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Macy’s Stepping Up Tech Spend

Chairman and ceo Terry Lundgren laid out the technology vision at the retailer’s annual meeting on Friday.

CINCINNATI — Macy’s wants to be with its customers everywhere they go.

Behind the scenes, the retailer is cooking up new technologies aimed at “melding our stores, the Internet and mobile devices so we can surround our customers at every turn,” Terry J. Lundgren, Macy’s Inc. chairman, president and chief executive officer, said at the retailer’s annual meeting Friday at headquarters here.

With about 250 shareholders present, Lundgren laid out the technology vision, citing several projects in the works. “In the coming months, expect to see a wide range of new technologies tested so we can see what works best,” Lundgren told shareholders.

He also outlined initiatives to sell Millennials more aggressively, further the My Macy’s program breaking the chain down to 69 districts to tailor the merchandise at individual stores, and to advance the Magic Selling program, which better connects sales associates with shoppers.

The meeting was a celebration of the strong recent results at the $27 billion department store, with Lundgren stating that “the customer is voting with us,” and later telling reporters that Macy’s is outperforming competitors and picking up market share, particularly from J.C. Penney Co. Inc., which is reinventing and in an upheaval. He said consumers appear to be back spending the way they did prerecession, at least at Macy’s.

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But the most intriguing message was about new technology, including handheld devices for associates in women’s shoes, among the hottest selling departments, to easily identify what’s in stock, retrieve merchandise from the stockroom and ring up a sale without ever leaving a customer’s side.

Lundgren also cited:

• Rapidly rolling out new ways to reach customers with special offers delivered to their mobile devices through Facebook, Google and other sites, and directly via text message.

• A “new generation of price checkers” on the selling floor with suggestive selling capability.

• Digital displays extending assortments in places where selling space is limited.

• Using tablets on the sales floor, particularly in jewelry, so associates can make faster transactions without the need to frequently open and lock up jewelry cases.

• Digitally driven virtual mannequins that change outfits to suit different crowds and weather patterns. If a snowstorm rolls in, the mannequin dons a down jacket and boots, for example. Shoppers may also change what the mannequin wears.

“The bottom line is that you can expect Macy’s to be a technology leader to improve the shopping experience in-store, online and via mobile,” Lundgren said.

Macy’s already has invested heavily in technology. It has mobile shopping apps for Macy’s and Bloomingdale’s, and apps for tablets. The store sends text alerts, and has the M blog, which invites conversation from consumers. It also distributes coupons to mobile phones and has a search-and-send capability enabling stores to find and ship merchandise from other stores in the chain. With the help of associates trained in search and send, customers last year ordered more than 7 million items from a register at a store and the item was shipped from the online inventory or from another store rigged for shipping. “Search and send has been a big payoff for us,” Lundgren said.

Currently, Macy’s has 150 stores rigged for shipping and will have 292 by the end of the year. Macy’s has also just begun store-to-customer shipping to fill orders generated online. Macy’s doesn’t have to take down a Web page if the online inventory on an item runs out, since the goods can be obtained from stores, not just from online inventory.

Though its reputation for omni-channel technologies is not as advanced as some competitors’, such as Nordstrom Inc., Macy’s is fast improving. The company is in a position to spend, coming off two years of robust sales growth: 4.6 percent in 2010 and 5.3 percent in 2011.

Much of the new technology Macy’s is developing will be tested and seen at the Herald Square flagship, as it undergoes a four-year, $400 million overhaul. Herald Square could see the handheld devices for shoe associates, enabling them to signal the stockroom to rush out different styles and sizes, display alternative styles to customers and conduct transactions.

In addition, Macy’s has just begun distributing tablets to jewelry department associates. In a press conference after the annual meeting, Lundgren said the tablets will be seen in most stores by the end of this year, but have limited application to other merchandise areas.

He also spoke of transforming some stores to “showcases” where products are displayed and sold, but not there for taking home. The products would be shipped from warehouses or other stores, enabling the showcase store to carry less inventory but display a very wide range.

Lundgren also said, “I believe there are opportunities with technology to sell products we don’t show in the stores,” potentially opening up new category opportunities for Macy’s.

The retailer’s omni-channel technology development is spearheaded by a team supervised by Peter Sachse, chief stores officer, who is also responsible for omni-channel strategies.

During the meeting, Lundgren said Macy’s has “a culture of growth” and it’s been outsized in the online channel. Online sales grew 40 percent last year; 29 percent in 2010, and 20 percent in 2009.

While Macy’s technology spend is big, it’s not cutting away at the bottom line, according to officials. Nordstrom’s bottom line last quarter did suffer due to stepped-up technology spending and hiring, though the investment should pay off with increased top-line performance in the future.

At Macy’s, “We’ve reallocated more of our cap budget for technology. It’s been the trend for the last few years,” Lundgren said. Fulfillment centers and systems take the biggest chunk out of the cap-ex budget, set at $850 million this year and $900 million next year. Macy’s recently completed a 1.3 million-square-foot, state-of-the art fulfillment center in West Virginia. “When they poured in the concrete, they had to take in the curvature of the earth,” Lundgren said.

“The next phase is in-store technology,” Lundgren stated.

During his speech to shareholders, Lundgren stressed that technology plays the biggest part in targeting 13- to 30-year-olds, known as Millennials. According to Lundgren’s statistics, in the U.S., Millennials spend $60 billion annually on the type of products sold at Macy’s, but he added, “I don’t think department stores have been getting their share. It’s a fickle customer.…In the coming seasons, you will see a whole new merchandising assortment directed at specific Millennial segments.

“We’re also looking at new ways to staff fitting rooms in Impulse and mstylelab, and we are working on marketing programs that will help us build better relationships with college students and twentysomethings. We will experiment with department environment, sizes and adjacencies.”

In other news, Lundgren said Macy’s is developing additional private labels, which currently account for 20 percent of total sales. He cited American Rag and Material Girl from Madonna as resonating with younger shoppers. Other key in-house brands are INC, Charter Club, Alfani and Tools of the Trade.

On the international front, overseas developers are all over Macy’s, eager to get the company to open Macy’s and Bloomingdale’s outside the U.S. So far, Macy’s Inc. has only one international store, Bloomingdale’s in Dubai, though Macy’s does distribute a small volume of merchandise to about 100 primarily English-speaking countries.

Asked if Sears unloading units in Canada could present an opportunity, Lundgren replied, “It could.” But he added, “You’ve got to look at a big picture strategy” before considering stores here and there. Nordstrom is also eyeing Canada, and may be considering some Sears locations there.

On May 22, Macy’s officially launches its Brazil promotion, though there is Brazilian merchandise already selling in the stores. Asked if import promotions are on the agenda for the future, Lundgren said, “We want to see the results for Brazil.…We’re not going to commit to one every year.”