By Barbara Thau
Macy’s is celebrating 150 years in business, but some of the boldest changes have been made in the past five under the stewardship of Terry Lundgren, president, chairman and chief executive officer of the $26.3 billion chain.
Since he was named CEO in 2003, Lundgren orchestrated the acquisition of longtime archrival May department stores, doubling the size of the business.
He rebranded the retailer’s myriad divisions, such as Burdines, Rich’s-Lazarus-Goldsmith’s and Bon Marche, to the Macy’s nameplate, creating a national chain.
Lundgren, who started his retail career in 1975 as an assistant furniture buyer at the old Bullock’s department store chain, has also made some big home moves.
In 2004, he consolidated Macy’s separate home-buying functions and formed Macy’s Home Store, a single merchandising organization. The division was charged with leveraging economies of scale, trading up the home mix and wooing more exclusive merchandise.
And this year, he created My Macy’s, a new organizational structure designed to better tailor the retailer’s assortments to the needs of local markets.
Lundgren spoke with HFN on his latest vision for Macy’s home business and the entire chain. Here are excerpts.
HFN: What tops your agenda for the home business?
Lundgren: The next big thing for us is My Macy’s. It’s an organizational structure intended to continue to encourage the opportunities that exist around having a national Macy’s brand, but now fine-tuning the assortment and marketing to specific needs of the local customer.
It’s a very big undertaking, and a big strategic step for us to win local customers by being very specific.
We hope to get a few quick wins in the fourth quarter [with My Macy’s], but the majority of the impact will be felt in the first half of 2009.
Many of our company executives from the former Federated divisions grew up in the home store. We all remember how we used to have 25 to 40 stores that we would buy for. We knew all the department managers and sales associates in key stores. We had a close link to get [product] information and respond accordingly.
But now, buyers from Macy’s East, Macy’s Central and Macy’s West have 250-plus stores. You can’t possibly address that specific need for the customer in Detroit, versus the customer on Long Island.
For one buyer sitting in New York City to discern the difference—it’s not going to happen.
HFN: You first tested My Macy’s in furniture.
Lundgren: When we first centralized the home [buying] business, we had a difficult time because of this very issue.
Home was the first place we got traction with the My Macy’s concept in furniture, which we have in fewer doors. Jeff Kantor [president of furniture] could get his hands around the fewer number of furniture doors.
Before, he was getting bombarded by the stores’ organization zeroing in on national best sellers, which didn’t mean anyone was trying to sell light-blue leather in Miami.
We put a version of My Macy’s into the big-ticket area, and since we’ve done that, the business has gotten substantially better.
HFN: But part of the reason you gave for centralizing home buying was that consumer tastes across the country vary less in home than fashion.
Lundgren: Yes, home is less sensitive than fashion, and the [retail assortment] change is not quite as often in home as it is in apparel.
Nonetheless, it became clear to us, particularly in the big-ticket area, that there are different tastes. Tastes are much more traditional in the South, and more contemporary in South Florida and parts of California.
HFN: How would you assess the move to centralize home?
Lundgren: We could never have done the marketing that we’re doing now by being a regional player. We had to do that on a national scale. We could never have attracted [those exclusives] with Martha [for the Martha Stewart Home Collection] and the Eva [Mendes textiles collection, Vida, which is designed by the actress].
We never could have done those things as a regional store.
HFN: How will you make home as exciting as fashion?
Lundgren: There’s got to be more and more unique product for the home. It will never be all exclusives, but more exclusive items and exclusive vendor relationships to give the customer a reason to come to our stores versus the competition—that’s the main issue.
Our stores are continuing to look better and better; visually, we continue to evolve the presentation. We’re testing a new prototype that is intended to be a new idea in presenting products and how customers can interact with product assortment. The layout includes new products and a presentation that is intended to be a “wow.”
Home is an important business for us—more for us than for other retailers: That’s our traffic driver. We can feature and promote during big market-share days and draw traffic in.
We’ve been talking about the [single-serve] pod coffee machines for a long time now. It was something that we jumped on and believed in from the very beginning, but it was slow to [gain appeal].
Now the coffee got better, and this concept is a home run. The pod idea has not been maximized.
It’s big ideas like that: You literally can argue that every home needs one.
HFN: How far can Macy’s push the mix of exclusive merchandise?
Lundgren: [Exclusive merchandise] is about 19 percent of sales overall; I think the number is similar in home. I think it can be half the [home] business. The future is more in exclusive vendors.
HFN: How has Macy’s home performed year to date?
Lundgren: Our home business is better than most. None of us will be satisfied until we’re growing successfully year after year, quarter after quarter.
Still, much of it is tied to the housing and credit markets, which certainly impact home furnishings consumers. We do need some relief there in order to return to a growing home furnishings business, but we have to keep on looking for new items, new vendors, businesses and categories that consumers don’t have today in their [homes].
HFN: What do you hope to accomplish by adding FAO Schwarz toy shops to your stores?
Lundgren: The fact is, children like toys. To have a very professional organization like FAO Schwarz, a very famous brand name and quality toys, exclusively in our stores is a perfect alignment.
Overtime, department stores got out of businesses that didn’t perform well—it didn’t mean customers didn’t want those products.
We’ve gotten back into creative restaurant ideas, putting in the Culinary Council [the face of Macy’s housewares division in partnership with top chefs], which have been fantastic.
It’s like a brain trust of ideas that can apply to our stores. We’re also selling iPods in a very cool way [in vending-machine kiosks].
HFN: Are the toy shops part of a bid to draw younger shoppers?
Lundgren: With every child, there is typically a young mother in hand.
We’re doing a lot of things to go after the younger consumer.
In home, we’re working very hard [to conduct] big bridal registry seminars for all of our vendors. In apparel, we have lines like Bcbg Generation and the [private-label] American Rag junior sportswear line.
HFN: What are the opportunities abroad?
Lundgren: I wouldn’t have hired Dan Edelman [to be president of international retail development] to open just one Bloomingale’s store in Dubai.
We have an international development strategy for Macy’s and Bloomingdale’s. There are plenty of opportunities to learn about what kind of demand there is for our Macy’s and Bloomingdale’s stores and our products abroad, and figure out how to do business, and make sure we understand who the customer is in foreign markets to be locally relevant.
I believe there are a lot of opportunities for Macy’s and Bloomingdale’s throughout the world, but more opportunities in the Middle East, there could be in South America, and definitely parts of Asia—China makes sense.
HFN: Where do you see the business in five years?
Lundgren: We want to be where the customer wants to shop with us. If there are opportunities that we discover overseas, then we will be there.
If the customer chooses to shop more online—they now go online to [research] furniture, then come to a Macy’s store and lay on the bed—that multichannel experience is going to be more and more prevalent and it’s a big, big push for us.
[Macy’s online business] went from being a few million to close to a billion-dollar business.