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At Macy’s Inc., the pressure is on to keep its growth streak going.
This story first appeared in the May 20, 2013 issue of WWD. Subscribe Today.
In reporting first-quarter results last week, Macy’s posted its 13th straight quarterly comp gain of at least 3 percent and said top-line sales rose by more than $1 billion in each of the past three years; that earnings per share have improved for 15 quarters in a row, and that the company is approaching its goal of a 14 percent operating earnings rate, after last year’s 13.4 percent.
“Given the strength of these numbers, I am often asked, ‘Can Macy’s Inc. keep up the progress?”’ Terry J. Lundgren, chairman, chief executive officer and president, told shareholders at the company’s annual meeting in Cincinnati Friday. “Do you still have workable new ideas for improving the business? The answer is an enthusiastic yes. Our company is alive with activity. We have lots of ideas.”
Lundgren proceeded to spell out Macy’s key growth strategies, which revolve around omnichannel initiatives and shipping online orders from stores; targeting Millennials, and testing with new technologies, though Lundgren assured the crowd of about 250 shareholders and a few dozen Macy’s executives that the company will remain “rooted” in brick and mortar.
Macy’s growth appears to be coming more from the Internet, where sales gained 41 percent last year. Still, as Lundgren reiterated, “We are rooted in brick-and-mortar stores, and make no mistake about it, this is absolutely critical to our future. Stores are where customers can touch and feel the quality of products and interact with associates.” They also play a role in generating online sales, since 292 Macy’s stores are equipped to fulfill orders placed online. By yearend, 500 will have the capability.
Underscoring the brick-and-mortar philosophy, Lundgren said Bloomingdale’s will open a 167,000-square-foot, three-level store in the Ala Moana shopping center in Honolulu, in the fall of 2015, the division’s first move into the state. It will be the 38th store in the Bloomingdale’s chain. Bloomingdale’s is also opening a store in the Glendale Galleria in Glendale, Calif., in fall 2013.
Citing Nordstrom, Neiman Marcus and Saks Fifth Avenue as all having more locations than Bloomingdale’s, Lundgren, during a press conference after the shareholder’s meeting, said “there are probably more opportunities for Bloomingdale’s.” He suggested the division is being very selective with locations. “We want to make sure we get in the right malls.”
Bloomingdale’s has one overseas store, a licensed unit in Dubai, and is eyeing additional possibilities in the Middle East. Bloomingdale’s also has 12 outlets and is fine-tuning that strategy to position it for growth.
Macy’s reported in the first quarter that Bloomingdale’s experienced some softness. “It wasn’t in one category or another. It was general,” Lundgren said. “The concern I had was that the higher-income customer was spending fairly aggressively for the last several years. Historically, such slowdowns are a temporary setback.”
On the recent factory tragedies in Bangladesh that have shaken the global apparel industry, Lundgren said Macy’s has an inspection process in place for fire safety and building security. Inspection efforts have redoubled so inspections are more impactful, he noted, pointing out that less than 5 percent of Macy’s business emanates from apparel made in Bangladesh.
More than 30 retailers, mostly European, have signed an accord pressuring for strict safety standards in Bangladesh factories. Macy’s is not part of that accord. However, Lundgren said Macy’s will sign an accord spearheaded by the National Retail Federation that covers factory conditions in Bangladesh and other countries in Asia and Africa, including India and Cambodia. “It needs to be beyond Bangladesh,” Lundgren said.
Back at home, Lundgren said “the push is on” to capture the Millennial business. “It’s throughout the stores” and currently accounts for about 20 percent of Macy’s total $27.7 billion in annual volume.
“The opportunity is clear and is going to get bigger. In the mall, this should not be a terribly hard [demographic] to attract. But we have been remiss on the product side of the equation. We are taking this business very seriously,” particularly after last quarter, when sales of Millennial women’s ready-to-wear, with the exception of activewear, were soft.
“Millennials are the segment of our customers who are ages 13 to 30. They are now America’s largest generation,” Lundgren told shareholders. “They will soon be the largest spending group, outpacing Baby Boomers.”
Lundgren said Macy’s is working on a new home strategy for Millennials but gave no details. He said the company has just started to bring fresh merchandise to the Impulse contemporary department for older Millennials, and to the Mstylelab department for younger Millennials, both in stores and online.
Last year Macy’s revealed 13 new Millennial brands launching through 2013, including the already-launched Marilyn Monroe, Keds apparel and MADE Fashion Week labels, as well as beefing up the store’s existing 11 Millennial brands. In addition, Macy’s is experimenting with new floor setups to create stronger destination areas for Millennials.
Asked whether Bloomingdale’s or Macy’s could expand north of the border, Lundgren replied that for years the corporation has had Canada in the back of its mind. While many U.S. retailers are flocking to Canada now, Lundgren downplayed the possibility for Macy’s. “We haven’t seen it as a big opportunity. Any expansion would only be considered if it moved the needle. It would have to be a big enough opportunity,” something entailing 50 stores or so, Lundgren said. “That’s definitely not going to happen.”
One surprise question during the briefing was about who will succeed the 61-year-old Lundgren as ceo. He took it in stride. “I’m not leaving today. Please don’t rush me out of here.” As far as a successor, “there’s no quick answer,” Lundgren said. “We just have a great team in place.”
Macy’s did lose a top executive last week. Tom Cole, the chief administrative officer, retired after 41 years with the retailer. Cole, who is 65, said retirement was something he discussed with Lundgren five years ago.
“He had a major impact on the company and with all the transformation work we are doing,” Lundgren said during the shareholder meeting, at which point Cole received a standing ovation.