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.
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
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