Macy's reverses, goes local

UP CLOSE

Chain backs off cookie-cutter approach, tailors items to shoppers

April 22, 2008|By The Wall Street Journal

CHICAGO - The sprawling Macy's store on State Street here was once 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, out of Marshall Field's, Hecht's, Robinsons-May, Kaufmann's and other local department store names that it owned across the country.

But Macy Inc.'s same-store sales were 1.3 percent lower last year than in 2006, and Chief Executive Officer Terry Lundgren is changing course, ditching the nationwide cookie-cutter approach in favor of tailoring merchandise at the world's largest department store chain by targeting 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," Lundgren says. He wants 15 percent of the merchandise in stores to reflect local preferences.

Over the next several months, Macy's on State Street will begin stocking more brightly colored clothes and men's all-white suits, items that store manager Linda Piepho noticed were favored by her store's urban clientele. In cosmetics, she plans to add a greater variety of makeup shades to attract trendier shoppers, while adding larger 3.4-oz. bottles of perfume for thriftier shoppers.

The new strategy, called "My Macy's," is a stark reversal for Macy's and Lundgren, who set out to end the decades-long slide of department stores by creating a huge national chain that had more influence with vendors and stronger marketing, and by airing fewer expensive local TV and print ads and more national ones.

After purchasing rival May Department Stores in 2005 for $11.5 billion, Lundgren dropped 11 venerable names to create a cohesive national identity for the more than 800 stores under the Macy's nameplate.

In some ways the plan worked - Macy's got Martha Stewart to create a line of products exclusively for the chain because of its immense reach - but pressures on Lundgren are growing as the economic slowdown worsens. In his annual shareholder letter last week, he said 2007 results were "softer than we had originally anticipated" because of a weaker economy but added that Macy's had done better than most of its primary competitors in the crucial fourth quarter.

Macy's is adopting an approach that big chains including Best Buy Co. and Ross Stores Inc. have come to consider imperative. Retail giants such as 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 available on the Internet, retailers need to give shoppers a reason to visit their stores.

A localization strategy can boost sales at stores open at least a year by 1 to 3 percentage points, and as much as 90 percent of the benefit can be gained by customizing 10 percent to 15 percent of inventory needs, says Darrell Rigby, a Bain & Co. partner.

Macy's size will undoubtedly complicate the effort. Lundgren's plan calls for customizing inventory over the next year at about a third of the chain's 813 Macy's stores, including all of the former Marshall Field's and many other former May Co. stores. Stores in markets including Seattle, Minneapolis, Chicago, Portland, Ore., and Salt Lake City will be among the first to be made over.

Susan D. Kronick, a Macy's vice chairwoman 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 says, is the markdown rack: In some stores, such racks contain many small sizes. In others, there are lots of large sizes. For example, Piepho, the manager of the State Street store, wants to add more small sizes in contemporary women's lines and in young men's wear. The reason, she says, is that many of the city dwellers her store caters to are physically fit, an observation backed up by sales figures that show slimmer sizes in those categories sell best there.

"Chicagoans want newness and Chicago brands," Piepho says.

Macy's has invested heavily in the State Street store, where angry residents protested the disappearance of the familiar Marshall Field's name. In an effort to lure Chicago shoppers, it sells items by local designers, including Kirsten Goede who makes crystal jewelry, and Greg Shugar who makes extra-long ties. Last fall, it designated three mannequins to appear dressed in trendy outfits at local museums and other places.

A spokesman for Macy's declined to comment on the State Street store's performance but noted that the changes and the recent addition of valet parking "have been well-received by customers."

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