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NEW YORK — Terry Lundgren is poised to take the reins of Federated Department Stores Inc. as chief executive officer — and soon.

The Federated board is set to meet Thursday, when the subject of succession is expected to be on the table, according to sources. A final decision on Lundgren could be made then, and some believe that an announcement on the new top gun could come within the week or not long after.

This story first appeared in the February 24, 2003 issue of WWD. Subscribe Today.

Lundgren has been steadily gaining authority as Federated’s second-in-command, reporting to James Zimmerman, chairman and chief executive officer, as part of a succession plan.

Lundgren and a handful of other senior officials have been identified by the company for increasingly important roles. Federated seems to be moving into more of a triumvirate management structure, which would be led by Lundgren, who would be backed by Susan Kronick, group president, and Tom Cole, chairman of the Federated logistics, operations, store planning and systems division. The roles of Cole and Kronick could be pumped up further, once Lundgren gets the official nod.

The two longtime Federated executives have been reporting to Lundgren.

Since Federated promoted Kronick to group president supervising Burdines, as well as two other regional operations, The Bon and Rich’s/Lazarus/Goldsmith’s in February 2001, there has been speculation about the succession plan, that Lundgren would one day take over for Zimmerman, and that Kronick, who is would step up to president. That would create a more traditional management team, headed by Lundgren, a merchant, and putting Kronick, whose background is principally in operations, second. Zimmerman is primarily a financial and operations executive.

Other key executives include Ron Tysoe, vice chairman, and Janet Grove, chairman and ceo of Federated Merchandising Group.

It is also possible that Zimmerman, while relinquishing the ceo title, could continue as chairman. His contract last year was extended to go through at least February 2004.

Last April, Lundgren, who is 51, took on the chief operating officer role, in addition to his role as president and chief merchandising officer, and has long been viewed as the primary candidate to succeed Zimmerman, who is 59.

As previously reported, Lundgren’s contract is set to expire May 1, 2003, so his future has been under intense discussion within Federated. His bargaining position would be strong. He’s obviously someone Federated doesn’t want to lose, particularly since someone of his experience is hard to find, and he could easily be grabbed up by a rival retailer. Across the industry, turnover has been extraordinarily high, especially in the last two months, and whenever there is a high-level retail search, Lundgren is always near the top of the hit list.

However, Lundgren has stuck with Federated, confident in the belief that he would day rise to the top of the retailer, which also operates Macy’s East, Macy’s West, Bloomingdale’s and Burdines.

He’s highly regarded as a talented merchant with fresh ideas. He’s calls it his mission to reinvent the flagging department store format with his “store of the future” program, adding some new technologies and shop concepts to enliven the Federated stores and make them easier to shop.

The strategy is currently being rolled out to dozens of Federated stores, with the exception of Bloomingdale’s. Lundgren was also a major force behind the intensified marketing of Federated’s private labels in recent years, such as INC and Alfani. He thinks the program could ultimately represent about 24 or 25 percent of the company’s total volume, from the current 16 percent, or near 20 percent if you exclude cosmetics and furniture where there is no private label.

And he has opened up the industry dialog on chargebacks and markdowns, attempting to ease the tensions between retailers and manufacturers.

When Allen Questrom resigned as Federated’s chairman and chief executive in May 1997, Lundgren was considered his potential successor, but Zimmerman won out. Since then, Zimmerman has been under pressure to improve Federated’s performance and has taken the heat for Federated’s ill-fated $1.7 billion Fingerhut acquisition in February 1999. However, Federated was able to reduce its losses somewhat by selling off Fingerhut assets and Zimmerman is still considered among the toughest and best retail operators in the country. The Questrom-Zimmerman team that led Federated through the Nineties was one of the most dynamic in the industry, capitalizing on two executives with highly different yet compatible skills. While Questrom is largely praised for getting Federated out of bankruptcy in the mid-Nineties, a large portion of the credit is also owed to Zimmerman, who worked more behind the scenes with banks and creditors on the restructuring. Questrom and Zimmerman also teamed at Rich’s, as ceo and president, respectively.

Taking a low profile has been Zimmerman’s style, as a financial and operations executive, while the more front and center and merchandise-oriented Lundgren has been visible in the fashion markets and in the media. Zimmerman has been based at Federated’s Cincinnati headquarters, while Lundgren is based in Federated’s New York offices inside Macy’s Herald Square.

As Questrom’s protege, it has seemed almost inevitable for five years that Lundgren would one day become Federated’s ceo. When Questrom made a career move, Lundgren followed.

The two worked together at Bullock’s, then again at Neiman Marcus, where Questrom was ceo, and later Lundgren became ceo. Subsequently, the two were reunited at Federated. At Questrom’s retirement party, Lundgren described him as “a true mentor and a great friend” and many think that Lundgren has learned a lot from Questrom, including leadership skills.

Currently, Questrom is chairman and ceo of J.C. Penney Co., but chances of Lundgren winding up there seem slim, since he seems to be getting what he wants from Federated.

Lundgren began his retail career in 1975 at Federated’s former Bullock’s division, now a part of Macy’s West, then became a vice president and general merchandise manager of Bullock’s in 1985, and two years later, president of Bullock’s Wilshire, then a specialty fashion group owned by Federated.

From 1988 to 1994, Lundgren was at Neiman Marcus in Dallas, serving first as executive vice president of stores and then, in 1990, as chairman and ceo. He returned to Federated in 1994 as chairman and ceo of Federated Merchandising and is credited with integrating Macy’s merchandising and product development functions into Federated.

On Tuesday, Federated is scheduled to report its results for 2002.

According to sources, last year, Macy’s East led the Federated pack in total dollar profits and profits as a percent of sales, finishing second is sales gains. Bloomingdale’s led the pack in comp-store gains.

Federated does not break out results by division.

While 2001 was a tough year, because of the Fingerhut problem and 9/11, the 2002 results are expected to show an improvement. For 2001 the company posted $15.65 billion in sales and losses of $276 million, including charges. Lundgren, if he becomes ceo, will face severe challenges, including the economy, growing competition from Wal-Mart, Target, Kohl’s and ironically from his former mentor Questrom at Penney’s.

A Federated spokeswoman could not be reached for comment on Sunday.

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