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Terry J. Lundgren, chairman, chief executive officer and president of Macy’s Inc., sees a bonus ahead, and he’s not talking about one for himself.
“We are finally at a time when women’s apparel is starting to look more interesting again, and it’s definitely not in her closet, because she hasn’t shopped for women’s in three years,” Lundgren said.
“With all of our billions of dollars of growth, women’s apparel has not participated in that growth. To me, that’s actually a bonus. We are going against the generally weak women’s apparel business.”
While certain market and private Macy’s brands have been performing, “In general, the market has been soft for a few years. Now I am feeling that a movement is occurring,” Lundgren said, whereby some consumer spending could shift back to apparel after years of more dollars being spent on handbags, shoes and jewelry.
At a recent board meeting, Lundgren displayed new Macy’s-designed product that is selling well and told the directors that what Macy’s trend and product people do is really hard. “We forecast what customers are going to want six or eight months from now. They identify fashion trends. They have zeroed in on this Millennial customer, and they are right. This is hard, and that is our business — trying to understand what the customer is going to want next season, and it’s not necessarily what sold last season. In fact, it’s rarely what sold last season. That’s forever the challenge of our business.”
Lundgren also riffed on Macy’s “engines of growth,” saying the company is betting big on mobile and on recruiting and training young talent. He also responded to provocative comments from Leslie Wexner, chairman, ceo and founder of L Brands Inc., on Oct. 16 that department stores are irrelevant. Lundgren said he has a lot of respect for Wexner and the brands he built, like Victoria’s Secret, then stood up for Macy’s and its accomplishments, including corporate restructurings, localizing the offering to the store level and growing by $1.2 billion in sales in each of the last three years on average. “That means customers are finding us attractive and interesting and obviously very relevant,” Lundgren said. “We are growing and adding people. We are continuing to invest. Department stores are doing a lot of business collectively, so customers are choosing us.”
Lundgren listed his mentors and he has several, citing first his father who taught him the meaning of hard work. “My father didn’t go to college. He worked two jobs. He worked extremely hard.” Lundgren also cited the late Gene Ross, head of college recruiting for Bullock’s, who identified Lundgren as a student at University of Arizona for executive training and hired him into the company. Lundgren rose to ceo of Bullock’s Wilshire, ceo of Neiman Marcus and eventually returned to Federated Department Stores, running Federated Merchandising. After Federated merged with Macy’s, he became president and ceo of Macy’s in 2003 and added the chairman title a year later. Lundgren regards Allen Questrom, Michael Steinberg, the late Stanley Marcus and the late Sy Stewart, a legend in the home furnishings industry, all as mentors. “Sy would grab me by the throat and say, ‘You think you are tough. You think you are good?’”
For Macy’s, the number-one engine of growth, Lundgren stressed, is product, particularly unique product. “We are very fortunate we have the scale to be able to place bets with certain market brands and our own private brands. If you like Tommy Hilfiger, it’s only sold at Macy’s and his own stores. Rachel Rachel Roy is only sold at Macy’s. Sean John is only sold at Macy’s. I could go on and on with product only sold at our stores.”
When a private brand resonates with consumers, it’s a windfall. On the other hand, “I always tell my team, the worst idea is to have exclusive product that doesn’t sell,” Lundgren said. “There is nowhere for it to go. It’s stuck. You have to have merchants that have a nose for product and can say this is what my customer wants.”
With the Internet, Lundgren said Macy’s saw its importance and potential right away. “What I don’t think we got right away was the interconnectivity of the omnichannel consumer,” like how consumers research products on a mobile phone first and shop stores second. “Technology and online shopping have enabled our business and made us a stronger and better retailer.”
He said Macy’s made a major capital structure shift from building new stores and remodelings to pouring a “tremendous amount of capital into infrastructure and technology.”
“I have always been concerned about investing in technology that could be archaic and is not going to be used by customers in three to five years, and yet if you have that mentality, which I used to have, you just won’t invest. You just don’t know where things are going. For now, we are betting big on mobile. We are believing some version of mobile is going to continue, and in an aggressive way.”
Of those starting their shopping journey on their desktop or iPad, a big percentage will finish that journey on their desktop or iPad, Lundgren said. If they start on a cell phone, a small percentage will actually finish the transaction on a phone, Lundgren said, though he believes “customers will get more and more comfortable pushing a button and finishing the transaction on the phone.”
“We don’t really care about how you choose to shop. We are agnostic about whether you want to use your phone, or your desktop or your iPad, or come in and touch the products in the stores. We just want to enable you to shop with us and make it a positive, pleasant experience.” Customers who shop Macy’s via multiple channels are “significantly more loyal and generate much more productivity than if they touch us in one way.” The multichannel shopper is “by far our most engaged and most productive customer.”
On talent, Lundgren said Macy’s actively recruits on college campuses and invests in its training program. He said this year the company hired 1,000 college graduates. “Investment in people is first and foremost.” He said the average age of a macys.com employee is 29 years old.
Lundgren has a “breakfast club” every month where he meets 14 young, up-and-coming Macy’s employees for an hour, learns about their lifestyles and job and career concerns, and encourages them, particularly those who relocated to the city, to “go out and experience New York and have fun.…It’s our job to make sure young people are engaged with one another and help them figure out their life skills while they are in New York.”
Macy’s is also investing heavily in renovating the Herald Square flagship. “We’re spending $400 million. It’s the largest remodel in the history of retail,” Lundgren said. One major objective is to impress tourists. “We know the Chinese are going to be traveling to America and that we are going to get this visa thing sorted out,” Lundgren said, referring to the difficulties and delays the Chinese have getting visas to travel to the U.S., which means they often opt to vacation in other countries.
Asked about the possibility of taking Macy’s international, Lundgren replied, “I do believe at some point in time both brands [Macy’s and Bloomingdale’s] will have an international footprint. There is nothing to announce at the moment.” Bloomingdale’s has one store abroad, a leased unit in Dubai, which he said started out slowly but is now “on fire,” adding, “We tweaked it, worked on it very closely. The primary reason [for opening the store] was to learn how to do business in a foreign country.
“I would be the first to say there have not been a lot of success stories out there” with U.S. retailers going abroad. “You could put you name on a leased operation. But if you want the store to portray your brand the way you believe it should be portrayed, you got to put some money up,” said Lundgren. “You’ve got to put your people up. That’s hard and challenging, to think that through.”