew 99 percent of the people. Straus worked hard to create a family among the employees.”

Among his initiatives, the former Isidor and Ida Straus estate in Connecticut became Camp Isidor after World War II, where employees would put away 20 cents out of their paychecks each week to go the 280-acre retreat for a couple of weeks a year. In the city, he created a clubhouse for Macy’s associates where they could get meals, play cards and dance. He also created a glee club and a theater club.

“Even up to the Nineties, you could get a great sandwich for under $3, with a salad and blueberry pie. There was a lot of mingling among the sales associates,” Rutan recalls.

Mr. Jack fully understood the power of the media, organizing the first live broadcast of the Thanksgiving Day Parade, developing a summer TV replacement show called The Fashion World of Macy’s and getting news crews to cover Black Friday.

He also had “It’s Smart to Be Thrifty” painted on the roof of Macy’s, taking advantage of the Empire State Building—from which the crowds could see the slogan.

The Straus family’s 72-year dynasty ended in 1968, when Mr. Jack retired as chairman.

Finkelstein's Eventful Era

After Mr. Jack’s retirement, former Macy’s California president Ernest Molloy became chief executive officer of R.H. Macy. Donald Smiley followed him, and after a long run as ceo, Smiley was succeeded in 1980 by Edward Finkelstein, a Macy’s veteran who garnered fame as a master merchant by transforming the bargain basement at the Union Square Macy’s in San Francisco into “The Cellar.” The format, an energetic arcade of housewares, food items and gifts, was cloned at Herald Square five years later.

Finkelstein also remade Herald Square’s main floor, and actually closed it down for four months, which remains unheard of. Typically, a floor would be redone in phases so much of the space remained open for business during construction.

In addition, Finkelstein created the Little Shops designer floor, which was eventually dismantled as Macy’s withdrew from the high-end business. Yet there was that aura of playing to the rich and famous, as Finkelstein relished in staging black-tie events to promote charitable causes, and in luring the city’s elite to the store for these glamour evenings. He even hosted Brooke Astor’s 80th birthday party, transforming one floor into a ballroom. But Finkelstein also could play to the general public, and one time converted the main floor into “Fossil Town,” an idyllic, small-town, Middle America setting, to promote Fossil products.

During Finkelstein’s tenure, Macy’s became a launching pad for high-profile products. Elizabeth Taylor and Cher introduced their fragrances in the store. He also is credited with reviving the private label business, with brands such as INC International Concepts, Charter Club and Alfani.

But things turned for the worse after Finkelstein spearheaded the leveraged buyout of R.H. Macy & Co. in the late Eighties, taking the company private and getting many of his senior executives in on the action. The LBO saddled the business with too much debt and Macy’s declared bankruptcy in 1992.

In April of that year, Finkelstein left Macy’s. Myron E. “Mike” Ullman 3rd, recruited by Finkelstein in 1988 as executive vice president, rose to co-chairman when Finkelstein left and subsequently became chairman and ceo. Ullman, who went on to become chairman and ceo of the DFS Group, then second-in-command at LVMH Moët Hennessy Louis Vuitton and ceo of J.C. Penney, has been described as a great administrator and a very organized manager, who came into Macy’s when it had little financial controls and weak systems. He moved immediately to improve the systems, and tackled shortages and operational problems. He brought balance to a merchandising organization that didn’t understand the operational side of the business. Ullman implemented Macy’s buyer-planner-store strategy in 1992, a merchandising approach that differed from the team-buying process at its competitor Federated Department Stores. The Ullman plan was regarded as a more organized method of stocking stores than the way things were done during the earlier days of heady inventories.

In December 1994, Federated bought Macy’s out of bankruptcy, putting the charismatic Allen Questrom in as chairman and ceo of the combined business. Ullman fought hard to keep Macy’s independent, but Questrom had previously led Federated out of bankruptcy and doubled that company’s stock, so his reputation looked good to Macy’s creditors.

Tackling Takeovers

Questrom stabilized the Macy’s business by repairing relationships with vendors, landlords and bankers. As much as he’d taken the big-picture point of view, with some megamergers and remaking companies with broad strokes, Questrom was also deep into the merchandise and disposed to challenging his buyers on the nitty-gritty of the individual stockkeeping unit, whether it was the color, the silhouette or where it was placed on the selling floor.

He envisioned Macy’s as a national retail force, with a dominant presence on the East and West Coasts. Federated operated more than 400 department stores and 157 specialty stores in 37 states, including Abraham & Straus, which was purchased from the Straus family in 1929.

During Questrom’s tenure, Federated acquired Broadway Department Stores, bringing in Broadway, Emporium and Weinstocks to the Macy’s West family. A&S and Jordan Marsh were converted to the Macy’s name in March 1996. Questrom passed the reins to James Zimmerman, who had been Questrom’s right-hand man as president and chief operating officer, and was instrumental in resolving the Federated and Macy’s bankruptcies.

In February 2003, Zimmerman retired and was succeeded by Macy’s current chairman, ceo and president, Terry Lundgren, a protégé of Questrom’s.

Lundgren rose through Federated’s stores and merchandising organizations in the Eighties and Nineties, and had been spearheading Federated’s private label build-up. Additionally, as the years progressed, several more regional department store nameplates were converted to Macy’s, including Stern’s, The Bon Marché, Burdines, Goldsmith’s, Lazarus and Rich’s (all in 2005).

To fight a downward trend in the department store industry, Lundgren devised, among other strategies, a “store of the future” program that featured 12 new technologies, shops and amenities, such as a fitting room complex with a lobby, a seating area for significant others, CNN monitors and computer terminal jacks to get online. Stores also were equipped with price lookup, so customers and sales associates can scan a bar code and get the latest prices of items; larger signs that are reminiscent of discounters, and new shop concepts.

Lundgren has been moving the company toward greater and greater centralization. The retailer has downsized to four from seven regional operations, and the home store and the marketing have been centralized. He’s also been strongly behind the upscaling and expansion of Bloomingdale’s.

In August 2005, Federated acquired what was then an ailing May Department Stores Co. and announced that most of May’s stable of regional department stores—including Marshall Field’s, Filene’s, Foley’s, Kaufmann’s, Strawbridge’s, Hecht’s, Famous-Barr, Robinson’s-May, Meier & Frank, The Jones Store and L.S. Ayres—would be converted to the Macy’s nameplate in the fall of 2006.

Whether the merger ultimately proves to be a success remains to be seen. Most industry experts believe the kinks will be worked out, in what will be another testament to the staying power of Macy’s. Getting through the merger, and the current troubled economy, depends in large measure, as Lundgren said at the last annual meeting, on those “big initiatives” that make Macy’s Macy’s, such as the Martha Stewart Collection and the exclusive on Tommy Hilfiger sportswear.

“This is the time to embrace change, to innovate,” Lundgren told shareholders. It’s exactly what R.H. Macy himself would have prescribed a century-and-a-half ago.

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