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Lundgren Maps Out Macy’s New Route

There's no doubt Macy's is disappointed with its performance this year and still takes some heat from loyalists of Marshall Field's, one of several regional...

Terry Lundgren

CINCINNATI — There’s no doubt Macy’s is disappointed with its performance this year and still takes some heat from loyalists of Marshall Field’s, one of several regional nameplates that two years ago were converted to Macy’s.

This story first appeared in the May 19, 2008 issue of WWD.  Subscribe Today.

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That was evident at the Macy’s annual meeting here Friday, where chairman, chief executive and president Terry Lundgren stressed that merchandise exclusives, sharpening the local focus through the new My Macy’s structure, as well as developing talent and taking Macy’s and Bloomingdale’s abroad, would help the 850-unit chain climb out of its hole. Business is being impacted by the poor economy, soaring gas and food prices and particularly weak sales in women’s apparel.

“This is the time to embrace change, to innovate,” Lundgren told shareholders. “This is how we will meet our financial goals, including maintaining our investment grade rating and returning our earnings before interest, taxes, depreciation and amortization to our historic high of 14 to 15 percent of sale.

“Customers have not stopped shopping, but they are more discerning in what they buy.”

Stressing the importance of developing exclusive merchandise programs, Lundgren said Lush Cosmetics is rolling out departments to 44 Macy’s stores by October and to 100 or more in 2009.

He also said that 275 FAO Schwarz shops will open in Macy’s stores this fall, and the number will rise to 685 in two years. The leased shops will range from 200 to 3,000 square feet and will take space out of the children’s wear departments. Macy’s currently sells toys only for the Christmas season at the Herald Square flagship in Manhattan, and on State Street in Chicago, where an FAO Schwarz shop has been tested for the past two seasons.

Such “big initiatives,” including Macy’s Martha Stewart Collection and Donald Trump merchandise, wouldn’t be possible if Macy’s were just a regional department store, Lundgren said.

Later, at a press conference, the ceo said he has talked to a number of other suppliers about the idea of having exclusives. “It’s a two-way street and we’re absolutely committed to more.” But nothing appears imminent, he suggested. “There’s nothing we are going to announce tomorrow or next week.”

Lundgren did say there are product categories, such as toys, where Macy’s has no or little offering or expertise, where the company could establish partnerships. He didn’t specify any, however.

 

During the meeting, he gave an update on the My Macy’s localization program, which he said is currently being implemented in 20 districts, each with about 10 stores, from Seattle to Scranton, Pa., representing a total of 230 stores. The local organizations took effect two weeks ago, and are designed to help Macy’s tailor assortment door-by-door to better meet local demands when it comes to styles, colors, brands and sizes. Results will begin to show up in 2009, but also possibly to a small degree in the fourth quarter of this year.

On the international front, there have been reports about Bloomingdale’s getting close to signing an agreement to open a unit in Dubai. The division has also been scouting other parts of the Middle East as well as Asia.

While it seems possible Bloomingdale’s goes abroad before Macy’s, Lundgren said, “There is a demand for both. Initially it was just Macy’s. We have customers all around the world who don’t celebrate Thanksgiving but know about our Thanksgiving Day Parade.”

Earlier this month, Lundgren named Daniel Edelman, formerly of Macy’s West, to head up the international exploration. Other U.S. retailers, such as Saks Fifth Avenue and Lord & Taylor, also have new overseas agendas, reflecting the growing interest in international expansion and growing concerns with business at home. But Lundgren said, “The economy hasn’t had anything to do with it. It’s something that will take time to develop.”

He also expressed concerns over inflation, saying, “We haven’t had it in seven years. That’s changing now. It’s not significant in 2008, but in 2009 leather, shoes [made from leather] and cashmere are going to go up. In our case, a little inflation is a good thing, if you sell [at least] the same number of units.”

During the annual meeting, Lundgren took heat from three shareholders from Chicago, upset that two years ago, Macy’s pull down the Marshall Field’s sign and converted the chain to Macy’s.

“With regard to listening to customers in the Chicago market, unfortunately Macy’s has not. Chicago wants Marshall Field’s. It’s the dominant brand,” said Daniel Harcourt 2nd, who described himself as a loyal Field’s shopper from Schaumberg, Ill. “You need to find a way to bring Marshall Field’s back to Chicago.”

Lundgren, who maintained a stern expression as the criticisms were hurled, replied, “I obviously sense your emotion. Business is definitely improving. Marshall Field’s was one of the worst performing stores in America. The business was not working. I totally get your frustration.”

Another Field’s loyalist contended the economy, gas prices and the weather had nothing to do with Macy’s performance. “Why is the share price down so significantly?” asked Paul Fine. “It’s the rebranding. It hasn’t worked. Field’s is doing worse than before” the conversion to Macy’s.

But Lundgren fired back, stating, “I have the facts. You have disclosed your imagination.”

Later, Ralph Hughes, a regional vice president from the Midwest, who was at the meeting, said Macy’s in his region was performing better than Macy’s overall, which last quarter reported a 2.6 percent comparable-store sales drop. However, he didn’t specify how much better the former Field’s doors were performing.

The company lost $59 million in the first quarter, largely due to the economy, consolidation costs and weak women’s sales.

“There has been a lot of talk about how difficult the economic environment has been for retailers over the past year. There is a lot of truth in what’s being said,” Lundgren told shareholders. “And it is reflected in the share prices that have declined significantly since last spring in the retail sector as well as the S&P 500. At Macy’s Inc., our financial performance has not been what I would have liked it to be. But in fact we have outperformed most of our large competitors in terms of same-store sales in each of the two most recent quarters.

For the first quarter of 2008, same-store sales at six publicly traded department stores most often compared to us average more than 7 percent down,” compared with Macy’s decline of 2.6 percent. “That’s not positive by any measure, but it does show we are competing successfully in this difficult economy and that in fact we are gaining market share.”

Lundgren also gave assurances that the company is being run “prudently,” saying, “We are managing expenses diligently, spending capital dollars wisely and keeping our balance sheet as healthy as we possibly can. In particular, we are keeping tight controls on our inventory levels.

“But this is not the time to retrench in our approach to the customer.”

Also at the meeting, Macy’s board increased the quarterly dividend on common stock to 13.25 cents a share from 13 cents.

The company named Amy Hanson as senior vice president for property development to oversee store design and construction, real estate, energy services, sustainability, licensed operations, nonmerchandise purchasing and food service, including in-store restaurants. She was vice chairman and director of stores of Macy’s North in Minneapolis.