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As Flagship Hits 100, Macy’s Kahn Pushes Vendors for Creativity

NEW YORK — Macy’s Herald Square will soon be a century old —and it’s getting ready for a reengineering that could help boost the outlook for the flagging department store format.<br><br>As the world’s largest and most...

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NEW YORK — Macy’s Herald Square will soon be a century old —and it’s getting ready for a reengineering that could help boost the outlook for the flagging department store format.

As the world’s largest and most trafficked store, Macy’s Herald Square pays a big price for its singular status. Along with the rush of shoppers averaging 35,000 a day, and up to 75,000 on peak holiday days, comes a gush of criticism. The flagship, more than any other traditional department store, is regularly equated with what’s wrong with department stores, like the lack of service, housekeeping and fashion innovation.

Even Hal Kahn, the chairman and chief executive of Macy’s East, which operates the Herald Square store, admits that with business tough and the increasing difficulty of getting substantial gains from many of the 12 core vendors that comprise 25 percent of the store’s volume, the future of Macy’s is uncertain, if changes aren’t made soon. He’s talking about changes on the selling floors, simplifying how products are priced, reducing clutter and putting more oomph into fashion marketing. And for suppliers, he has a stern message: “If you don’t want Macy’s to cut back the space, give us the newness.”

As Macy’s gets set to celebrate 100 years on 34th Street, where it debuted on Nov. 8, 1902, an image overhaul is gathering speed across the store’s 1.1 million square feet of selling space and 10 1/2 selling floors. Close to $200 million was spent in the last five years to remodel and reposition the store. But with demographics and shopping patterns changing so rapidly, Macy’s must double its efforts to cast the big box as more of a modern showcase for product launches and fashion, to pump up the top line, and reverse the tide of criticisms. If successful, it would be a victory for Macy’s and its parent Federated Department Stores that would resonate throughout the imperiled department store sector.

“On Feb. 1, we are starting to reposition and reconfigure Herald Square, and other stores,” said Kahn, during an exclusive interview with WWD. “You are going to see new lines and an expansion of existing lines with major growth opportunities. We see making major strides in respacing and reenergizing, starting with Herald Square, in contemporary sportswear, shoes, accessories, juniors, young men’s, and cosmetics in reaching out to the market to remerchandise and where necessary respace, so we continue attracting a younger, more fashionable customer. This is not a renovation. This is a respacing towards newness and growth —all marketed towards a modern customer.

“We are reaching out for solutions,” Kahn added. “We don’t want to come across that we have the solutions. I want each of us to look at what we have to do, not to think it is hopeless, and start reinventing ourselves. It is very easy to bash department stores. I know all of our problems, but I do know that when we have product that the customer wants, they figure out how to find us.”

According to Kahn, the reengineering also entails:

Simplifying the pricing and eliminating coupons, through a gradual weaning over the next three years or so. Coupons for one-day sales were discontinued in August, and in many cases, the format is a generic single price point sign. Kahn says Macy’s will “unbundle all the promotion, couponing and P.O.S.-ing.”

Incentivizing buyers to take fashion risks, particularly in contemporary areas, large sizes, shoes, young men’s and juniors. “Our merchants have to be the decision-maker on that — not the vendor,” Kahn said.

Focusing on updating the identity, with “urban” lines, such as Rocawear, and the Impulse contemporary area, as well as such amenities as Starbuck’s. Additional youthful labels will be added to create “synergy” from floor to floor, Kahn said.

Improved service and housekeeping by adding staff devoted to “fluffing, folding and sizing” and helping consumers find sizes and checkout counters. Over $3 million is being spent at Herald Square and 26 other Macy doors for bigger and better signing, so customers can navigate the aisles.

Testing new checkout formats, larger fitting rooms, and other amenities at Long Island branches first, then bringing them to Herald Square. Selling floors could wind up with fewer, but faster, checkouts that are central and easier to spot.

Many of these changes are part of an overall Federated program involving units of Macy’s West, Burdines, Lazarus/Rich’s and Bon Marché, and to a lesser extent Bloomingdale’s, which Federated tries to keep distinctive from its other chains.

The reengineering won’t be easy, considering some desirable vendors, particularly trendy color cosmetics, resist selling the $6 billion Macy’s East, even on Herald Square, even though their prices are appropriate for a mainstream retailer. They reserve launches for chicer retail settings across town.

What’s particularly irksome to Macy’s East is that certain core, mature brands that do sell the store, like Estée Lauder and Shiseido, won’t offer some of their secondary, newer lines showing rapid growth. Though Macy’s does sell MAC Cosmetics, and is the single biggest door for the brand, the store would love to also carry Lauder’s Bobbi Brown and Stila brands, as well as Nars, a division of Shiseido. Also on Macy’s most-wanted list: Tommy Bahama, Seven Jeans, Eileen Fisher and Cole Haan.

It’s not that Macy’s East lacks many key brands — just a handful of newer lines that would go a long way toward enhancing its reputation as a launch pad for fashion products, and perk up business, which has been tough. Prior to 9/11, the flagship was yielding 5 to 6 percent gains, and Kahn sees the store eventually returning to those levels. The store suffered double-digit declines for months after the terrorist attacks, but the drop was not as steep as at other flagships in the city, which are more dependent on tourists and luxury products rather than basics or commodities. Last quarter, business at Herald Square was flat, Kahn said.

In 2001, the flagship did almost $600 million in sales. That means a vendor at Herald Square has the potential to do 10 times as much as volume as in a typical Macy’s branch, which does around $60 million in annual sales, or four times the volume as in an “A” location, such as the $140 million Macy’s in Roosevelt Field on Long Island. “We have the venue to do a lot of business in Herald Square and then do it elsewhere,” Kahn said. “If they have lines they only ship to specialty stores and we are the biggest store in the world, shouldn’t we have that line too?”

Macy executives say their best-selling departments at Herald Square include juniors, jewelry, accessories, contemporary, young men’s, activewear, and shoes, which is being expanded from one to two floors, with traditional-comfort shoes on four, and more modern styles on five. Contemporary costume jewelry was expanded during the summer, with such lines as Ben Amun, and Simon Sebbag. MAC does well in cosmetics, as does Urban Decay and Hard Candy, which all could get more space

Several executives cited “urban” lines such as Sean John, Mecca, Phat Farm, and Johnny Blaze as tracking strong for several seasons, and in juniors, Mavi, Hot Kiss and Buffalo sell well. In Impulse women’s contemporary, hot brands are Parasuco, Haley Bob, Bisou Bisou, and Skinny Minnie. With women’s large sizes, particularly with contemporary denim looks including Tractor, Z. Cavaricci, Miwah and Gloria Vanderbilt, Kahn sees enormous growth potential and opportunity to win back customers who have been shopping chain stores. Leading lines in men’s contemporary include D&G, French Connection, Versace, and Moschino.

“Where we have new product, we are getting the same customer to buy more and getting new customers to come into the store,” Kahn said. He also said that where Macy’s decides to sell higher price points, there’s no resistance, such as with Mitchell & Ness authentic jerseys, priced up to $250, and some luxury accessories such as Louis Vuitton, Coach and Lancel. The store is considering bringing back electronics, as long as its upscale “fashion electronics,” such as plasma TVs.

In the last five years at Herald Square, jewelry and handbags have grown 30 percent each, whereas cosmetics hasn’t grown, raising the possibility that cosmetics gets downsized to grow jewelry and accessories. Career merchandise is also likely to shrink, though Macy’s will stay with the category. “It’s our heritage,” Kahn said. Jewelry is the most profitable business in the store, though juniors has shown the biggest gains, up 44 percent in Herald Square. The young men’s business is up 25 percent in five years, and better sportswear is up 30 percent.

However, in most families of business, there are major brands that have not grown. As Kahn pointed out, Macy’s top-12 branded resources represent 25 percent of the store’s volume, and they are all considered mature. “If the department stores are mature, what does that say about our key brands? Aren’t they mature also? If our young businesses are growing at a very fast clip, shouldn’t we carry more of what was selling and respace the store?”

Kahn wouldn’t single out any of the big brands that have shown disappointing performances lately. Macy’s core vendor group reportedly includes Ralph Lauren, Lauder, Tommy Hilfger, Jones New York, Liz Claiborne and Levi Strauss, among others.

“We are reaching out to the vendor community to join us in our fashion and newness crusade,” Kahn said. “Give us the opportunity to showcase their new lines. We are basically going business by business to see if resource A can’t give us growth next year, we will have to take [away] some of its space. This is expensive, but this is not going to be done in six months. I want to make sure we are not at war with resources. I agree with manufacturers that profit and chargebacks cannot drive our business. It has to be top-line growth, or the ability to grow.

“Open up your closet, male or female, what you have in your closet by and large is what we have in the store. There isn’t enough newness. There isn’t enough innovation. There isn’t enough product differentiation from all channels of distribution. My biggest fear is that the vendor community is walking away from their major lines, and not looking at the three or four things they have to do with their product. We need branded apparel. We need fashion apparel. Yes, there are issues that vendors have with department stores on chargebacks and everything else and that will eventually have to be addressed. But show me a line that is performing and we don’t have a chargeback issue. Our biggest problem with chargebacks is with those vendors that aren’t growing.

“The growth is coming from our younger lines, our newer lines. If you were doing $100 million with a resource and $5 million with another resource, and the $5 million is going to $10 million and I am dropping 10 percent on the $100, I am breaking even, and I can’t give up that $100 million. But if that 100 isn’t going to go to 120, I have to respace that 100 and stay with it and love it, but I have to find five more opportunities without getting over-assorted in my store. I can’t. So we are narrowing our resource structure down, but I got to tell you, I’ve got to make sure I stay with the fashion and exploit the newness very, very fast.”

In addition, casualization has cut into the business. Men’s suits, clothing and dresses haven’t been selling as well as shorts, T-shirts, khakis and jeans. While Macy’s may be getting the same number of transactions, the transactions have lower price points, meaning reduced volume.

Macy’s is also hurt by manufacturers that sell the same products to different channels of distribution, meaning the same product sold at department stores is available at different prices in warehouse clubs, outlets and off-pricers. “Not only are they hurting their brand, they are hurting our brand,” Kahn said. “But let’s get back to the issue of department stores. We are mature. It is more difficult to get pluses in a mature business and very easy to take losses.”

One way to get pluses is to make shopping less confusing, starting with the pricing. Changes at Macy’s and other Federated stores are in the works. “We are spending a lot of time, a lot of effort, a lot of money, on simplifying our pricing,” Kahn said. “We will have more price points and less P.O.S.-ing, and less 50 to 30 off plus an extra 20. It gets very complicated. You need a calculator to shop our stores. We are doing this now.”

He described coupons as “a tremendous irritant” to the customers who don’t have them since they slow the register lines. The goal is that within three years, couponing at Macy’s will be gone, and the out-the-door price will be clearer. This year, coupon usage could be cut 30 percent.

“We are going to expand our ‘best value program’ on key commodity items,” which is everyday low price, Kahn said. “Do I believe we are going to become an everyday low price store? Absolutely not, but we need a blend of pricing and people should buy the most wanted items in the stores at the same price all season long and shop at their convenience, and not at ours.”

Kahn also said Herald Square and other Macy’s units are reducing clutter by reducing the merchandise. The division is operating with 10 percent less inventory than a year ago. On top of that, “By having designated people signing, taking markdowns, fluffing, folding and sizing, if you have more people doing that with less merchandise, you should see a difference in our housekeeping.

“Manufacturers tell me all the time — Hal, you are giving away the goods, you are P.O.S.-ing it. If we are giving it away, why aren’t our turns better? If we are giving it away, why aren’t our sales better? The truth of the matter is that if you want to increase the demand, you have to decrease the supply. We have too much assortments, too much sameness, too much clutter on the floor, and we are too similar to all the other channels of distribution. We need to differentiate.”

Macy’s will test new checkouts at its Long Island stores, as well as larger fitting rooms, better directional signing. “We feel that if we can do it in New York, it can be done anywhere. The New York customer has been telling us they love our value, but they are having a tough shopping experience in our store.

“The whole point is we are doing a lot of things. The future is the past unless we change and we know we have to change. We have to appeal to a younger and more modern customer. Our young businesses are growing faster than the store and are more exciting than anything in the store. Our junior, young men’s and kids’ environments are exciting where we have renovated, and we are attracting a newer, younger customer in those areas. Are department stores so mature they can’t grow and change, or are we are product of the brands we carry?

“The take away is I know we’ve got problems. As we celebrate our 100th anniversary, we are being reflective on where we are going. Change is happening fast, at a pace faster than its ever been in the last 100 years, and the world’s largest store has to be there.

“I’ve been in this business a long time,” said Kahn, who started his career as an executive trainee at Abraham & Straus in 1970. “I want to stay in this business. I am concerned about the next five to 10 years. The future is the past, if we don’t change and get our partners to want to support us with new lines, new product, new ways of doing things. Do I think our buyers go in and don’t look at the product and say we want this margin deal? Some do. Some don’t. I have to do everything I can to try to reinvent. But you reinvent starting with the customer, what products she buys, the price she pays it at, and how she is treated in the store.”

MACY’S FACTOIDS

Macy’s holds the first New York City liquor license.

A rooster was Macy’s advertising trademark until the

famous Macy’s red star replaced it when the Herald

Square flagship opened.

Livestock for years was sold at Herald Square.

The flagship was the first building in the world to

have the modern day escalator. The original

escalators are still there.

While Macy’s started its Thanksgiving Day Parade

in 1924, the giant helium balloons didn’t appear

until 1927. After the parade, the balloons were let

go for people to find and return for a reward. In

1933, the practice was halted for public safety.

Macy’s is among the top three most popular tourist

attraction in the city, next to the Statue of Liberty

and the Empire State Building.

MACY’S MILESTONES

1858 — Rowland H. Macy opens a small fancy

dry goods store on 14th Street and 6th Avenue in

New York. First day’s sales total $11.06.

1866 — Margaret Getchell is promoted to store superintendent and becomes the first woman

executive in retailing.

1877 — R.H. Macy dies unexpectedly at the age of 54 on a buying trip to Paris.

1888 — The Straus family acquires a general partnership with Macy’s.

1896 — Straus brothers, Isidor and Nathan, acquire R.H. Macy and Co.

1902 — The Herald Square flagship opens.

1912 — Isidor and Ida Straus die tragically as passengers of the Titanic.

1924 — With completion of the 7th Avenue addition, Macy’s Herald Square becomes the “world’s largest store.” First Thanksgiving Day Parade, known that year as the “Macy’s Christmas Parade,” marches through Manhattan.

1942-1944 — War priorities led Macy’s to cancel

the parade because of the scarcity of rubber and

helium. In November 1942, Jack Straus (grandson of

Isidor Straus) donates the deflated balloons to the war effort, providing 650 pounds of scrap rubber.

1945 — Spring Flower Show is inaugurated.

1947 — The classic Christmas “Miracle on 34th

Street” starring Edmund Gwinn, Maureen O’Hara and

Natalie Wood opens, proving that Macy’s has the only

true Santa Claus.

1951 — Macy’s “Operation Happy Children” starts

providing underprivileged children with visits from

Santa Claus and a Christmas gift.

1976 — The Cellar opens in Macy’s Herald Square,

duplicating the concept launched in Macy’s Union

Square five years before.

1976— Macy’s sets off its first Fourth of July

fireworks extravaganza for the nation’s centennial.

1992 — After a series of acquisitions and mergers,

Macy’s files for protection under Chapter 11.

1994 — Federated acquires Macy’s, creating the

largest department store retailer in the nation. The

acquisition culminates Macy’s three-year bankruptcy.

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