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Terry J. Lundgren, Macy’s (M) chief executive officer, has research showing that more than half the people in the biggest Macy’s urban markets—including New York, Los Angeles, and Chicago—are Hispanic, African-American, and Asian. The chain already uses various tactics to woo minority shoppers, such as its deal to sell an exclusive line from rapper-turned-clothier Sean “Diddy” Combs. Coveting a deeper relationship with minority customers, Lundgren decided to seek out mom-and-pop retailers already serving minority consumers and get their products on Macy’s shelves.
Small businesses, however, often lack the wherewithal to supply a behemoth like Macy’s, the second-largest U.S. department store chain after Sears Holdings (SHLD). So Macy’s last year developed a training program designed for minority vendors. Participants learn the basics of big-time retail, and the most promising get to sell through Macy’s. In November the retailer awarded its first orders to four graduates: two makers of cosmetics targeted at African-American and multi-ethnic women; a designer who makes dresses primarily for Hispanic women; and a designer of plus-size swimsuits. “We are doing this not just as a nice thing,” Lundgren says, “but as a business proposition.”
It’s a sizable one: By 2015, Hispanics will spend $1.5 trillion on U.S. goods and services, according to the University of Georgia’s Selig Center for Economic Growth, 50 percent more than they spent in 2010. Blacks’ buying power will expand by about a quarter, to $1.2 trillion, in that period, and Asians by more than 40 percent, to $775 billion. Macy’s forecasts its sales of goods from minority- and women-owned businesses will jump to $1 billion in two years, after rising a projected 22 percent, to $683.2 million, in 2011. (Macy’s total sales were an estimated $26.4 billion last year.) “When we get there,” he adds, “I can assure you I will raise that goal.”
The initiative wasn’t launched without some internal debate, says Bill Hawthorne, Macy’s senior vice-president for diversity strategies. “When I started on this path, there was a prevailing point of view: That we do not see color, we are all the same,” he says. “There are differences, that is the beauty of diversity. Let’s celebrate those. And let’s figure out as a retailer how to merchandise that.”
The training program is an extension of the retailer’s 13-year-old relationship with rap artist Combs, who, like many entrepreneurs, wanted to create products he couldn’t find at the time. Combs preferred urban streetwear with a more glamorous take, so he put fashions such as winter-white jackets with faux fur collars and tracksuits in glittery black velour onto Macy’s shelves. The retailer is also drawing on its experience with Lisa Price, whose Carol’s Daughter line of personal care products for African-American women has been available at Macy’s stores since 2006. Price, who created her line of body butters and oils in her kitchen, originally sold them at flea markets. Lately, Macy’s has been collecting requests from minority customers—and using them to figure out in which stores it needs to add more zero-size apparel for Asian women, brightly hued outfits for Hispanics, and hats and white suits for church-going black ladies.
In 2009, Lundgren named Macy’s Divisional Merchandise Manager Shawn Outler to head the minority vendor program. Outler unearthed about half a dozen prospects who already had boutiques and online businesses but soon realized they lacked some of the basics to scale up to service an operation of Macy’s size. So she came up with the idea for the workshop.
Macy’s partnered with Babson College, a Boston-area school specializing in entrepreneurship, and decided on a free, four-and-a-half-day crash course taught largely by Macy’s executives. Applicants were required to submit two years of financial information, product lists, and photos to a special website. Of 250 applications reviewed, Macy’s interviewed 50 candidates and selected 22 for the first program.
Held in May at Macy’s New York headquarters, courses included Retail Math 101—the art of markdowns—supply chain lessons, and a panel that explored the mysteries of getting financial backing. Price taught a master class in which she detailed her early mistakes at Carol’s Daughter, including using opaque packaging before customers knew her products. “A lot of entrepreneurs think what matters is getting that first order,” Outler says. “What matters is really what comes after that.”
Among the program’s first-year standouts is Lamik, founded by Houston native Kim Roxie, 29. Her company targets 18- to 40-year-olds with “problem-solving” cosmetics such as its brow-grooming kit to rescue over-plucked eyebrows. After taking the workshop, Roxie added an account executive to handle larger customers and raised prices by up to 20 percent for 2012 to boost margins and take her brand upmarket. This month she’s launching a revamped website with explanatory video, plus a blog. Her cosmetics will soon appear in four Macy’s stores in Texas, Louisiana, and Georgia and on its website.
This spring Macy’s will start selling swimsuits by Monif C., a New York mother-and-daughter team that makes women’s apparel with “unadulterated sex appeal” in plus sizes 14 to 24. They feature plunging V-necklines, gold lamé, and lots of fringe. Another winning vendor, Big Girl Cosmetics, targets “polyethnic” women with yellow, olive, orange, or red skin undertones. And Cenia, created by Cenia Paredes, a New York designer from the Dominican Republic, won an order for her apparel designed to flatter pear-shaped, rectangular, and other body types. “I see myself as a billion-dollar business,” Paredes says. “Why not?”
The bottom line: More than 50 percent of shoppers in Macy’s top markets are minorities. So it’s training minority vendors to produce goods tailored to them.