New York — Terry Lundgren, president and chief executive officer of Federated Department Stores, will add the title of chairman on Jan. 15, marking the first time in Federated’s 75-year history that one individual has held all three titles. Previously, the corporation has been managed by a chairman-ceo, and a president.
Lundgren, 51, has been at the forefront of pushing changes at Federated stores and pushing strategies geared for top-line sales improvement. In the process, and because of his wide popularity in the retail and wholesale circles, a lot of hope rests on his abilities to energize the department store, which many in the industry consider to be a dying breed.
This story first appeared in the December 15, 2003 issue of WWD. Subscribe Today.
He succeeds the 59-year-old James M. Zimmerman, who is retiring as chairman. Zimmerman was also the ceo until February 2003, when he announced his intention to retire within the next 12 months after a 38-year career with the company.
The $15.4 billion Federated operates a total of 460 stores in 34 states, Guam and Puerto Rico.
Last Friday, the board of directors officially named Lundgren — who earned $1.5 million in salary and bonus last fiscal year — the next chairman, reflecting support for his agenda for “reinventing” department stores. The strategy includes developing more differentiated merchandise, particularly private labels and exclusives from vendors.
At a Fashion Group International lunch early last month, Lundgren said Federated wants more than half of its merchandise to be unique to its stores. “There needs to be a substantial change,” stated Lundgren. Currently, only 22 to 23 percent of Federated’s inventory is exclusive, including private brands, joint ventures and exclusives from vendors.
“How we go about getting exclusives is less important, but we need to get it up to 50 to 60 percent of the business,” Lundgren stressed at the time. “We want customers to go into our stores and say, ‘Wow. I can’t get this anywhere else.’ That should be true for Macy’s and Bloomingdale’s.”
His strategy also entails adaptations to the stores so shopping becomes easier, including new technologies, and continuing the consolidation of Federated’s divisions under the Macy’s and Bloomingdale’s nameplates started by previous regimes. Certain divisions currently have hyphenated logos, such as The Bon-Macy’s, Goldsmith’s-Macy’s, Lazarus-Macy’s and Rich’s-Macy’s. Federated has not ruled out the possibility that eventually these divisions will simply be called Macy’s.
For the three months ended Nov. 1, Federated’s net income fell 36.8 percent to $67 million. But there were some signs that Lundgren’s program is working, with net sales ticking up 0.2 percent to $3.49 billion and comp sales up 0.3 percent, with a 70 basis-point improvement in gross margins.
Lundgren’s promotion also reflects a new structure at Federated implemented over the past year, in which there are five vice chairs reporting to Lundgren and, therefore, a sense that a separate president is not necessary. Many retailers operate with a chairman-ceo and someone else serving as president.
“Last February, when we put together the organizational structure, we did it in a way that allowed all of the bases to be covered by the five vice chairmen and myself,” Lundgren said in an exclusive interview Friday. “There’s been a transition at Federated over the past several months, moving toward this announcement, with Jim gradually pulling back and turning over the reins to me, and with me handing off responsibilities to the vice chairmen.”
Nor does Federated have a chief operating officer, while other store groups do. Instead, the role is divided among three vice chairmen: Tom Cole, who handles store planning and construction, logistics, accounting and credit; Tom Cody, who handles human resources, legal and administration, and Ron Tysoe, who has finance, treasury, taxes and real estate.
The other two vice chairmen are Susan Kronick and Janet Grove. Kronick is responsible for the divisions and Grove has all the merchandising.
“It’s actually better for me now because it’s a more tailored organizational structure,” Lundgren said. “We think it works very well.” He added that the team meets at least every other day and maintains “a constant stream of communication.”
Other key members of the senior corporate management are Peter Sachse, chief marketing officer, who reports to Lundgren, and Karen Hoguet, chief financial officer, reporting to Tysoe.
Lundgren is considered a protégé of Allen Questrom, chairman and chief executive of J.C. Penney. Lundgren worked for Questrom when Questrom ran Federated, and earlier, Neiman Marcus. Like Questrom did while in New York, Lundgren has developed a high profile on the charity circuit and at industry functions. He’s considered a creative merchant, and one of the first to recognize that department stores need to change to survive. Department stores have been squeezed by discounters and off-pricers on the moderate and low price range, such as by Kohl’s, Target, TJX Cos. and Wal-Mart, as well as specialty stores emerging over the past three decades, such as Gap and Limited Brands.
Lundgren began his retailing career in 1975 at Federated’s former Bullock’s division, now a part of Macy’s West. He was named Bullock’s vice president and general merchandise manager in 1985, two years later became president of Bullocks-Wilshire, then a specialty department store division owned by Federated, and from 1988 to 1994, he was at Neiman Marcus, serving first as executive vice president of stores and in 1990, as chairman and ceo.
In 1994, Federated bought Macy’s and Lundgren that year returned to Federated as chairman and ceo of its merchandising operations. He integrated Macy’s merchandising and product development functions into Federated and became president and chief merchandising officer in 1997, adding responsibilities as chief operating officer in 2002, and ceo earlier this year.
While Lundgren has been associated with efforts to raise the top line — this holiday season, Federated’s sales are seen hovering around flat or in the low-single digits — Zimmerman has long been associated with creating efficiencies and cost controls, and adopting improved information technologies and operations. Zimmerman is among the nation’s top retail operations and financial executives, and was instrumental in reorganizing a bankrupt Federated from 1990 to 1992. He teamed with Questrom, then chairman and ceo, in working with bankers, creditors, suppliers and other constituencies in getting Federated back on its feet, and maintained a low profile through the process, as he has done through most of his career. Zimmerman was named Federated’s chairman and ceo in 1997, and was president and chief operating officer since 1988.
However, he took much heat for the Fingerhut acquisition completed in March 1999, which soon after proved to be a bust and had to be disposed in parts. According to sources, the disappointment almost sparked an earlier departure by Zimmerman, but he stayed on to help see through the Lundgren transition. He has been based in Federated’s Cincinnati headquarters, while Lundgren is based in New York, at Federated offices atop Macy’s Herald Square.
“Today’s action by Federated’s board of directors completes a two-year transition process that has been seamless in its execution,” Zimmerman said in a statement. “I am pleased that the board has chosen Terry Lundgren to succeed me, and I have every confidence that his creative vision and strong executive leadership skills will serve Federated well in the years ahead.” On Friday, Lundgren praised Zimmerman, stating, “His contributions to Federated are innumerable and cannot be overstated. The exceptional leadership, integrity and strategic vision that epitomized Jim’s career with Federated will have a lasting positive impact on this company.
“On a personal note, I appreciated the opportunity I have had to work closely with Jim over the past six years, and count myself among many who have benefited from his extraordinary insight and abilities. I will always hold him in the highest regard and will forever value his friendship.”
Lundgren downplayed the significance of adding the chairman’s title, saying, “I think my voice has been heard for some time. The fact that I am now chairman doesn’t really change my ability to get things done.”