Approaching Christmas, Terry J. Lundgren, the chairman and chief executive of Federated Department Stores, is always a man on the run--and especially so this year. In September, a year after Federated completed its $17 billion merger with May Department Stores, every remaining May store was renamed Macy's (or, in a few cases, Bloomingdale's), making this the first Christmas season that Macy's has a truly national presence--about 825 stores in 45 states. Mr. Lundgren has to keep the cash flowing and the credit cards flying at all of them.
So, after a few preliminaries, it seemed natural to ask Mr. Lundgren what his Christmas season is like, starting with the day after Thanksgiving, the retailing industry's big "Black Friday" sales day.
"Mine actually starts on Thanksgiving day," he corrected. "I go to the parade, always sitting in the same seat," one that is highly visible to television viewers. "My friends were text-messaging me, saying 'I can see you, right behind Barry Manilow.'" He grinned at the thought.
"On the day after Thanksgiving," he continued, "I did 21 interviews with the press, starting at 6:30 a.m."--all in Macy's flagship 34th St. store. "I moved from one camera to the next; they were all set up, they always come here because they can see thousands of customers, our window displays, all the decorations . . ."
If that many encounters with the Fourth Estate sound like a nightmare to most executives, it helps to know that they are also a dream come true for Mr. Lundgren this year--money-can't-buy-it publicity that played right in to Macy's first national marketing campaign, an event-loaded, all-media effort also launched in September. If all goes well, Mr. Lundgren may be the guy who buries the canard, repeated incessantly for at least 30 years, that traditional department stores are history, squeezed to death by trendy specialty stores like Abercrombie and Fitch and social-climbing discounters like Target.
Mr. Lundgren, a taller, thinner version of Richard Gere, with a better wardrobe, seems made for the role. After years in the retailing trenches, all at Federated except for six years at Nieman Marcus, Mr. Lundgren took the top job in January 2004. By then, Macy's had swallowed more than a dozen department store chains, brands like Lazarus, Goldsmith's, Bon Marché, and Abraham & Straus. With May, he added Hecht's, Kaufmann's, Marshall Fields, Filene's, Foley's and other stores to Federated's domain, boosting annual revenues to about $27 billion.
Despite some resistance to the name changes --especially in Chicago--so far the numbers look good. Federated's November same-store sales figure, up 8.5% from last year, was the best performance "in the company's history," Mr. Lundgren said. Federated has since raised its internal growth forecast for the 4th quarter to 5% to 8%, from 3% to 5%.
Better yet, the sales growth is coming from mall stores, which Mr. Lundgren claims is evidence that department stores are gaining market share from rivals. "There's a resurgence," he says. "It is indeed growing, but it's relatively new." He dismisses the idea that department stores owe their better numbers to the buoyant economy, or to the fact that the total number of department stores is shrinking, inflating the same-store sales of the survivors.
"Consumers are finding that we have choice and value and, at Macy's, fashion that is affordable," he says. "We have more fashion than the off-the-mall stores, the discounters, the other guys."
Then, the conversation gets personal: Mr. Lundgren, renowned for his perfectly coiffed silver hair, points to the grey pinstripe suit he is wearing, along with a white shirt and silver tie. "This two-button Armani," he says, is the latest in fashion--and in stock. It is not to be confused with the two-button Armanis that preceded the three-button Armanis that were fashionable until, say, five minutes ago.
I take his word for it. Mr. Lundgren is, after all, so much the fashion maven that he designed, along with Vera Wang, his second wife's wedding dress, blindfolding her during fittings to keep it a secret until just before she walked down the aisle. (He also, I noticed, keeps a huge gilt-framed mirror in his large, wood-paneled office on the 13th floor of the Macy's 34th St. building--the largest mirror I have ever seen in any executive's office.)
"There is definitely a fashion-conscious customer who wants to see what's next," he says. They want brands like Ralph Lauren and MAC Cosmetics at Macy's, and Juicy Couture at Bloomingdale's. That's why he has made "affordable fashion" the Macy's watchword.
According to Mr. Lundgren, even young fashionistas are coming to Macy's now: a new survey among 18- to 24-year-olds, he says, found that 43% said Macy's would be the primary place for them to shop this season. "I think it's because we worked on our assortment to make it relevant to them."
This high priest of department store revivalism hasn't converted everyone--yet. But Macy's is just getting started; there'll be more changes. Over the next five years, Mr. Lundgren believes that department-store chains "will define the lane we travel in more clearly." By that he means that stores will settle into a hierarchy, with Bloomingdale's and Nieman at the top, followed by Nordstrom, Macy's, J.C. Penney and Kohl's, and so on down to Wal-Mart.
"In our case," he adds, "it's defined by the brands we carry, and more and more of our brands will be unique to Macy's or to Bloomingdale's." (To some extent, this plan takes Macy's back to the origins of the department store in the mid-19th century, when many manufactured their own apparel.)
Last year, Macy's got about 18% of its sales from in-house brands, like INC, Alfani and Charter Club, and that figure will increase. Unquestionably, too, there will be more deals with designers like the one Mr. Lundgren forged last April with Martha Stewart for a new, upscale line of linens, dishes, glasses, flatware and the like. "I've seen it, and we're going to knock the socks off of the home-furnishings business," Mr. Lundgren crows. It's so good, he claims, that Macy's will not test the merchandise in 50 or 100 stores, but is going "all the way" to put it in every Macy's, right off the bat, next year.
Mr. Lundgren remained coy about discussions with other designers, but said there will be at least one announcement "as soon as the deal is done," at least by February.
These exclusive arrangements are another sign of Macy's resurgence, Mr. Lundgren argues. For one thing, "more of those ideas are coming to us than we can handle. But I want, actually, to pursue designers, rather than be pursued." For another, Macy's in-house designers are in demand, courted by rivals. "They're trying to raid us all the time, but our turnover in the talent pool is minimal," he says.
The motive behind offering fashionable, exclusive merchandise is, of course, to attract more buyers and move the basis of competition with other stores away from price. Going forward, Macy's will not be as "promotional," which means everyone will see fewer discount coupons in newspapers or flyers. Unless you are a Macy's charge-card customer, you'll be getting fewer deals.
Macy's has also been sprucing up its stores, trying to dispel the dowdy, department-store image via Mr. Lundgren's "Reinvent" strategy to make shopping easier. When customers complained that stores were too big and they didn't know where departments were, Macy's installed big signs directing them to departments and sometimes to specific brands; when they said they didn't know where they could try things on, Macy's put in bigger, more clearly marked fitting rooms and built lounges, often with plasma TV screens tuned to sports and cartoons, for the men and children who waited outside. When customers said that, given the plethora of "take 25% off the last marked price" signs and coupons, they couldn't do the math and didn't carry a calculator, Macy's bought electronic price scanners that calculate the final price of marked-down items for customers before they go to registers. Now in 600 stores, and headed for all Macy's, "they are getting used millions of times in each store," he says. Mr. Lundgren also widened store aisles and is upgrading restrooms.
Simple as those things sound, customers had to tell Macy's about them in surveys. "This was a big ah-hah moment for us," Mr. Lundgren remarks. As a result, the Reinvent program "will never be over"--though he claims not to know what's next.
Mr. Lundgren is a big believer in research. "Tons" of it is underway in new areas, he says. For example, Macy's is surveying 450,000 customers about its service. Implementation of the resulting advice will rest in the hands of local stores managers, whose performance will be assessed on their grades and improvements. Meanwhile, a new marketing research team under a new chief marketing officer, Anne MacDonald, brought in from Citibank and PepsiCo, is searching for ways to burnish the Macy's brand nationwide. Surveyors are talking to customers right now, asking what they think of the advertising and other variables that affect Macy's image.
This is a busy time for Mr. Lundgren, remember, but there were a few minutes to talk about Macy's international aspirations (they're there, if the potential payoff is "meaningful," so maybe China, parts of South America, possibly Russia and maybe India would be ripe) and the Internet (Macys.com is the fastest-growing part of the mix, clearly set to be a billion-dollar business in the next few years). And then my time was up.
Outside, the sun had set. I didn't ask what was next on Mr. Lundgren's agenda, but I knew it would soon involve travel and communication. He had already told me that he and his lieutenants make unannounced trips to eight to 11 stores a week during December, swooping in to make sure the stores look good and clean, with all the key sellers (cashmere sweaters, mufflers, boots, coffee machines) in sight and in order. Other days, they do the same in videoconferences, showcasing a fabulous display that everyone should emulate.
It's detail work. With enough of it, Mr. Lundgren wants to show he can catapult department stores to the top of the retail heap. If so, disbelievers would no doubt say it was nothing short of a new miracle on 34th Street.