Does Macy’s need Bloomingdale’s?

Most certainly, according to Terry J. Lundgren, chairman and chief executive officer of Macy’s Inc., which owns Bloomingdale’s.

Last week when the corporation disclosed it would next year close 100 Macy stores, sell off certain key properties and reported improved second-quarter business trends, Bloomingdale’s was left out of the conversation.

“Saturday’s Generation” may be gone, though that’s not to say no one is talking about Bloomingdale’s these days. Industry sources say that along with all the properties Macy’s will close or monetize somehow, Bloomingdale’s is another asset that could be on the block. The other issue is whether Bloomingdale’s has lost some of its fashion edge in what’s been for all retailers a string of difficult, promotionally frenzied seasons.

Macy’s has demonstrated it’s not afraid to make bold moves, from store closings to the expansion of Macy’s and Bloomingdale’s overseas. And there could be a shift in the strategy regarding Bloomingdale’s and other matters, with Jeff Gennette becoming Macy’s Inc. chief executive officer next year, succeeding Lundgren, who will continue as executive chairman. Gennette, currently president, is a Macy’s veteran.

Selling Macy’s would qualify as another bold move that could arouse Wall Street, pump up the stock price, provide funds to accelerate upgrades across the Macy’s chain, and free up some management to focus squarely on Macy’s, which is striving to attract Millennials, seeking licensed shops, implementing new technologies, developing celebrity lines and constantly battling back against naysayers who believe department stores are a dying breed.

Asked if Macy’s would consider selling Bloomingdale’s, Lundgren replied, “No. Bloomingdale’s is very valuable to us, and not just because they represent 10 percent of our business.”

Lundgren added that management feels “very proud” of having Bloomingdale’s as part of the portfolio, and that the upscale department store benefits Macy’s by being a trendsetter, and that Bloomingdale’s has expansion potential.

On many occasions, Lundgren explained, a trend or hot vendor emerges first at Bloomingdale’s, where shoppers tend to be more fashion-forward, and Macy’s can be quick to pick up on it before other retailers catch on. “That’s very beneficial to us,” Lundgren said. “The denim business got strong at Bloomingdale’s before Macy’s, but after it happened at Bloomingdale’s, we invested in denim” at Macy’s to seize the trend.

Lundgren also said since Bloomingdale’s only operates 38 full-line stores, more can open. Saks Fifth Avenue, Neiman Marcus, Nordstrom, all operate more stores than Bloomingdale’s. “There will be opportunities for additional locations. Obviously, Bloomingdale’s is high-end,” which limits the number of markets with high enough household incomes that could support the business. “It’s a finite number,” Lundgren acknowledged.

Regarding the state of business at Bloomingdale’s, “The general trends around Bloomingdale’s are similar to the company as a whole, but the impact of tourism is greater on Bloomingdale’s,” even though spending by international tourists, while still negative, was not as negative last quarter as it’s been previously.

Indeed, Bloomingdale’s business has been tough, and severely impacted by the decline in international tourist shopping. Its heightened promotional posture has softened the fashion supremacy it held for decades and Bloomingdale’s needs to be more differentiated. Black-tie parties and huge seasonal merchandise extravaganzas that celebrated the fashion, food and culture of such countries as Italy, France and India, haven’t been part of the Bloomingdale’s formula for decades [though they weren’t always profitable] and have been supplanted by promotions geared to sell more products and year-round exclusive programs.

Tony Spring, chairman and ceo of Bloomingdale’s, disagrees with those who say Bloomingdale’s has lost its flair. “It is still a jewel within the portfolio of Macy’s that has the potential to be scaled in a bigger way,” Spring said.

Two additional full-line stores in the U.S. are scheduled, for the Valley Fair Mall in California in 2018 and Norwalk, Conn. in 2018 0r 2019. Overseas, two additional licensed stores are scheduled, Kuwait in 2017 and Abu Dhabi in 2018. Also, Bloomingdale’s 17th outlet will open this fall in Orange County, Calif. The division in November 2015 opened its 38th full-line store in Hawaii at the Ala Moana Center.

“We continue to look for where the right real estate and malls are,” said Spring. “With the current portfolio we have, there is still room for Bloomingdale’s to open stores in this country.” For greater flexibility in choosing locations, Bloomingdale’s has developed a store prototype that’s smaller — 165,000 to 180,000 square feet — but still full-line. That footprint compares to the older full-line stores, ranging from 230,000 to 250,000 square feet generally.

Then there is plenty of renovation work happening, Spring stressed. “A top-to-bottom renovation of the Century City store will be complete in December of this year. We are renovating our Willowbrook store in New Jersey and we have begun another significant renovation of our 59th Street flagship, which will touch almost every floor in the building.” Renovations on 59th Street will likely continue through the fall of 2018. “It’s a massive project,” Spring said. “We are continuing to reinforce our positioning. We are still going forward.”

On 59th Street, Bloomingdale’s intends to create excitement of the “experiential” nature, and has been in discussions to create what some sources are characterizing as a major food hall experience. There could be additions to the flagship so it becomes more of a nighttime destination. Spring had no comment on this.

Aside from the brick-and-mortar maneuvers, the growth agenda includes outlets, digital, omni-channel and a strong loyalty program. Spring also emphasized exclusive product as critical, and cited Bloomingdale’s partnership with New York Giants wide receiver Odell Beckham Jr. on an ath-leisure line for this fall, and merchandise that’s being sold tied to the Broadway musical “Hamilton.”

“It’s not really a question of Bloomingdale’s not having opportunities for growth or standing still. We are moving full-steam ahead,” Spring insisted. “Our opportunity is to continue to make Bloomingdale’s as exciting as we possibly can.

“Bloomingdale’s is different from the past, but there are still opportunities to do new, unique and fun things that are very much a part of what Bloomingdale’s is about….There is a certain energy that you feel when you walk inside Bloomingdale’s that is different from the competition.”

“I don’t think they are going to sell Bloomingdale’s,” said retail analyst Walter Loeb. “Bloomingdale’s is hurting badly because of foreign tourists not being there as much, but the team continues to work on new fashion and exclusive brands. I think Bloomingdale’s adds luster to the Macy’s Merchandising Group because of the access it has to designer and high-fashion brands. It really is a complement to the Macy’s organization and I do not believe Terry wants to part with it. He would want to leave Macy’s and Bloomingdale’s as dynamic retailers and industry leaders.”

Others raise some questions. “With everything that needs to be done with Macy’s, is Bloomingdale’s a diversion?” asked one industry source. “Why would they keep it? It does make money, but these are tough times. The business is in trouble. If they got a great offer for it, why wouldn’t they take it?”

Severing Bloomingdale’s from the Macy’s mother ship is doable. Bloomingdale’s operates independently, with separate buying, marketing, store planning and store design teams, though it does share back-office functions, technologies and logistics. A Bloomingdale’s buyer, if it’s not a retailer, could contract with Macy’s on fulfillment operations.

But selling Bloomingdale’s could trigger some big tax liabilities, and there would be a loss of significant volume. Bloomingdale’s accounts for just under 10 percent of Macy’s Inc. $27.1 billion in volume last year, and around 10 percent of the corporate profits.

“Theoretically, it could be done, but there is too much going on right now in terms of the competition Bloomingdale’s is facing in New York with Nordstrom and Neiman Marcus coming in,” said a retail expert. “New York is such a big part of their business. Also, I don’t think Jeff just coming in as ceo next year would want to do something so decisive. It would be a very monumental decision. It’s too big of a decision to put on Jeff. If they were going to sell Bloomingdale’s, they would want to sell out of a position of strength, not weakness. Bloomingdale’s might become an even bigger competitor to Macy’s if it was not controlled by Macy’s.”