The sprawling Macy's on State Street building here was once the home to the premier name in Chicago retailing, Marshall Field's. But about a year and a half ago, Macy's forged one chain with one name and one much-ballyhooed national strategy out of Marshall Field's, Robinsons-May, Kaufmann's and other local icons it owned across the country.
Now, after Macy Inc.'s same-store sales dropped 1.3% in 2007 from the previous year, Chief Executive Officer Terry Lundgren is changing course. He is ditching the nationwide cookie-cutter approach in favor of tailoring merchandise at the world's largest department-store chain by sales to local tastes.
"What the consumer wants in the Galleria of St. Louis is different from what the consumer wants in State Street Chicago, or what the consumer wants in Portland, Oregon," Mr. Lundgren says. He now wants 15% of the merchandise in stores to reflect local preferences.
Manager Linda Piepho, left, wants to tailor her Chicago Macy's makeup inventory to local patrons' tastes.
Over the next several months, Macy's on State Street will begin stocking more brightly colored clothes and men's all-white suits that store manager Linda Piepho noticed were favored by her store's urban clientele. In cosmetics, she's also planning to add greater variety of makeup shades to attract trendier shoppers, while adding larger 3.4-oz. bottles of perfume to go after the thriftier ones.
The localization strategy, called "My Macy's," is a dramatic reversal for Macy's and Mr. Lundgren, who set out to end the decades-long slide of department-store retailers by creating a huge national chain that had more clout with vendors and stronger marketing, with fewer expensive local TV and print ads and more national ones. After purchasing rival May Department Stores in 2005 for $11.5 billion, Mr. Lundgren dropped 11 venerable names to create a cohesive national identity of more than 800 stores under the Macy's nameplate.
In some ways the plan worked -- Macy's was able to woo lifestyle maven Martha Stewart to create a line of products exclusively for the chain because of its immense reach -- but pressures on Mr. Lundgren are growing as the economic slowdown worsens. In his annual shareholder letter, sent Thursday, he said 2007 results were "softer than we had originally anticipated" due to a weaker economy but added that Macy's "outperformed most of its primary competitors in the crucial fourth quarter." Last year, Mr. Lundgren received $1.49 million in salary as part of his $8.67 million in total compensation, but no bonus because Macy's didn't meet the bonus plan's performance thresholds.
The company's $9 billion debt rose by about $1.2 billion in 2007 -- partly because it borrowed heavily to finance $3.3 billion in share repurchases. Last week, Fitch Ratings downgraded the credit rating of Macy's Inc. to a notch above junk status, noting that the reorganization at Macy's follows previous investments in its stores acquired from May Co. and merchandising that hasn't resulted in meaningful sales growth.
In going local, Macy's is adopting an approach that big chains like Best Buy Co. and Ross Stores Inc. have come to view as imperative today. Retail giants like Wal-Mart Stores Inc. and Gap Inc. once prospered by opening identical stores around the country, but consumers are demanding more individualized selections. With almost everything now available on the Internet, retailers need to give shoppers a reason to make the trip.
Best Buy began customizing the format, selection and service at its 600 U.S. stores four years ago, rather than pushing a uniform mix of merchandise. The electronics chain, which has since grown to 935 U.S. stores, began by identifying four customer types, such as upscale suburban mom or urban trendsetter. Best Buy then determined store by store which customers were most important. Ross, a discount-apparel chain, intends to begin tailoring 15% of the merchandise categories in each of its more than 900 stores, starting this fall.
Department stores like Macy's also face increasing competition from fast-fashion retailers, such as Swedish clothier Hennes & Mauritz AB, known as H&M, and Inditex SA's Zara in the U.S., which track precisely what is selling in each store, down to the size, and stock them accordingly.
A localization strategy can boost sales at stores open at least a year by 1 to 3 percentage points -- and just 10% to 15% of inventory needs to be customized to get as much as 90% of the benefit, says Darrell Rigby, a Bain & Co. partner.
But Macy's sheer size will undoubtedly complicate its effort. Mr. Lundgren himself acknowledges that it's far easier for a chain of 40 stores, like Macy's own sister division, Bloomingdale's, to understand and respond to local tastes than it is for one the size of Macy's. While Bloomingdale's executives at headquarters "have a clear understanding of what is going on in each store," he says the Macy's empire is so large that management needed "to make sure we were in tune to what it was that the consumer was expecting of us -- the product category, the size or the color."
Still, Mr. Lundgren's plan calls for customizing inventory over the next year at only about a third of the chain's 813 Macy's stores -- including all the former Marshall Field's and many other former May Co. stores. Locations in markets such as Seattle, Minneapolis, Chicago, Portland and Salt Lake City will be among the first to get a makeover.
Most department stores, of course, have always localized a bit -- shipping spring merchandise earlier to stores in the South, for example. But the overhaul Mr. Lundgren is planning will be much more far-reaching. A single Macy's store, depending on its size, stocks 1.5 million to 4 million different items, meaning hundreds of thousands of items in each store will be affected when the new inventory begins going on display as soon as this summer.
The idea is "to allow us to listen to what the customer says about a local product in a local store," says Mr. Lundgren, once the CEO of Neiman Marcus Group Inc. Management behind the scenes will also be revamped to have 13 executives oversee the merchandise assortments at 10 stores each, instead of 7 executives overseeing assortments in up to 23 stores.
One risk for Macy's is that store managers may misread cues about local sales patterns or make poor decisions about how to display and market merchandise, says Sherif Mityas, partner at consulting firm A.T. Kearney.
And some say Mr. Lundgren erred, alienating loyal customers he may never be able to get back, by getting rid of the local names in the first place. "What you have now is a Macy's whose brand doesn't mean much to people in Pittsburgh, or on State Street in Chicago," says Craig Johnson, president of Customer Growth Partners, a New Canaan, Conn., retail-consulting firm.
But Mr. Lundgren says those stores were performing poorly for years under their old names, and he still believes that converting them to Macy's, one of the most powerful brands in the U.S., will result in higher overall sales for Macy's Inc.
Susan D. Kronick, a Macy's vice chair who is responsible for its department-store divisions, sees a big advantage in having managers spend more time on the sales floor. "If you live on the sales floor, you know" the opportunities "because you are talking to customers and you are talking to the sales associates," she says.
One of the best cues, she adds, is the markdown rack: In some stores there are lots of small sizes on the rack, while in others there are lots of large sizes. For example, Ms. Piepho, the manager of the State Street store, wants to add more small sizes in contemporary women's lines, as well as young men's wear. She says that's because many of the city dwellers her store caters to are physically fit -- an observation backed up by the sales figures that show slimmer sizes in those categories sell best there.
"Chicagoans want newness and Chicago brands," she adds.
Macy's has already invested heavily in this location, where angry locals protested the disappearance of the iconic Marshall Field's name. In an effort to lure Chicago shoppers, it now sells local designers, such as Kirsten Goede who makes crystal jewelry and Greg Shugar who makes extra-long ties. Last fall, it even designated three mannequins, which it calls "The Girls," to appear dressed in trendy outfits at local museums and other spots around town, as well as in local newspaper ads.
A spokesman for Macy's declined to comment on the store's performance, though he noted that those changes, as well as the recent addition of valet parking there, "have been well-received by customers."
Source:
The Wall Street JournalLabels: Macy's
As economists predict the worst holiday sales season since the recession of 1991, retailers are fighting back with an arsenal of new selling strategies, staff cutbacks and more emphasis than ever on low prices.
