Macy’s seeks more

Published 9:00 pm Wednesday, August 9, 2006

NEW YORK – Federated is betting it can change how shoppers feel about department stores as it absorbs former May Co. shops and turns its Macy’s chain into a national brand with more than 800 stores.

Federated Department Stores Inc., which last added The Bon chain in the Northwest to its Macy fold, now commands about 25 percent of the U.S. department store business, based on figures from the U.S. Census Bureau.

It’s using its increased clout to develop more exclusive merchandise and attract younger shoppers with new features such as robotic vending machines that sell iPods.

Macy’s first national TV and print advertising campaign will break Sept. 9, when more than 400 stores acquired when it bought May Department Stores Co. a year ago, including such homegrown names as Hecht’s, Foley’s, Filene’s and Marshall Field’s, are officially converted to Macy’s.

So far, the Federated-May combination is on track. Federated, which also operates 40 Bloomingdale’s stores, reported on Wednesday better-than expected second-quarter results and raised its second-half profit forecast. Shares rose 2 percent, or 67 cents, to finish at $34.46 on the New York Stock Exchange.

Still, the $22 billion behemoth retailer faces a tough battle on price from discounters including Target Corp. and on customer service from specialty stores such as Chico’s FAS Inc. as it seeks to hold on to former May customers and attract new ones.

“The big challenge is to hold on to the local loyalty factor while changing the name and changing the format to achieve success nationwide,” said Janet Hoffman, managing partner of the North American retail division of Accenture, a consulting firm.

“It’s the lack of pizzazz that has hurt department stores,” Hoffman noted. Yet, she added, the comfort of having a local store has enabled “department stores to hang on to a thread.”

Terry Lundgren, chief executive, president and chairman of Federated, says he’s unfazed by the challenge. “Macy’s will be the largest seller of all the important brands,” said Lundgren, in a recent interview. “These are affordable luxury. This is not Gucci or Prada. And we are going to be catering to a large cross section of the American population.”

Jackie Bogue, a customer at the Famous-Barr store in the Galleria in St. Louis, Mo., said she drives more than 70 miles from her home in Bowling Green, Mo., to shop at the store, which will have a more upscale focus as a Macy’s.

“I was buying the higher-end things at Famous-Barr, so it wouldn’t bother me,” she said.

Federated’s sales had been sluggish at about $15.5 billion for the four years before the May acquisition, which boosted its total revenue to $22.39 billion for the last fiscal year. Meanwhile, May had lagged behind competitors such as Federated because it failed to come up with compelling merchandise and instead resorted to aggressive price cutting.

Federated is capitalizing on its increased clout with vendors to strike exclusive partnerships with fashion brands, a key strategy to set itself apart from rivals. Macy’s will also be expanding its store label business, key names such as INC and Charter Club, which have grown three times faster than branded products over the last four years.

Among the new Macy’s exclusives is a new line from designer Elie Tahari called T Tahari, coming this fall. Starting in February, Macy’s will have exclusive rights to sell O Oscar, an affordable collection from Oscar de la Renta.

A big thrust in Macy’s home area will be an exclusive Martha Stewart collection, to make its debut for fall 2007. Lundgren conceived the idea of having up to 3,000-square-foot house environments, developed by KB Homes, at Macy’s Herald Square flagship in New York, Macy’s Union Square store in San Francisco, and the Marshall Field’s State Street location in Chicago.

Lundgren acknowledged fierce competition from the likes of Target and J.C. Penney, which are offering trendier fashions at lower prices, but he believes Federated’s store experience will give it an edge.

To attract younger shoppers, Macy’s is counting on self-serve robotic vending machines which will offer iPods and eventually other popular consumer electronics. The displays are being rolled out at 180 Macy’s stores this fall. Macy’s year-old shopping Web site aimed at teens called thisit.com will also have more power because it can be marketed across Macy’s stores on a national basis.