NEW YORK — Still knitting together its acquisition of May Department Stores, Federated Department Stores Inc. is now looking to weave a better Web site for its shoppers.
The retailer said Wednesday that it is earmarking $130 million for a two-year project to improve and enhance its direct-to-consumer business. “Online sales represent the fastest-growing part of our business and an outstanding opportunity for continued progress as we serve millions of new customers nationwide through our acquisition of May Co.,” said Terry Lundgren, chairman, president and chief executive officer, in a statement.
Federated’s initiative follows an announcement last week from J.C. Penney that its Web site had reached the $1 billion annual sales mark. Other retailers, such as Neiman Marcus, Nordstrom, Wal-Mart and Target, have tweaked their sites over the past year to improve the shopping experience. At the same time, consumers are becoming more comfortable shopping online.
As a result, this past holiday, online sales soared. According to research firm comScore Networks Inc., nontravel online retail sales leapt 25 percent to $19.6 billion in last year’s November-December period compared with the same period in the prior year. Sales include pure Internet retailers as well as multichannel companies such as J.C. Penney, Wal-Mart and others.
Janet Hoffman, a partner in Accenture Ltd.’s retail practice, said online sales would become more important for retailers as they realize that consumers enjoy buying online. Having an online presence is also important because the online environment brings opportunities for retailers to successfully cross-sell merchandise.
For example, a retailer like Macy’s could lure customers shopping for apparel to merchandise promotions in its home goods division. Overall, the alternate selling channel “gives [retailers] a direction of where else your customer may be having an experience with you, where else you have an opportunity to continue to drive sales. I think that is an important indicator,” Hoffman said.
Lundgren said customers have said that they “appreciate the convenience of shopping online as well as in our stores. This cross-channel integration is a vital component of our ability to maximize the potential of the nationwide Macy’s and Bloomingdale’s brands.”
Federated said it expected direct-to-consumer sales to grow to more than $750 million by 2008 from about $450 million in 2005. The direct-to-consumer businesses include macys.com, bloomingdales.com, Bloomingdale’s by Mail, macysweddingchannel.com and bloomingdalesweddingchannel.com.
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The first of Federated’s planned improvements is scheduled to be in place by spring 2007. The investments are part of Federated’s capital plan for spending $1.6 billion in 2006 and between $1.1 billion and $1.2 billion in 2007.
The investments will include upgrading and enhancing content and order management software systems that support Internet-based selling functions, including improved service levels, facilitation of additional personalization of gift packages and enhancement of detailed information on order status and delivery schedules. The retailer will construct a 595,000-square-foot distribution center designed specifically to handle direct-to-consumer orders. Ground-breaking for the new facility in Portland, Tenn., is expected in February 2006, with completion in spring 20007. Currently, orders are being fulfilled by several centers that primarily supply the company’s stores.
Lundgren said the retailer’s “online businesses have performed very well over the past several years, with consistent double-digit sales growth rates and improved profitability.”
The ceo emphasized that Federated recognized the need to invest to better serve additional customers who want to shop online, particularly as the company expands the presence of its Macy’s and Bloomingdale’s nameplates nationwide. “We are very serious about capitalizing on this opportunity,” he said.
Federated today is expected to release key planning assumptions for 2006 in a morning conference call.
Bear, Stearns is projecting earnings per share for 2006 to be $4.90, or $4.67 excluding the Lord & Taylor operation that Federated already has said it was selling plus the additional stores that Federated plans to sell. Total sales for 2006 are estimated at $28.7 billion, which includes Lord & Taylor, but not the $2.2 billion in sales from the 78 stores that will be sold.