Macy's tailors stores, including new Fairview location, to match local tastes

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.

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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."

Mini Versions of Big-Box Stores

BOTHELL, Wash. — During the current economic downturn, as many companies are closing stores and cutting costs, it might seem counterintuitive to be opening new stores.
Not here in Bothell, around 20 miles northeast of Seattle, where in January, OfficeMax opened one of its three new concept stores in the Seattle area that offer a pared-down selection of its most popular products. Each of the new stores, called Ink Paper Scissors, covers only 2,000 square feet — about a ninth the size of a typical OfficeMax — and offers basics like copy-making supplies and printer-cartridge refills.
Retailers like OfficeMax are opening scaled-down versions of their stores or inventing outlets entirely to test new concepts without a hefty investment. The stores are a relatively safe bet despite the recession because the space is cheaper and the stores require less inventory, fewer employees and smaller spaces.
OfficeMax is not the only retailer giving new concept stores a try. Most are significantly smaller than their typical stores and focus on one set of products. Last year, for example, Wal-Mart opened four specialty food stores in the Phoenix area, RadioShack unveiled three high-end wireless shops in Dallas, and Best Buy created 30 mobile phone stores.
“If you’ve got the wherewithal, everyone is thinking about smaller sizes,” said Lee Peterson, vice president for brand and creative services at WD Partners in Columbus, Ohio, which has helped retailers design these stores.
More small-format and new-concept stores are likely to be on the way as retailers try to lure customers back, according to a survey of retailers, manufacturers and consultants. Nearly 46 percent of the respondents said they expected the number of formats to increase in the next five years, according to a survey in February by Dechert-Hampe & Company, a marketplace management consultancy.
The stores are opening even as some companies are declaring bankruptcy, closing stores and reporting double-digit earnings drops. As the economy contracts and consumers tighten their spending, more closings are likely. In March, the most recent data available, Americans were saving 4.2 percent of their income, after taxes, up from 0.2 percent a year earlier, according to the Commerce Department.
“Obviously, it’s not an optimal time,” said Ryan Vero, OfficeMax’s chief merchandising officer. “But this makes for a great test — it can’t be any worse.”
Smaller formats also allow companies to enter new markets in urban or rural areas that they had bypassed during the boom. They can get into a market, test a new concept and get out quickly if it doesn’t work.
The Lowe’s Companies, the home repair giant, has been hit hard by the housing downturn and has cut its new store openings to 60 to 70 this year, from 115 last year. But the company, which is based in Mooresville, N.C., is also experimenting with scaled-back stores in new markets. Lowe’s has slowed its plans to open stores in the hard-hit states of Florida, Arizona and California, and is aiming at the Midwest and rural communities far from its warehouse stores.
Last year, Lowe’s opened two scaled-down versions of 66,000 square feet and 80,000 square feet. An average Lowe’s store is 117,000 square feet.
Many retailers don’t want to cease opening new stores altogether during the downturn, because doing so could harm future earnings. It can take up to three years to develop and open a store. But opening during a recession can position a retailer for success when the economy turns.
“Retailers have pulled back the reins somewhat, but they’re not going to pull back entirely,” said Daniel Butler, vice president of retail operations at the National Retail Federation in Washington.
Smaller stores are also cheaper and less risky. An average Lowe’s costs $20 million to $22 million to build, not including inventory. Smaller stores save the chain an average of almost 10 percent, or $1.9 million, per store.
They also can attract new customers who might be put off by larger stores or consumers who shop mostly online. Downsized or concept stores are more convenient and take less time to visit than a large store. Lines are typically shorter, and the shopping aisles can be easier to navigate.
In some ways, retailers are going back to their roots, evoking the corner store. At many new stores, personalized service is being emphasized, like explaining the features of a product.
“Consumers want stores that are more convenient, less time-consuming and more personal,” said Ben Ball, senior vice president at Dechert-Hampe & Company. “There is such a thing as too much variety.”
Best Buy is aiming to lure people away from their computers and into their new Best Buy Mobile stores with a selection of 90 cellphones and service plans from nine carriers.
Most of the stand-alone shops are 900 to 1,200 square feet, versus 40,000 square feet for a big-box Best Buy. Some 3,000-square-foot versions have also opened. Best Buy now has 40 stand-alone stores and plans more.
Best Buy is focusing on the cellphone and smartphone market because the segment is expected to keep growing and the company needs to shore up flagging earnings. Best Buy’s goal is to have 10 percent of the country’s cellphone market, up from about 3 percent now.
“We’ve been in the mobile business for years, but despite our best efforts, we haven’t been able to make much impact in cellphones,” said Scott Moore, vice president of marketing for Best Buy Mobile.
RadioShack is also eyeing the wireless market. In December, the company opened three Point Mobl stores in the Dallas area; they carry smartphones, among other electronics items. Each store is 1,500 square feet, or about the size of a typical RadioShack. The new stores do not mention the parent company.
Retailing professionals doubt the experimentation with store formats is over. “It’s a very liquid time for retailers,” said Mr. Peterson at WD Partners. “ ‘Let’s try it’ is now the mantra.”