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Terry Lundgren Praises Leased Shops at Macy’s

The retailer's ceo said that licensed shops from Finish Line and Lids have brought significant new traffic and sales.

CINCINNATI — Leased departments have been an ace in the hole for Macy’s, Inc.

This story first appeared in the May 19, 2014 issue of WWD.  Subscribe Today.

Terry J. Lundgren, chairman and chief executive officer, said at the company’s annual meeting here Friday that licensed shops from Finish Line and Lids have brought significant new traffic and sales to the company’s stores.

“I’m a believer,” Lundgren told WWD following the meeting.

He pointed to the relationship established last year with Finish Line to open athletic footwear shops in Macy’s stores as a major win.

“There are certain businesses where there’s expertise outside our company,” he admitted, noting that Macy’s did not have the relationships with Nike, Adidas or Reebok and that Finish Line did.

By creating a partnership, the result is that not only were Macy’s footwear sales given a lift, but Macy’s athletic apparel business also took off, Lundgren said.

And when Macy’s installed a large NFL teamwear shop — operated by Lids — at its Herald Square flagship in February prior to the Super Bowl, sales went through the roof.

“We did $5 million in one store in one week,” he revealed, adding that the figure “broke the record” for sales for a pop-up Super Bowl shop.

Overall, leased shops result in “new traffic for us,” Lundgren said, noting that increasing traffic is a major priority.

He said that’s he’s “all in,” when it comes to adding other leased departments in select areas, but said he’s not prepared to provide details on other potential partnerships at this time.

He was similarly reticent in discussing a meeting he hosted within the past 30 days at his New York offices with a number of major mall developers. The topic was how to drive traffic to malls.

“Traffic continues to be a problem in stores,” he said. “But one advantage we have is that we’re the eighth-largest Internet company in America after Netflix.”

Even so, with 650 stores around the country, increasing visits from customers is key to continued growth.

“If Macy’s doesn’t do well, malls don’t do well,” he said. “The anchors have to drive traffic.” Lundgren wouldn’t tip his hand on which developers and what other retailers were in the room for the meeting or what potential traffic-building ideas were discussed, but said he plans to have other brainstorming sessions in the future.

At the meeting, Lundgren showed a chart of Macy’s comparable sales performance versus its competition in 2013. Combined with revenue from leased shops, the retailer posted gains of 2.8 percent last year.

“While this was a somewhat slower rate of growth than in the previous four years, we outpaced our major competitors and gained market share,” he said. He added after the meeting that “other stores are not driving traffic into the malls.”

Turning to the competition, Lundgren said that unlike many other retailers, he’s confident business will continue to improve in the second half.

“We’ve had five years of consistent performance, and last year was a challenging environment. But if we can continue to take market share, and with a little momentum in the economy, we should win.” He said the U.S. economy is improving — “It’s not a lot better, but a little better” — so the picture is brightening.

He attributed Macy’s performance — first-quarter results showed a 3.2 percent increase in net income — to consumer acceptance of its merchandise offerings.

While the first three months of the year were a struggle where he admitted to “getting worn down” by soft sales, the warmer weather has resulted in a significant rebound. The result is that sales “went from negative in the first quarter to positive year-to-date in May,” he said.

“Mission accomplished,” he continued. “That tells me they like the product and it wasn’t the economy, it was the weather.”

Among the brands he singled out as top performers or key to future growth were the Maison Jules women’s collection and the new Shaquille O’Neal men’s suit line. He also said that the recently introduced American Living collection designed by Ralph Lauren is performing well, and has been rolled out and is no longer a test. He said working closely with the design team at Ralph Lauren has been key to the line’s success.

Asked about the performance of the company’s downtown stores, Lundgren said that in order for these units to perform well, they need to attract young people who are moving to the cities from the suburbs.

“They go out at night, shop, go to restaurants and they need new apparel for that,” he said.

Although Macy’s is not intending to add a lot of stores, the company is seeking innovative locations for the future. A new addition at Gurnee Mills in suburban Chicago — an outlet mall with a full-price component — is performing well, according to chief financial officer Karen Hoguet, who said the company would “entertain” options for other such locations in the future.

Opening outside the U.S. is not a priority. Although the Bloomingdale’s store in Dubai is doing well, Lundgren said other international additions “are not defined yet as a key growth strategy. Most companies that try it are not successful.”

He would not comment on whether Macy’s was interested in the Sears Canada stores that are on the block, noting that he prefers to keep his cards close to his chest on any potential deals.

He did provide details however on Macy’s new store fulfillment initiative that was piloted in 2010 and will be added to all stores this spring. This ability to allow customers to place an order in-store and have it shipped is not only convenient to shoppers but also helps the retailer clear inventory.

In noting that Macy’s wasn’t selling a lot of shorts in Chicago earlier this year, but was able to ship them to customers in Miami, Lundgren said, “Paying for freight is less expensive than markdowns on aging inventories.”

The success of the store fulfillment program also led the company to test a buy-online, pick-up-in-store option in the Washington market that will roll out to all stores by this fall.

Macy’s is also testing a kiosk program — now in 40 stores — where customers can see the full assortment in a particular category or brand that might not be available in their store, and are able to place the order from the kiosk. That initiative too will be expanded.

At the post-meeting press conference, Lundgren addressed the recent promotion of Jeff Gennette to president and his own future with the organization. “He deserved a differentiated title,” he said of Gennette, who oversees merchandising, marketing, online and private brands. “But I’m not going anywhere. I love what I do, and I plan on being here for quite a while.”