From WWD Issue 05/23/2011
Risk-taking and retailing aren’t exactly kindred spirits. But for Macy’s Inc., the time is right to test new concepts and for “encouraging a higher level of risk-taking across all functions,” Terry Lundgren, Macy’s chairman, chief executive office and president, said.
“We have to try new things — all kinds — and if one of them doesn’t work, that’s OK,” Lundgren said.
During Macy’s annual meeting and press conference here Friday, Lundgren and other Macy’s executives outlined initiatives and tests in the works, in an effort to portray a culture of innovation at the $25 billion, 850-unit department store operator.
Decades ago, Macy’s did have a reputation for innovation, with marketing extravaganzas like the Fourth of July fireworks and launching The Cellar in San Francisco in 1971, though the image was lost in the following years as the company got sidetracked by bankruptcy, a takeover, consolidations and management restructurings.
Now, however, after reporting a strong 2010 and first quarter of 2011 and getting upgraded by rating agencies, Macy’s has renewed confidence, and the old industry metaphor that department stores were dinosaurs doesn’t seem valid, at least not in Macy’s case.
Suggesting there’s a bolder Macy’s to be reckoned with, Lundgren cited a string of initiatives and tests, even the possibility of building a full-line store “either in or nearby an outlet center” at a time when launching full-lines is less of a priority compared with pumping up productivity at existing units. If that unorthodox siting worked, it could open up ground for expansion. Lundgren did not disclose where a site for the first test might be, but it was obvious it could come soon.
However, he was clear to say there are “no plans at this time” to open an actual Macy’s outlet, since the company’s stores are already very promotional and value-oriented.
On the other hand, Bloomingdale’s, a division of Macy’s Inc., recently launched four outlets and is opening three more this year. “Outlet center developers are highly interested in Bloomingdale’s,” Lundgren said. Other upscale stores, like Nordstrom and Saks Fifth Avenue, have far more outlets, but Bloomingdale’s is “playing it by ear” and not setting a goal for how many outlet openings, Lundgren said.
Macy’s also has an agenda to make its beauty business more targeted, by breaking an industry formula of using a single spokesmodel to represent a line. The store is working with one major cosmetic company to diversify the products and marketing presentations by using different models and targeted mailings to appeal to African-Americans, Asians and Hispanics. Lundgren would not disclose the vendor.
Among other innovations in the works:
• Rolling out Impulse beauty departments selling niche brands such as Stila, Urban Decay, MAC and Smashbox to 100 stores by fall, accompanied by hipper marketing, as Macy’s attempts to draw the younger crowds it currently lacks. “The whole youth category — juniors, contemporary, young men’s and children’s — I believe we should be getting a larger share of that market,” Lundgren told reporters. “In the younger areas, we are not growing to the same degree.”
• Using larger stores around the country with broader assortments to ship goods to customers when they can’t get the products they want in the stores they shopped. Twenty-three stores will have the shipping capability by year-end, as part of Macy’s “search and send” programs that help associates locate products through the chain when they’re not available on site.
• Utilizing tablet computers in cosmetics to help customers identify the best products for their skin types. It’s being tested in the recently renovated Macy’s in Water Tower Place in Chicago.
• Outfitting all stores with WiFi in the months ahead.
• Developing merchandise displays with quick response codes that shoppers can scan with smartphone cameras and then see short videos with designers talking products, trends or fashion philosophy. It’s already apparent in Macy’s stores and seen in Bobbie Brown, Tommy Hilfiger, Martha Stewart, Rachel Roy, Sean John and Bar III private label areas.
• Bloomingdale’s SoHo is testing radio frequency identification in its denim department to more precisely stock and locate merchandise.
Lundgren also disclosed that Macy’s program of exclusive designer capsule collections, in its first year, will continue next year. Currently, Matthew Williamson is featured, Karl Lagerfeld will launch in the summer and another designer will follow later in the fall.
In addition, Lundgren said Macy’s has an $800 million capital expenditure budget, up from $500 million in 2010, which will be largely utilized for technology and fulfillment centers, including building a 3.5-million-square-foot center in West Virginia.
“How do we keep moving forward in the quest for continued growth and high performance? The answer lies in the relentless pursuit of growth through innovation and collaborating closely with vendors and other outside partners,” Lundgren told shareholders.
Throughout the industry, retailers are greatly disturbed by inflation. But Lundgren seemed less concerned. “Macy’s has a much broader assortment,” compared to companies like Gap or Kohl’s. “We have plenty of product categories that are not going to be significantly impacted by inflation.…If you are just selling simple basics like T-shirts, that’s a problem,” though he acknowledged there will be certain items at Macy’s rising in price quite a bit. Still, he noted that some designers, such as Ralph Lauren, Calvin Klein and Tommy Hilfiger, are trying to mitigate higher prices by providing greater value in their products, creating them with enhanced stitching, buttons or other details involving more labor.
“We feel really good about where we’re at. It’s all about positioning,” he said.
On another positive note, Lundgren said he likes what he sees happening at shopping centers. “I’ve met with half of our developers in the last three months. They’re reinvesting in the centers.…Shopping centers must find ways to reinvigorate and I think they are doing that,” he said. “They’re enabling them with WiFi, adding new food elements and, in some cases, bowling alleys.”
