Terry Lundgren is the guy who took away your local department store, turning it into another link in the Macy's chain. Now the company CEO wants to give it back with a program he calls My Macy's.
After a pilot program to match merchandise to local shoppers' preferences in 20 Northern markets, Macy's Inc. is introducing the strategy to the rest of its 69 markets, including those in Texas. This summer, all 808 Macy's stores received the local treatment.
A store that's opening next week in Fairview, north of Dallas, is one of three 120,000-square-foot stores built from the My Macy's perspective. There's no fine china department, but women's accessories, sportswear and cosmetics have been bumped up. Without a bridal registry department, more space is given to bed and bath and to kitchen utensils.
In San Tan, a suburb of Phoenix, another new Macy's doesn't have a dress department. The third store, opening next week in the Kansas City suburb of Lee's Summit, has a "brow bar" in cosmetics, where customers can get their eyebrows professionally shaped.
The Fairview Macy's also has a Starbucks with seating, Wi-Fi and three computers available for customers to check e-mail or place orders on macys.com. It also has dressing rooms with interior lounge areas so mothers and daughters can consult outside of a tiny room.
The new stores are the culmination of 18 months of research by 30 people in operations, design and merchandising to create "a store from the customer's point of view," said Karen A. Meskey, Macy's senior vice president for store planning and design. She said the building design, which the three stores share, is "prototypical instead of a prototype," because it allows the space to be allocated differently. Higher ceilings in center areas are intended to convey the grand hall feel of traditional department stores built in earlier eras. Macy's new box comes with a new corporate structure that looks to the past for answers, back before department stores began shedding shoppers, locations and familiar names in the 1980s.
The recession has been especially challenging, as shoppers look to discounters to stretch their dollars. But at some point, the recession will end, said Lundgren, who lived in Dallas in the early 1990s when he was CEO of Neiman Marcus.
"Companies like Macy's will emerge even stronger," he said. "This is the time it pays to take risk. There's no resistance to trying new things; everyone is anxious to stimulate sales and get the customer shopping again."
Lundgren took heat from local markets when he led the creation of a national department store chain of more than 800 stores with the Macy's brand in 2005 and 2006, assembled from romanticized regional names such as Marshall Field's in Chicago, Rich's in Atlanta, Burdine's in Florida, Foley's in Houston and Meier & Frank in Portland, Ore. Macy's acquired 11 regional brands in its 2005 merger with May Department Stores.
The result was a redundant mishmash. Thirteen divisions were consolidated first into seven, then into four huge divisions, with buyers in Atlanta, for example, deciding what to put in Pittsburgh. It wasn't working.
So Macy's management started with "a blank sheet of paper," Lundgren said. In February, Macy's began consolidating into one central organization. The Cincinnati- and New York-based company cut 7,000 jobs, or 4 percent of its workforce, and reassigned 1,600 merchants to live where customers shop.
Lundgren said the talent was all there; the merchants just had to be moved to be "national as well as locally responsive."
Macy's now has a team of 20 district merchants and planners in each of its 69 markets. Each team is responsible for 10 stores.
The people they report to are in eight new regions, based in Chicago, Houston, Miami, Los Angeles, New York, Pittsburgh, San Francisco and Washington, D.C. Lundgren told them to follow one general rule: "When in doubt, just say yes."
Local empowerment of the My Macy's teams creates a "sustainable competitive advantage," Lundgren said. "Having 10 stores per district, there's continuity, with merchants in the stores every day talking to the customer. The power behind that is unbelievable."
In the fourth quarter of 2008, sales in My Macy's pilot stores were 1.5 percentage points higher than those of the other stores, Lundgren has told Wall Street. In the first quarter of 2009, that gap widened to 2.1 percentage points.
Investors are reserving their opinions, as it's hard to judge much of anything while the recession handcuffs the consumer.
Citigroup analyst Deborah L. Weinswig has a "hold" rating on Macy's shares and said in a recent report that "an undertaking of this scale has significant execution risk."
But she said the effort could be a long-term positive, along with customer insights from dunnhumbyUSA, a consumer research firm that Macy's hired a year ago.
There's "no other logical reason" for My Macy's test stores in Chicago, Detroit, Pittsburgh and Columbus, Ohio, to perform better than the rest of the company, Lundgren said.
Gerry Frank is a Macy's convert. His family founded the Oregon stores that operated for almost 150 years as Meier & Frank, and he initially tried to fight off Macy's. But Lundgren won him over then and with the local strategy now.
"This is the proper thing to do at this time. The Dallas customer and the Portland customer are very different," Frank said. "They've come full circle."
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