Byline: Jean E. Palmieri

NEW YORK — Federated Department Stores, once a conglomeration of highly independent divisions, is centralizing operations and has a core list of vendors that are the merchandise blueprint for most of its stores.
Despite these strategies, Terry Lundgren, chairman and chief executive officer of Federated Merchandising, maintains the retailer won’t become a homogeneous national chain of stores that all look the same and lack regional flavor.
“That’s a danger if you’re not careful,” said Lundgren during an interview. “In this case, it’s clearly FM’s responsibility to ensure that does not happen. We have a clear message for the FM group about getting in the market and seeing new resources.”
Lundgren told WWD recently that each month the group sets aside one or two days to visit new resources. The policy went into effect in January.
“It’s very hard for them to keep up with the requests,” Lundgren said. “Obviously, we have to manage this process so it doesn’t get out of hand and we don’t spend all our time chasing a rabbit that’s not there. The only way to know if we have the right assortments is to see what’s available in the marketplace. We will do that, and not at the expense of our existing resource structure.”
Federated’s core vendor structure is not a matrix, Lundgren said. “A matrix sounds like a very permanent description. Therefore, I wouldn’t say we have a matrix. We have a process where if The Bon Marche sees a new resource that they want us to add, they make one phone call, we visit the resource and agree or disagree on if it makes sense for The Bon, or multiple stores, or as a test.
“And while we have an approval process, I would not confuse it with what has been called a matrix by other companies. People who work for me who worked for other companies would say that there’s a difference. It has mostly to do with flexibility and open-mindedness. In fact, our strongly stated objective is to add new resources.” Lundgren said FM stays close to the market to determine the core resources for the 346 Federated and Macy’s stores, with the exception of Bloomingdale’s. Buyers from the divisions select items from vendors on the core list. “Prior to Aug. 1, 1994, there was a tendency for all of us — merchants, stores and FM teams — to do the same thing,” Lundgren said, referring to Federated’s “team process” that has been largely phased out. “The natural tendency was to go and shop the resources, [talk] about how to maximize the business, select the key items and then plan the by-store distribution and marketing strategy. Everybody was doing the same thing. We felt that wasn’t giving us the best result, so we more clearly defined each group’s role.
“FM’s first responsibility is to be sure that the lineup of our resource partners is the correct one. The second is to ensure that we’re maximizing those resources without duplicating or being overassorted within the same classification.”
Teams of FM executives and store merchants and principals still exist, but they “challenge and audit rather than execute.” “They’ll come back and say, ‘You know, this is a good idea, but we’re missing the updated, better resource structure in this product category.’ “FM develops a business plan with Polo or Tommy Hilfiger and we expect to hit that plan. But the actual pencil is in the hands of the divisions. The same is true for key items. We determine that a cup, for example, is a key item and we want to sell 100,000 of those cups. We work with the divisions to get to the 100,000 total. But it is ultimately the divisions that are going to write those orders. It’s a combined effort. It’s not a central buying organization and it’s not a dictatorship.”
He added that core vendors — those in just about every store — represent 65 percent of total volume.
“The 35 percent is more of the differentiator,” Lundgren said. “It includes target resources, which could be a higher-end business that we haven’t yet had the courage to expand to all doors, but we’d like to figure out how to get there.”
“The division buyers are being strongly encouraged to take on the responsibility of executing the merchandising strategies in their stores. And that goes beyond buying products. That’s got to be a differentiator that Federated and Macy’s focus on in the future. Not just buying products, but selling, marketing and presenting products, and all of the other components that go along with it. We think that the store merchants having more time back in the stores will help accomplish that.”
Buyers have regular meetings, coinciding with markets, with FM staffers to bring them up to date on what’s in the market, Lundgren noted. “We have interactive video set up in all our divisions, including Macy’s,” he said, “and I recently sat through a three-hour session where we got an opportunity to experience this two-way interactive video communication. This is a very effective tool.
“We’re studying the Focus Network system Macy’s has. That is an interesting concept where you can really distribute information in a broad way. The Focus Network reaches a much broader audience and it’s great for training.”
Lundgren also oversees the private label program. Macy’s, which was taken over by Federated in December, has about 200 people in New York in product development, and 400 overseas in 17 countries in sourcing. Federated Merchandising has 32 people in product development and has been dependent on Associated Merchandising Corp. for sourcing. But with Macy’s sourcing capacity, AMC’s role is being reduced to sourcing for just Stern’s and Bloomingdale’s; Macy’s will handle the other divisions.
“We’re saving some of the labels from Federated and we’re saving most of the labels from Macy’s…Charter Club will be an important name, Club Room is an important name, so is Savile Row from Federated, which is going to be added to Macy’s.”
Aeropostale, a private label that is also one of Macy’s specialty store businesses, “is solid today and it has 92 stores. We have just approved a capital plan to add another 29 in ’95. It’s a business we’re still learning about, but if you have a big business at one or two ends of the mall, why not try to capture the customer on the way in between?”
Another piece of Macy’s business likely to be retained is the buyer-planner distribution system, which is similar to Federated’s planner-distributor organization. “I like the BPS [buyer-planner system] concept very, very much because its focus is clearly on the stores,” Lundgren said. “It has developed communication lines and relationships with the stores. It is influenced by what the customer is looking for as opposed to what we saw in the market, or what we heard from a resource or what the buyer may believe.
“In today’s world, as big as we are, it’s difficult for a buyer to get out to all the stores and talk to sales associates and customers and understand exactly what the needs and requirements are. I think that having Macy’s BPS concept really raises that level of communication. I’m impressed. I’ve sat through a dozen presentations now at various levels at the Macy’s BPS organization.”
Jane Sanford, former head of BPS for Macy’s, has joined Federated.
“She’s got a very open mind and she’s bringing some of the ideas that have worked well for Federated in the planner-distributor and rolling them into a strategy that makes sense for the corporation,” said Lundgren. “Too often, we stop after talking about buying merchandise and that’s a mistake. You’ve got to understand the marketing aspects, the visual aspects and the selling aspects. It’s very, very important to complete the loop.