BOCA RATON, Fla. — Terry Lundgren, chairman, chief executive officer and president of Macy’s Inc., was the headliner at the Personal Care Products Council’s general session last week and his message was simple: It’s time for change.

This story first appeared in the March 7, 2008 issue of WWD. Subscribe Today.

Lundgren’s 850-door retail chain is of pivotal importance to a number of the cosmetics executives seated in the hall, and he was to the point. Quoting Albert Einstein’s definition of insanity as doing the same thing over and over and somehow expecting different results, Lundgren underscored the importance of beauty, which is located in the front of his stores and provides the first impression that consumers get of Macy’s. That’s key because Lundgren signalled his concerns over the vexing question of differentiating the stores to compel “the customer to choose us. We have to do that through trying new ideas.”

Lundgren said in his previous tenure at Neiman Marcus he tackled thorny problems by launching an open dialogue with his internal organization and he appeared just as candid in discussing some of the supposedly insoluble problems with the cosmetics executives present. “We have got to figure out how to stop repeating this insanity, break out of the box and try to do new things,” he said. “I think this industry is ripe for it.”

One of the issues he grapples with “is making sure we are locally relevant. It’s crystal clear that the customer in St. Louis is quite different from the customer in Boca Raton.” He then reiterated the features of the “My Macy’s” campaign that was first unveiled in early February and aims at soliciting shoppers’ comments, which are running at 79.5 percent favorable, so far. But Lundgren said he still is not satisfied. About 45 to 50 top doors are involved with plans to set up 20 districts, where management teams focus on tailoring the assortments in groups of 10 stores each. Bloomingdale’s, with fewer stores, is making more headway than Macy’s — particularly with the contemporary slant to its SoHo unit in lower Manhattan. It’s aimed at the younger customer who would never dream of shopping in the 59th Street flagship on the Upper East Side because “that’s where my parents live.”

Lundgren noted that beauty is a challenging proposition because the industry operates differently than fashion. And one of the issues that troubles him is “oversupply.” In the past, he noted, a cosmetics brand would be found in two department stores in a mall, then different products from that brand would seep down into drugstores and mass merchandisers. Today, the brand is in four points in the mall plus mass, broadcast on QVC and HSN, on the Internet, in specialty stores — and the products are the same. “It’s a major challenge for us all,” said Lundgren, who, nevertheless, sympathized with his vendors, saying that he understands the pressures from Wall Street in demanding that companies show constant growth. But, he cautioned, that expanding distribution is a trap that can lead to a point of no return.

He suggested looking for another solution. “I need the industry to be profitable,” he declared. “If not profitable, it will start doing things that are not good for you and not good for me. I’ve seen this movie before.”

Then Lundgren admitted, “I have to do a better job of hiring and retaining beauty advisers and counter managers. We have just not done a great job on this issue,” he said, referring to the astronomical turnover rate across the entire department store industry.

He referred to a practice he started of spending 30 minutes a week with an employee who is younger than 35, as a way of encouraging and enfranchising the next generation. Lundgren then suggested applying that method to recruiting and retaining beauty advisers and counter managers in the cosmetics department.

He then referred to Robert L. Mettler, the retiring chairman and ceo of the Macy’s West division, who has postponed his July retirement date to become president for special projects, beginning with a focus on the cosmetics business. He will be working with Debbie Murtha, senior vice president of cosmetics of the Macy’s merchandising group. Lundgren described Mettler as someone who can break barriers, such as last fall’s TV spot, which originally was intended to focus on the Usher fragrance launch. At the suggestion of director Barry Levinson, the commercial ended up teaming the rap star with Martha Stewart in a powerful and vivid Macy’s combo.

Lundgren also tackled the chronic problems surrounding the flagging performance of seasonal gift-with-purchase programs, which traditionally are driven by local advertising with the store name tagged on the newspaper ad or commercial.

The Macy’s chief showed a commercial produced by the Lancôme division of L’Oréal USA. Instead of tagging Macy’s name at the end, the store was prominently mentioned in the middle of the spot. “It is an integrated approach,” he said. “The industry needs to do more advertising like that.”

Macy’s also has been tailoring its assortment. Lundgren noted that the chain has become the U.S. distributor for Lush cosmetics.

After the speech, Lundgren said that is one example of what action Macy’s needs to take to differentiate its assortment and create a more upscale ambience, with improved productivity.