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Federated Broadens Macy’s Scope

Federated Department Stores said it will couple the Macy’s brand with its regional nameplates, and announced a new central marketing function.

NEW YORK — The Macy’s parade has really just begun.

In its biggest move to capitalize on one of the world’s most famous retail logos, Federated Department Stores has decided to add the Macy’s name on to all of its regional department stores, creating a $13 billion, 420-unit Macy’s chain.

Thursday’s announcement means that Macy’s will be seen in the Northwest, as well as the Ohio, Kentucky, Indiana, West Virginia, Pittsburgh and Memphis markets, all for the first time.

The company also has created a central marketing department, naming its first-ever chief marketing officer, Peter Sachse, to coordinate the national Macy’s strategy.

On Aug. 1, The Bon Marche, based in Seattle, will start operating as The Bon-Macy’s in its 48 locations in Idaho, Montana, Oregon, Washington and Wyoming. Lazarus will operate as Lazarus-Macy’s in its 42 locations in Ohio, Kentucky, Indiana, Pennsylvania and West Virginia, and Goldsmith’s will become Goldsmith’s-Macy’s in its five sites in Tennessee.

Next February, Burdines, based in Miami, will operate as Burdines-Macy’s in its 56 Florida stores, and will assume responsibility for the seven existing Macy’s stores in Florida. Last February, Rich’s, based in Atlanta and operating in Georgia, South Carolina and Alabama, started operating as Rich’s-Macy’s. Federated said consumers have been responding well enough to that name change to do more.

While Thursday’s news that 150 more Federated doors will carry the Macy’s logo is dramatic, it’s hardly surprising. Federated has a track record for converting stores to the Macy’s name, and the regional divisions carry many of the same national and private label brands, as does Macy’s.

Over the last two decades, such venerable regional retail nameplates as Bamberger’s in New Jersey, Bullock’s in California and Abraham & Straus and Stern’s in the metro area, have all been converted to Macy’s. In a few more affluent locations, Federated stores were converted to Bloomingdale’s, Federated’s most upscale division.

In addition, the Macy’s name is highly transportable, due largely to the popularity of Macy’s marketing extravaganzas — among them The Thanksgiving Day Parade and Fourth of July Fireworks —and the huge flagships in Manhattan’s Herald Square and Union Square in San Francisco.

The new Macy’s strategy does not involve Bloomingdale’s. However, it did intensify speculation that one day, the $15.4 billion Federated department store group may decide to drop all of its the remaining regional nameplates, drop the hyphens, and call them just Macy’s.

Asked about that possibility, Federated’s president and chief executive Terry Lundgren said, “I am completely satisfied with the hyphenated names allowing us to do all we need to with our marketing and merchandise efforts so we maximize and leverage the Macy’s brand. All of these other divisions — whether it’s Rich’s, Burdines, or Goldsmith’s — all are nameplates with histories in their markets. By combining, instead of replacing the nameplates, I think you get the best of both worlds. You get the local sensitivity and still have buyers living in the markets. You get the local responsiveness, and you get to leverage the Macy’s name. Now, we will take advantage of producing advertising in all of these markets that can really be powerful and ring a bell with consumers. Before, we couldn’t afford to do it locally.”

On a conference call, Lundgren characterized the Macy’s name as “an underutilized asset. Seventy-five percent of Federated’s non-Bloomingdale’s sales already come from Macy’s East and Macy’s West,” he said.

Still, it’s not inconceivable that one day all regional nameplates get eliminated, leaving just the Bloomingdale’s and Macy’s names for Federated. While Lundgren said that’s not the current strategy, he did acknowledge that it could be one day by saying, “Ultimately, that’s something for the consumer to decide.”

Lundgren also said that the Macy’s maneuver is not designed to cut costs and that it does not entail any job cuts. He said it was geared to intensify advertising and improve comparable-store sales gains. This month, Federated selected the New York-based Lowe advertising agency to create an electronic and print campaign for Macy’s beginning in the fourth-quarter holiday period. Federated said the focus will be on broadcast advertising. Lowe has created some well-known campaigns, including “Got Milk.”

Lundgren said there will be more national marketing for such private brands as INC, Alfani, Tools of the Trade and Charter Club. “We just haven’t been able to do that in the past,” he said. “By adding the Macy’s nameplate to our regional stores and having a central point of view in marketing, Federated will have new momentum.

“There are no cutbacks, at this point,” Lundgren said. “We are not positioning this as an expense initiative. It’s a sales-getting initiative. What Federated has to deliver is comp-store sales growth. We are not planning on any expense reductions.” As he said in the conference call, “Down the road we expect this to be a meaningful benefit to both the top and bottom lines.”

He did note that there are three locations in Florida, where Burdines operates in the same malls as Macy’s. In those cases, there could be some rationalizing of the real estate, with possible closings.

In the future, if Federated did drop the regional logos and replace them with Macy’s, the company would incur one-time costs, but in the long run, could save money through possible consolidations of staff, through increased centralization of buying and operating functions.

Lundgren also said that Federated’s “reinvent” program, aimed at making the shopping experience more convenient and enjoyable, will be rolled into five major regional markets this year. Improvements include enhanced fitting room environments with waiting lounges, easier-to-read signs and directories, automated price-check devices, shopping carts and plasma video screens. Besides Atlanta, markets slated to receive a share of the company’s $100 million allocation of reinvent capital this year are Seattle; Columbus and Cincinnati, Ohio; Pittsburgh, and Memphis. In 2004, reinvent capital will concentrate on Burdines-Macy’s. The reinvent capital is included in the company’s $650 million annual capital expenditures budget.

The company said expenses related to Thursday’s announcement are expected to have no material financial impact on Federated.

Federated’s new corporate marketing function, headed by Sachse, will be located here. Sachse was president and chief operating officer of The Bon Marche since April 2001. He will report to Lundgren, starting June 9. Joseph Feczko, executive vice president of Federated Marketing Services, will report to Sachse. Previously, Sachse was a Macy’s East vice chairman and director of stores. He began his retail career with Macy’s in Kansas City in 1980. Eric Salus, executive vice president and general merchandise manager at The Bon, will succeed Sachse.

Analysts favored Federated’s strategy. As George Strachan of Goldman Sachs reported, “We welcome Federated’s decision. Federated has a unique asset among traditional department store mall anchors — the Macy’s brand, which enjoys broad national recognition. Macy’s will thus emerge as a true national brand with its own unique stable of private label resources, further differentiating Federated’s customer proposition from that of other mall anchors. The name changes do not reflect divisional integration, which would entail one-time charges and [perhaps] cost savings. Federated prefers to maintain a significant degree of regional merchandising and administrative autonomy. Hence, we see no near-term earnings impact. Management has always been wary of abandoning strong regional nameplates in favor of Macy’s for fear of alienating loyal customers.”