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Macy’s Outlines Revamp of Flagship

Macy’s Lundgren confirms flagship revamp and has expansion in mind for the Bloomingdale’s division.

CINCINNATI — With business improving, Macy’s Inc. has expansion in mind for the Bloomingdale’s division and will push its program of merchandising exclusivity even further.

This story first appeared in the May 17, 2010 issue of WWD.  Subscribe Today.

And after much speculation about a major remodeling of the iconic Macy’s Herald Square flagship, officials finally confirmed it’s in the cards.

In addition, the retailer, in a new holiday strategy, will roll out gift shops on the main floors of Macy’s stores across the country for Christmas, and possibly reprise them on other occasions such as Mother’s Day and Father’s Day.

“Bloomingdale’s has rebounded as a leading upscale retailer,” Terry J. Lundgren, Macy’s Inc. chairman, president and chief executive officer, said Friday at the annual meeting here, where a host of plans for the future were discussed. “We have reemphasized the designer merchandise, contemporary fashion and uniqueness in assortment coupled with a very high level of customer service. Bloomingdale’s is performing well against high-end competitors.”

Lundgren also said the first Bloomingdale’s store overseas, a 200,000-square-foot unit opened in February in Dubai and licensed to Al Tayer Insignia, already is contributing to corporate earnings. And later at a press conference, Lundgren added, “We are already talking about the potential to expand in other neighboring countries in the Middle East.”

Dubai has gone through economic convulsions stemming from declining real estate values, as Lundgren suggested. “It’s a very different place from 2007. But it’s still a fabulous place. Everything is new. They’ve been on a mission to make it a great tourist destination.”

Lundgren said he has “a lot of faith” in Al Tayer, a major player in the Middle East controlling much of the region’s luxury brand distribution, which likely would partner with Bloomingdale’s on more locations.

Domestically, Bloomingdale’s smaller store format, like the 100,000-square-foot unit in Santa Monica, Calif., opening in the summer, “hopefully gives us potential to expand into other markets,” Lundgren said.” The format reflects the unit operating in SoHo in New York, which is weighted toward contemporary offerings.

Asked if a place like Cincinnati, where Macy’s Inc. is based, could support a Bloomingdale’s, Lundgren replied: “A 100,000-square-foot unit makes more sense than the 200,000-square-foot units we typically built. If you come to a market like this, you have to be sure you give something very different from what has been served. Bloomingdale’s could do well, but probably at the expense of higher-end stores in town.”

Bloomingdale’s operates 40 stores and accounted for about 10 percent of Macy’s Inc. $23.5 billion in sales last year. It also is opening its first four outlets this fall and summer.

Regarding Macy’s, Lundgren confirmed a WWD report that the Herald Square flagship will be renovated. “At some point, we will remodel that store and when we do it, it will be a major decision. It’s a million square feet” of selling space. “You just don’t [renovate] one part without ripple effects. Every time we have invested in that store, it generated the corporation’s highest return,” he said.

Sources have said Macy’s is planning a top-to-bottom, multiyear renovation involving infrastructure, selling floors and the 34th Street facade and entrances, with a see-through front affording expansive views of the activity inside. The cost will run into the hundreds of millions, but the planning is ongoing and an architect is to be determined. “We don’t know yet how much it will cost,” said Karen Hoguet, Macy’s chief financial officer. “But we do know [the project] will be spectacular” and “long term.”

On Wednesday, Macy’s released a strong first-quarter report, posting a 5.5 percent comparable-store gain and $23 million in net income versus the year-ago loss of $88 million. Although the results provided evidence the consumer is back spending, Lundgren said during the press conference that “the fourth quarter is really important to us” and that he wanted to see how the year plays out before signaling there’s been a real turnaround in consumer spending. He cited unemployment, the strength of the dollar impacting tourism and the tightening of consumer credit as the things that worry him most.

The new gift shops could be a factor in holiday sales. Lundgren said the shops will “make a major statement in a unique gift category” and be more “price-point oriented” and stocked with “exclusive electronic gifts” including “ear candy” and “all kinds of gift categories.” The shops will be in certain departments as well as right on the main floor.

With the wind of a strong quarter behind his back, Lundgren breezed through the shareholders meeting, emphasizing four key reasons behind Macy’s success of late.

“Number one is My Macy’s. Our experience in the pilot and rollout phases over the past two years has reinforced what we initially believed — that our My Macy’s localization strategy is a powerful tool for us to drive sales,” he said. “No other national retailer has anything like My Macy’s and it’s unlikely that anyone will make the investment required to copy us.”

He cited Bloomingdale’s as the second reason for the success, multichannel integration with online sales up 34 percent in the first quarter was the third reason and private and exclusive brands was the fourth.

“Last year, more than 40 percent of Macy’s sales came from private brands as well as those that are exclusive and in limited distribution,” Lundgren said. “This percentage will be growing in the years ahead,” particularly with Madonna’s Material Girl, Sean John and other exclusives on their way. “Five years ago, critics all spoke about the sameness of department stores. That’s no longer the case for Macy’s,” Lundgren said.

The ceo got only one question from shareholders, from Jim McKay, co-organizer of FieldsFansChicago.org. McKay said a survey of 521 shoppers in the last three weeks indicated 81 percent want the return of Marshall Field’s, which was converted to Macy’s, and that 72 percent were shopping the site less often. McKay told Lundgren, “With your great skills, reconcile what Chicago really wants,” and he called for some cobranding of Macy’s and Marshall Field’s that would spotlight the history of the Chicago landmark.

Lundgren’s response was to project on the screen a statement describing the Chicago district as among the top five in performance of the 69 that comprise the Macy’s chain for last year and the last quarter of 2010, and to say to McKay, “We thought you might come.”

It also cited the Walnut Room restaurant in the Chicago flagship on State Street as generating its highest sales ever last December, serving more than 4,000 meals.

“Marshall Field’s was a very powerful brand for many, many years,” Lundgren said.