A Leaner Macy's Tries to Cater to Local Tastes

Posted by: Matthew Boyle on September 03

Now may not be the right time for bold experiments, but don’t tell that to Terry Lundgren. The Macy’s CEO has restructured the 150-year-old retailer over the past year to make it both more centralized and more locally focused.

A contradiction? Not according to Lundgren. He considers the overhaul necessary to reverse 16 months of declining same-store sales and to ensure that Macy’s can compete with the likes of J.C. Penney, Kohl’s, and Target when shoppers are ready to spend again. “We can’t wait around for the environment to improve,” says Lundgren, a 57-year-old retail veteran. “You have to do something different.”

For Lundgren, this means catering more to the local tastes of shoppers in the chain’s 811 stores. How? He’s stocking extra swimsuits in stores near water parks, for example, and responding to demand for more size 11 women’s shoes in Chicago. The initiative, called My Macy’s, was launched last year in 20 markets. Now he’s expanding it nationwide. To pull it off, Lundgren has centralized Macy’s buying, planning, and marketing operations from seven regional offices into one in New York. That move eliminated 5,400 jobs and has saved a total of $500 million over the past two years.

Macy’s revamp reflects the problems facing retailers as consumers stay on the sidelines. From J. Crew to Neiman Marcus, companies are slashing costs and inventory to cope with measly sales. Department store chains face a particularly tough slog because they’re battling discounters and specialty stores. Macy’s earned just $7 million on $5.2 billion in sales in the second quarter, due to restructuring charges, but these results exceeded expectations.
empowering managers

Macy’s isn’t the first retailer to go local with its merchandise. Best Buy, Wal-Mart, and Tesco have tried it. While department stores have dabbled in customization, no national chains have done so in a big way because of their size and range of products. (Each Macy’s stocks about 1.5 million items.) That problem worried Lund­gren as he planned his overhaul in late 2007. He feared that housing all buying decisions in Manhattan would reduce ­Macy’s responsiveness to local needs. So Lundgren replaced regional merchandise managers, who oversaw product assortments at two dozen stores each, with more local managers responsible for half that many outlets. With fewer stores to cover, each local manager could spend more time figuring out what was selling. “We can ­really get into [shoppers’] needs,” says Michael Dervos, who oversees Chicago-area stores.

The experiment began paying off in the fourth quarter of 2008. Same-store sales in the 20 pilot markets, though still negative, were 1.5 percentage points better than those across Macy’s. That gap widened to 2.6 points in the second quarter. A handful of cities, including Pittsburgh, had positive same-store sales. Lundgren isn’t battling the recession, or his rivals, as much as he’s fighting to stem Macy’s losses and return it to health. “We won’t be happy until those sales are growing,” he says.

NOTE: This story was first published in the September 14 edition of BusinessWeek

Comments

James Taylor

September 6, 2009 08:46 PM

I am always deeply impressed when I encounter absolutely brilliant management strategies. I certainly found one in this article. Macy's is now going to stock MORE swimming suits in stores near water! I guess that is why Terry Lundgren gets paid the big bucks.

Bruce Temkin

September 10, 2009 04:11 PM

It makes a ton of sense for retailers to tailor the merchandising at a local level to meet the needs of local customers. What doesn't make any sense is NOT doing it. I wrote about this in my blog, Customer Experience Matters. http://experiencematters.wordpress.com

Michael Vorel

September 11, 2009 08:14 AM

I was impressed with the cost savings and centralization of Macy’s buying, planning, and marketing operations from seven regional offices into one in New York. However, the question I have is buying by specific regional market is not a new strategy and wonder why this wasn't already being done at Macy's?

Susan Levand

September 11, 2009 10:15 AM

I say it's about time they listen to their customers. When Macy's bought Marshall Field's (a Chicago institution if there ever was one), and rolled it into the Macy's chain in 2006, the community was very vocal about its disappointment. Over the years, other companies had owned Field's and allowed it to operate under its original name. The public outcry was startling--to the point that demonstrations were held outside the flagship Loop store. Wouldn't that indicate a disturbing level of dissatisfaction? I remember hearing Mr. Lundgren on the radio during that time. He said something to the effect that Chicagoans "would get used to it and business would go on as usual." (My words, not his). Guess what? Many Chicagoans refuse to set foot in Macy's and now make their purchases elsewhere. Macy's alienated a huge number of customers here, not only by killing the Field's brand but by their arrogance toward their market.

Bob Inmo

September 11, 2009 10:41 AM

It was being done at the regional (or division) office level before. Now, the buying offices are centralized, but the input is coming from the district level with district planners and merchants in place. I wonder why they still maintain an office in Cincinnati with most of the corporate organization based in New York. Maybe next year?

Charles Lanier

September 11, 2009 11:14 AM

I am glad they are being proactive but it will be interesting to see if they have a logical follow through on their merchandising. I recall Lord and Taylor had the same centralized strategy and every year they would stock sweaters and heavy coats for the Carolinas around mid August even though the weather is quite warm until early December. While they are making changes I would suggest that if the checkout staff was adequate perhaps I could actually complete my transaction
when I visit a Macys rather than giving up and going to Martin + Osa or Crate & Barrel

Jackie Kuehl

September 11, 2009 12:10 PM

What a concept. Target Marketing? Assortment by region? Macy's should have hired a grocery executive who could have told them how to do this LONG ago.

Safeway found out the hard way that one size and one store philosophy does not fit all.

Ed Franklin

September 11, 2009 02:00 PM

Not assortment by region, Jackie, assortment by store -- and on a level that is far more sophisticated than any of its peers are capable of, as the commentary above notes.

And grocery stores are FAR simpler and less complex from an assortment perspective than department stores, so I highly doubt that a grocery store exec would have had all the answers.

Golib Kholjigitov

September 12, 2009 04:32 AM


I have couple of ideas to improve Macys' business strategy:

1) Always have a direct contact with customers and employers; this can be done by activating company blog on (macy.com) and corporate one on (macysinc.com);

2) Customers always feel pressure from salesman, so why not create first mall or shop with no single salesman, except security if needed (this may save a penny or two), I think customers would like to shop around freely and pay themselves (credit or debit cards, cash accepting machines can also be deployed) – customers are waiting for change, just like Obama, word of the mouth is the cheapest and best ad);

3) No price tags. As a customer, especially during current economic conditions, I look at prices first. If it is too high I don't even try items on me. So what is needed is a new sense of saving on good items, where customers will sense bargaining down and bidding (quoting their own price – eBay on spot). If price is $100, and they bid for $90, why not sell them at offered price and come up with range of - 10% and + 10%, if they pay $100 for $90 accept it. But this needs to be carefully crafted so that not to overcharge them. A lot of customers will try to get bargain (or bid), just like on flee marker or eBay;

4) Do Macy’s have a position of Chief Innovation Officer, if not it is the best time to do so. Retail business is facing a turnaround and rocky waters in near future. This will require a lot of innovative approach to improve customer service and attract them in newer ways. Macy’s has good brand, which needs to be adapted to new tastes, needs and priorities.


Good luck.
Fun of Macy's
Golib Kholjigitov (golibbek@gmail.com)

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