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ATLANTA — Joan Herskovits remembers rushing to Rich’s department store in downtown Atlanta at the last minute during the early Eighties to buy a designer evening gown to wear to a black-tie event. In less than 24 hours, the sales associate had altered, steamed and personally delivered the dress to her home.
“That’s the way Rich’s was in the old days, but it wouldn’t happen today,” said Herskovits, 53, a retired Delta Airlines flight attendant. She is giving up on the store because the 137-year-old Rich’s nameplate has been dropped for that of Macy’s, which, she contended, “has the same-old same-old product in every city.”
Some younger customers, such as Kenna Clark, 26, a real estate investment saleswoman, associate Rich’s with their parents and are more comfortable in Banana Republic or J. Crew. “I grew up in the boom days of Gap and Abercrombie & Fitch, and was programmed early on to specialty store shopping,” Clark said.
In Memphis, where Goldsmith’s-Macy’s is now Macy’s, Cara Fromin, a 26-year-old specialty store retailer, said that Macy’s, with Kate Spade, Michael Kors, Bobbi Brown and other brands that aren’t available elsewhere, is starting to look better.
The success of the decision by Federated Department Stores — fresh off its megamerger plan with May Department Stores — to replace the longtime regional nameplates of Rich’s, Burdines, Lazarus, Goldsmith’s and Bon Marche with Macy’s this month should be an early indicator of the level of resistance the company may face as it rebrands most, if not all, of May’s nameplates as Macy’s or Bloomingdale’s by 2007.
Many experts said Federated, with its size and resources, would succeed in channeling the loyalty of devoted customers of the converted stores, though it must focus on customer service, assortments and value.
“Macy’s is now the Wal-Mart of department stores,’’ said Emanuel Weintraub, president of Emanuel Weintraub Associates, a Fort Lee, N.J., consultancy specializing in the apparel industry. “You don’t see Wal-Mart with different names in different cities. Ultimately, consumers are interested in what best serves them, and what they get…outweighs loyalty to a regional store name. How can regional department stores compete against them? They’ll either have to become superefficient, or be bought, or be gone.”
This story first appeared in the March 8, 2005 issue of WWD. Subscribe Today.
A sampling of customer responses indicated that their approval of all the conversions, which will ultimately give Federated about 1,000 stores with an estimated $30 billion in annual sales, rests partly on age and habit.
“There’s always a group of little old ladies who have lunch at their favorite stores every week, and they’ll complain about it, and then get over it,” said Marshal Cohen, chief industry analyst at The NPD Group, a research company in Port Washington, N.Y. “But Boomers and younger people have always shopped a variety of stores. In the end, consumers don’t really care who owns the store, as long as they have a good experience there and find what they want.”
Federated executives have characterized the Macy’s moves as a win-win situation for the consumer and the company, which will have a foothold in 64 of the top 65 U.S. markets once the May deal is completed as it seeks to position Macy’s as “America’s store.’’ Federated has said it will aggressively try to win over customers to Macy’s through its “reinvent” strategies of renovations and amenities intended to make department store shopping more fun and efficient.
Terry Lundgren, Federated’s chairman, president and chief executive officer, has said that the competitive landscape includes savvy discounters like Wal-Mart and Target, moderates such as J.C. Penney and Kohl’s, as well as luxury icons like Neiman Marcus.
Macy’s will launch an ad campaign, “Way to Shop,” and a loyalty program that helps the store connect with frequent shoppers. More than 14 million credit card customers this week will begin receiving new Macy’s credit cards.
Lundgren has promised a national chain that maintains regional fashion buying and community traditions and ties of its former divisions. In February 2003, Federated added the hyphenated Macy’s logo to Rich’s, Lazarus, Goldsmith’s, Burdines and Bon Marche. A total of 184 hyphenated store names converted to Macy’s, joining 239 existing Macy’s stores.
Federated officials said the move was the result of positive consumer reaction to the Macy’s name, gleaned through two years of research.
“This wasn’t a cavalier decision made by talking heads in New York,” said Peter Sachse, Federated’s president and chief marketing officer. “We know how powerful these store names are, but we believe we can develop the same kind of personal relationship through our new loyalty programs that offer more contact and connection with the customer.”
The consumer benefits of one Macy’s include strong brands, national gift registries and exchange capabilities, he said.
Bud Konheim, chairman and chief executive officer of Nicole Miller Ltd. and a 50-year industry veteran, said that consolidation, while a cost-saving mechanism, brings about fewer buyers, fewer ideas and a focus on big programs with more generic product that causes customers to lose interest.
“I understand the efficiency of branding, but has anybody thought about the efficiency of boredom?” said Konheim, whose firm sells to Federated’s Macy’s, Bloomingdale’s and the Lord & Taylor division of the May company. “It used to be exciting when there were different stores on Fifth Avenue, competing with each other. Now if the same store is all over the country, no matter how efficient the store is, what’s to excite the customer to buy something she really doesn’t need in the first place?’’
Federated said adding the Macy’s label to the regional divisions had helped them. After declines from 2001 to the first half of 2003, a rising sales trend began in third quarter of 2003. In the first full year after February 2003, when the Macy’s nameplate was first combined with Rich’s, overall Federated sales (including Bloomingdale’s) fell 0.9 percent to $15.6 billion. For the first nine months of 2004, Federated’s overall sales were up 3.4 percent over the same period in 2003. Of Federated’s $15.26 billion in annual sales in 2003, Rich’s-, Lazarus- and Goldsmith’s-Macy’s accounted for $2.03 billion; Burdines-Macy’s, $1.34 billion, and Bon-Macy’s, $974 million. Macy’s East and West divisions represented annual sales of around $8.8 billion. Bloomingdale’s sales were $1.86 billion.
Before spreading the Macy’s brand to consumers, Federated has rallied the troops internally.
“Lundgren has done a great job of communicating this vision,” said Dan Edelman, chairman and ceo of Seattle-based Bon-Macy’s, who attended a meeting of 1,200 Federated executives in Atlanta in October. “The organization is energized and constantly aware of what we’re trying to do.”
Cynthia Cohen, president of Strategic Mindshare, a Miami retail strategic consulting firm, said: “Under one name, Macy’s can build their brands and cut costs in marketing, advertising, name tags and other areas. In today’s environment, economy of scale is key to department store operations.”
Bob Buchanan, retail industry group leader for A.G. Edwards, a St. Louis-based brokerage firm, said Macy’s is in an enviable position.
“Macy’s has kick-butt national brands, and they can still tailor assortments to regional audiences,” he said. “Federated is good at controlling product, presentation and service.”
However, some analysts and consumers said Macy’s size and power presented an image problem.
“Macy’s is a widely recognized retail icon, but they’ve lost connection with the consumer,” said Jennifer Pritchard, senior manager, retail services, Kurt Salmon Associates, an Atlanta-based consultancy. “Customers want fashion, but they also want service. Federated has lost market share to Nordstrom, which has maintained service. Without service, the customer pushes back, and perceives the store as an impersonal giant.”
Federated must “clearly articulate what the Macy’s shopping experience is,” said Scott Evans, Southeast Director of Real Estate Advisory Services for Ernst & Young, a New York-based accounting, tax and advisory firm. “Rich’s had an extraordinary following, but it has dwindled as Federated hasn’t done enough to keep customers.”
Lonnie Kane, president, Karen Kane Inc., a Los Angeles-based sportswear firm and vendor to Federated’s divisions, including Macy’s, stressed the importance of maintaining regionally focused buying in apparel.
“The customer in Atlanta is vastly different from the customer in South Florida, and it’s important to have buyers that understand the regions,” Kane said.
Federated’s Sachse said 70 to 80 percent of Macy’s fashion product is the same or similar from store to store, but regional buyers differentiate color and fabric weight for specific stores.
“The Macy’s customer demographic is the same everywhere, but her lifestyle varies,” Sachse said. “We know the Atlanta customer is more traditional than the New York customer, and we adjust product accordingly.”
On service, he said, “We’re constantly trying to evaluate, update and upgrade all initiatives, including staffing and training programs.”
Dropping the names has generated attention in regional markets, especially among customers who remember the glory days of their hometown stores. Though Federated has owned these divisions for decades, many view the demise of the names as the symbolic end of a time when “people were more important than things,” according to the mantra of Dick Rich, a former Rich’s president who kept the motto in a sign on his desk. They question why Federated would choose to divert ready-made emotional branding that the regional stores built through years of personal service and community ties.
“They had a brand with history, heritage and emotional resonance, and they should’ve glorified it,” said Amanda Brown Olmstead, president of Atlanta public relations firm ABOA, who began her career at Rich’s in the Sixties. Olmstead shops for gifts at Rich’s-Macy’s, but shifted her fashion loyalty to Saks Fifth Avenue and Neiman Marcus when Rich’s abandoned designer apparel in the early Nineties. “Rich’s hasn’t been the same for a long time; it’s become a no-man’s land for apparel,’’ she said. “It already lost its soul, but it’s sad that it’s losing its name.”
Rich’s has been as identifiable with Atlanta as Coca-Cola [headquartered in Atlanta] or Peachtree Street. In “Dear Store,” a book about Rich’s reputation, author Celestine Sibley recounted how the retailer accepted school teachers’ scrip during the Great Depression when they couldn’t get paid. People of a certain age speak reverently of the downtown store, which closed in 1991, where The Magnolia Room was a mecca for hatted-and-gloved ladies who lunched on chicken salad and boiled custard and viewed designer fashion to the sounds of live music.
In the early Nineties, Federated’s regional chains eliminated designer apparel and with it some of the events that identified the stores. Rich’s phased out the Regency Shop at Lenox Square in Atlanta and discontinued Fashionata, the fall show that for decades drew designers such as Bill Blass. Last year, Rich’s revived the Pink Pig, a ride that ferries kids around a toy wonderland.
Every division has its traditions, many that will continue, such as the annual star lighting at Bon-Macy’s flagship store in downtown Seattle.
Michael Aller, tourism and convention director for the city of Miami Beach, said he urged Timothy Adams, chairman of Burdines-Macy’s to keep the Miami Beach store’s Burdines signage. Aller recalled comedian Red Skelton popping in to buy a swimsuit, when the Lincoln Lane store included a chauffeur’s entrance and how fans of Lucille Ball screamed “I love Lucy!”while she and husband Desi Arnaz shopped during the height of their television fame.
Strategic Mindshare’s Cohen said that Burdines strong locations, in prime real estate such as the Dadeland Mall in Miami, would ensure that it maintains market share and that the Macy’s name will appeal to Florida’s diverse population. The name change shouldn’t cause Burdines to lose more customers since those who left because of service and more mainstream assortments have already departed, Cohen said.
Department stores have lost about $2.5 billion in sales in the last eight years, according to NPD Group. The challenges of discounters, specialty retailers and fickle consumers along with growth demands from Wall Street make it unlikely they will ever recapture the past.
“With the pressure to show quarterly profit, and the emphasis on the bottom line, it may not be possible for big department stores to maintain consumers’ loyalty as they once did,” said Jack Goldsmith, the 95-year-old grandson of Jacob Goldsmith, who founded Goldsmith’s in Memphis in 1870, and negotiated its sale to Federated in 1959.
Analysts said that department stores may try to build emotional bonds with pink pigs, Christmas trees and intangibles, but it takes the right product, value and service to open wallets.
“Consumers say they hate the nationalization and sameness, and the idea of losing ‘their store,’’’ Cohen said. “But in the end that won’t stop them. They’ll still want to go to Macy’s.”
— With contributions from Caperton Gillett, Atlanta, and Rebecca Kleinman, Miami