Two weeks ago, Macy’s in the South Coast Plaza in Costa Mesa, Calif., had a surprise visitor: the company’s top executive.
“I don’t tell anyone I’m coming. I call the store manager five minutes before I get there,” Terry J. Lundgren, Macy’s Inc. chairman and chief executive officer, told WWD.
This story first appeared in the December 19, 2014 issue of WWD. Subscribe Today.
It could have been a kind of homecoming, considering that, as a young executive, Lundgren managed the store from 1981 to 1983, when it was a Bullock’s unit. He gets credit for bringing sizzle back to Macy’s selling floors and restoring confidence in the sector, and he likes the attention and prestige that comes with running America’s largest department store. But Lundgren’s objective at South Coast Plaza is to experience the store like any ordinary customer would, without it being gussied up for his arrival, and to focus on fundamentals.
“It’s the statement the store is making — what stands out, product-wise, brand-wise. Are the associates interacting with customers? Cleanliness. What’s South Coast Plaza got that’s unique?” he said.
He saw what he wanted to see: beefed-up accessories and dress areas and a new 3,000-square-foot skate-and-surf format that flows organically into activewear. They are by-products of Lundgren’s “My Macy’s” localization program, which tailors the merchandising to meet local needs, a tactic he has long touted as critical to finessing the assortments and generating comp-store sales gains.
Still, changes like the skate-and-surf shop don’t come together overnight. “It took a year to get it, but we made it impactful. It’s also in our other Southern California stores, 25 of them, and in the Hawaii stores, with brands like Quiksilver, Roxy and a lot of niche brands,” Lundgren said. “It’s easily transferable to many of our stores. We could do skate-and-surf in a lot of places in the summer and year-round in warm-weather cities.”
The surf-and-skate shops are further evidence of the continual flow of change at the $28 billion, 841-store Macy’s chain. That belies the popular perception of department stores as tired and slow to adapt, even marked for extinction. Lundgren’s not buying that argument. “We can never sit still,” he said. “We are always a little on edge. We are always slightly unsatisfied. If we have made progress, it’s about how do we take it to the next level.”
Throughout 2014, Macy’s has outpaced the competition. For steering the retail behemoth through a progressive year despite the odds, Lundgren is WWD’s Newsmaker of the Year.
His accomplishments include fulfilling omnichannel initiatives, locking in a site for Macy’s first overseas store, elevating a new generation of leaders, and effectively managing inventories and expenses amid a tough selling environment, all while raising the curtain on the dramatically renovated women’s and men’s departments at Herald Square.
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“It’s been an unusual year in terms of the changes we made to build the business to last,” Lundgren noted. “There were so many things that fell in place or that we got in motion.…‘Buy online, pick up in store’ is one of the best and most creative innovations we’ve ever had. We began it two years ago, in the Washington market.” Now, it has been rolled out to all Macy’s and Bloomingdale’s stores. “If you are operating a specialty store, it’s easy. It’s not so easy in a 200,000-square-foot, three-level Macy’s. You have to be organized,” with the stores linking up to dot.com, products having to be plucked from the shelves or delivered from the distribution center, associates having to adjust what they do and the stores needing to create pickup areas.
When customers come to the store to pick up their orders, chances are they’ll buy more — 20 percent more than the online transaction, Macy’s calculates. “It’s called ‘radiated’ sales. That’s important,” Lundgren said. It’s also a sign that impulse shopping, despite reports to the contrary, is “alive and well,” he said.
Also on the omni front, Macy’s rolled out Beacon technology, Apple Pay and RFID and began testing new handheld point-of-sale devices and tablets for product information and faster transactions. In a few markets, Macy’s is testing same-day deliveries and image-search technology, which enables shoppers to photograph an item they see anywhere and then view similar items on macys.com.
Abroad, plans were revealed to open Macy’s first and Bloomingdale’s second international store, both of which will be in Abu Dhabi, and reports emerged that Macy’s has its eye on China, possibly for a store. Lundgren has been there several times and, not too long ago, brought some of his lieutenants along, suggesting something was up. “I have nothing to say on China” was his answer — at this point.
On the home front, a big chunk of the four-year, $400 million renovation of the Herald Square flagship was finished with the unveiling of the women’s casual and bridge departments on the fourth floor, women’s activewear on eight and men’s clothing on five, as well as the lower-level men’s furnishings and accessories department. The main floor and shoes were previously renovated; leased luxury accessory shops, a new restaurant, a separate salad restaurant, a Juice Press and café were added.
Though some might disagree, Lundgren said the character of the flagship hasn’t been lost in the modernization process. “No, I think it gained,” he said. Some would like to see those old wooden escalators removed, but Lundgren regards them as a charming vestige, saying, “As long as I am here, we will never take them out. Our engineers wanted to because you can’t get replacement parts. I let them take out one, for the parts.”
Macy’s in downtown Brooklyn (the former Abraham & Straus flagship) could see a major overhaul, as well. Executives have been narrowing down the options, which include a sale-leaseback and redevelopment of the site. “We are taking Brooklyn very seriously. This is a fantastic market. It’s a 100-year-old property,” Lundgren said. “It’s not going to be the same kind of scale [as]Herald Square, but we don’t just want a paint and carpet job. We want to do something special. There is a lot of interest.”
There’s also talk about Macy’s doing a deal with Google or Apple on a wearable-tech initiative. “I can’t talk about that. There could be,” Lundgren said. Asked if he’s a believer in wearable tech, the ceo said, “It’s always going to be about what the customer finds to be important. It always starts at putting the customer at the center of the decision.”
In other maneuvers this year:
■ A smaller Bloomingdale’s prototype, a potential growth vehicle nationally, opened in Stanford, Calif.
■ The world’s largest NFL Shop, a 36,000-square-foot pop-up, opened on the fourth floor of the Herald Square flagship to coincide with the Superbowl in New Jersey last February.
■ Sustainability efforts gained steam, with more electric-vehicle charging stations and solar roofs installed and greater waste-reduction efforts.
■ Development of a Thalía Sodi private brand shifted into high gear for next spring’s launch. “It will be one of the most expansive launches in the history of Macy’s Merchandising Group,” Lundgren said.
■ Macy’s Millennial business, which seemed to be stalled for years, turned a corner “because of the product,” Lundgren said. “It started growing, particularly in the athletic business, athletic footwear, Lids and Maison Jules.”
Succession planning moved to the forefront: Jeffrey Gennette stepped up to corporate president while continuing as chief merchandising officer, and Tony Spring took the helm of Bloomingdale’s as chairman and ceo, succeeding Michael Gould.
“I’ve worked, personally, very hard on the subject of attracting and retaining the best talent,” Lundgren said. “We are recruiting 1,000 college students a year [and] getting incredibly talented young people. I can tell you, I don’t think there is any retailer in America hiring 1,000 college students a year. You hear about the old A&S training program, the old Bloomingdale’s training program. I can guarantee you that the old days were not nearly as good as what we’ve got now.”
Asked if he has identified backups for top executives such as Karen Hoguet, the chief financial officer; Martine Reardon, chief marketing officer; Kent Anderson, president of macys.com, and Peter Sachse, chief stores officer, Lundgren replied, “I can assure you I have every single position backed up with very talented people in their 20s, 30s and 40s. They’re in the pipeline.”
Lundgren has been Macy’s ceo since February 2003 and chairman and ceo since January 2004. Earlier, he was president, a title he also assumed in February 2003.
He began his career in 1975 as a trainee with Bullock’s, a division of Federated, which eventually was taken over by Macy’s. Over the next decade, he held positions of increasing responsibility in buying, store management, human resources and senior-level store management and merchandising slots. He joined Neiman Marcus as executive vice president but soon became chairman and ceo, then, in April 1994, returned to Federated as chairman and ceo of its merchandising group before rising to president and, ultimately, ceo.
The 62-year-old Lundgren doesn’t appear ready to retire from Macy’s, and there’s no pressure as long as the numbers continue to hold up. In the third quarter, Macy’s lifted its net earnings by 22.6 percent to $217 million, despite a 0.7 percent drop in comparable sales, including departments licensed to third parties. Macy’s stock has held firm, recently hovering around $62, on the high side of the 52-week range from $50.05 to $65.74.
Lundgren seems to relish his role and the benefits that come with it. While restoring the store’s luster, he makes no apology for Macy’s promotional posture, one of the industry’s most rigid. “Macy’s is a promotional department store. That’s who we are and will always be. The level of promoting this year is not dramatically different from last year or the year before and won’t be next year. We are clearly doing what the customer wants,” he said.
At 6 feet, 3 inches, and 180 pounds, he keeps fit and seems slimmer in his Armani suits. He works out three to five days a week with a trainer in a gym, doing weights, aerobics and yoga. Then there’s that disciplined diet. He noted, “I’m vegan until 7 p.m. on the weekdays,” with lots of protein shakes and cereal with almond milk on the menu. “It works for me. I’ve been the same weight for the past 10 years,” he claimed.
Lundgren also clearly burns energy on the job. “Staying up 36 hours straight on Black Friday was tough,” he admits. “The plus side is [that] I have been doing this for a while. I feel I can handle any physical stress. I think my instincts help me to do the job faster and effectively.” He’s got those piles of paper on his desk under control. “If it’s on my desk, I know exactly where it is. If I file it away, it’s unlikely I will ever look at it again. I know what’s in each pile,” he said.
The ceo is on the road every week, and he noted that the recent visit to Southern California was not just for the stores: There was also a dinner to honor Macy’s “five-star” suppliers to its private brands, and he mentioned the Chargers-Patriots football game. What helps him to sustain his drive are those “sight lines to the future,” knowing he’ll be going to the Sunday game or getting in some vacation.
“It’s always been a hard job. The wear and tear on the mind and the body is hard,” Lundgren said. “You have to have a certain resilience. There are always obstacles, complications. You have to have enough resilience to get through the tough days and stay focused on the vision. Every day something else pops up.” Like on Black Friday, when a crowd stormed the Herald Square flagship to protest decisions not to indict two police officers involved in the controversial deaths in Ferguson, Miss., and Staten Island, N.Y.
“Whenever there is an incident of any significance, I am notified immediately. It’s primarily an FYI.” In the case of the recent protest, “Herald Square security sent me a quick video,” he said. Pretty soon afterward, it was business as usual, so Lundgren saw no need to get involved in the highly charged situation. “They weren’t protesting Macy’s,” he said, observing that the protestors were using one of the world’s most famous retail settings as just a stage to broadcast their message.
Regarding another unexpected situation, Lundgren saw last month’s worker dispute at West Coast ports as a possible threat to holiday deliveries, so he became “personally involved,” communicating with President Obama’s office to help resolve the situation.
On the product front, one persistent challenge is women’s apparel, which accounts for 23 percent of Macy’s business. And that hasn’t made his job any easier. “There are pockets of apparel that are good — athletic, parts of the Millennial business, the dress business,” Lundgren said. “Women’s sportswear is hit or miss, by each brand. There hasn’t been an overall growth trend for apparel in a few years. I believe it will come back. It will, indeed, turn at some point. It’s cyclical. At some point, there will be pent-up demand. The business is just being eaten up. There are so many options.”
And too much sameness, as Lundgren implied. “Unique, exclusive or very limited merchandise — the key is to make that a larger and larger percent of the assortment,” he said.
Lundgren is expecting Q4 to show more life than Q3, with the weather outlook better than last year’s brutal cold spell, a more efficient flow of merchandise receipts, the benefits of “buy online, pick up in stores,” and Macy’s spending more on digital marketing and events. He’s sticking to his script, which is one of optimism for the future, and has refuted reports that Black Friday weekend was bad for the retail industry. Most irksome was the 11 percent drop reported by the National Retail Federation’s consumer survey. It didn’t sit right with Lundgren. “Black Friday is still the biggest day of the year for us,” he said. So, he called NRF president and ceo Matt Shay to disagree. “I had a conversation with Matt after all the reports came out. He wasn’t the least bit defensive,” Lundgren noted. “I just said it can’t be right.”