December 22, 2009
RETAIL
Hoping for green holiday, Macy's refashions itself
The venerable chain, building on its nostalgic appeal, is updating its
operations to attract modern shoppers
By Andrea Chang
Wrapped in the music, lights and relentlessly red decor of Christmas at
Macy's, Kathleen Kwiatkowski opened her wallet with a little pull from
holidays past.
Like millions of other Americans, Kwiatkowski says she shops at the
department store for its selection, ample coupons and easy return policy.
But in part it's simply tradition.
"Macy's is Christmas," said the West Hollywood resident, 56, examining a
stack of knit tops at the Beverly Center store. "My mother used to take me
to the New York store when I was a little girl."
Since the classic film "Miracle on 34th Street," Macy's has been synonymous
with the holidays in the minds of many consumers. This Christmas, amid a
tough sales environment, the department store giant -- second only to Sears
Holdings Corp. by revenue -- is hoping that nostalgia translates into a
much-needed sales boost.
Amid the devastation the recession has wreaked on retail sales, the
venerable chain has been trying to reinvent itself, tailoring its stores to
specific regions, pushing its online presence and boosting its promotions
to draw customers.
In the process, Macy's hopes to reverse the decades-long decline in the
department store business model that has seen many mall-weary consumers
shifting their shopping habits to big-box discounters, free-standing stores
and the Internet.
"It's a critical holiday season for Macy's. They have to turn things
around," said retail analyst Michelle Clark of Morgan Stanley, who is
neutral on the stock.
The Cincinnati company, which owns luxury retailer Bloomingdale's and
operates a total of 854 stores, is aware of the threat of becoming
obsolete. With nearly one-third of its annual sales riding on the
November-December season, Macy's is trying hard to stay relevant.
"Macy's as a department store is not just competing against other
department stores," said John Gorham, senior vice president and director of
stores for Macy's southwest region, which includes California. "In today's
world, whether it's specialty, whether it's discount or whether it's
department stores, the name of the game is capturing wallet share from the
consumer."
The recession, the reshaping of the company and the competition have kept
Macy's financial results volatile.
The company lost $35 million for the three months ended Oct. 31, even after
slashing 7,000 jobs and closing about a dozen stores this year. Over the
last eight quarters, its earnings have seesawed, swinging as high as $750
million in profits to a low of $4.77 billion in losses, a result of a
write-down in assets.
In trying to reinvent itself, Macy's has been overhauling its merchandise
structure -- a move the company says will allow it to better respond to
customer preferences and needs by location.
Under the initiative, called My Macy's, stores are grouped into small
districts of about 10 to 12 locations each. Previously, the clusters were
about twice as large yet had half as many managers, resulting in
merchandise missteps such as not adjusting product sizes by location.
"There was just no physical way that you could get into the detail of what
the customer was demanding when you were that big," Gorham said. "It was a
problem."
In a region as diverse as the Southland, the My Macy's strategy has helped
the chain pinpoint store-specific issues.
In Westminster, for example, Macy's has increased its stock of small sizes
to better serve the store's many Vietnamese shoppers, who tend to be more
petite on average, Gorham said. After shoppers at the Macy's in Costa Mesa
said they wanted more dresses, the chain upped that store's inventory by
30%.
Many customers say they've already noticed the changes.
"Before, there wouldn't be a lot, but now I find there's a lot I can choose
from. There's definitely a difference," said Marivel Molina, 22, who had
just spent $200 on Christmas presents at the Macy's at South Coast Plaza.
"Every time I come I find something."
The company also has put significant effort into its online presence -- and
it's paying off. Internet sales at Macys.com and Bloomingdales.com were up
21.1% in its most recent quarter and 15.6% for the year to date, the
company said last month, although it didn't release exact online sales
figures.
The merchandise improvements have cheered some industry watchers, who say
Macy's is on the right track and that its long history and national
footprint give it an advantage over its competitors. Macy's stock is up 70%
this year, compared with a 23% increase for the Standard & Poor's 500 index
of major companies.
Although it closed 11 underperforming stores this year, the chain opened
six new ones and rebuilt two others. Last month it raised its financial
outlook for the full year.
Analysts are cautiously optimistic. Half of those who follow the company's
financial progress recommend that people buy the stock and half recommend
that investors hold their shares, according to a Bloomberg survey.
"Macy's is taking advantage of the recession. It's made some very tough
decisions in terms of consolidating operations and streamlining its expense
structure,"said Bill Dreher, senior retail analyst at Deutsche Bank
Securities who recommends buying the stock. "We like these changes, and we
like the direction the company is going."
Founded in New York in 1858, Macy's was acquired by Federated Department
Stores in 1994, part of a buying spree that later included purchases of
rivals Broadway Stores and May Department Stores. Two years ago the company
officially changed its name to Macy's Inc.
Industry consolidation and failures in the 1980s and 1990s, along with the
recent wipeout of regional retailers such as Mervyns and Gottschalks, have
left Macy's and its 167,000 employees in an increasingly smaller pool, but
that hasn't helped department stores in general.
Last month sales at department stores fell 4.7% compared with a year
earlier, according to Thomson Reuters. In the retail segment of the
economy, that drop made it the second-weakest sector in November after
youth-oriented apparel sellers. With sales down 6.1% for the month, Macy's
performed worse than department store peers Kohl's Corp., Nordstrom Inc.
and J.C. Penney Co.
Other factors also leave the chain vulnerable.
As a mid-range department store carrying a wide selection of apparel,
accessories and home decor items, Macy's aims to reach customers across all
income levels. But even with seemingly nonstop coupons and markdowns, the
chain has difficulty shaking its image as a pricey place to shop.
"Maybe if I had a full-time teaching job, I would shop at Macy's," said Jan
La Joice, a substitute teacher from La Crescenta who was shopping at a
JCPenney in Glendale recently.
For the holidays, the chain has ramped up its national "Believe" campaign,
including a 30-minute animated television special and gift card give-aways.
"Part of the DNA of this brand is to really do all holidays well, but
particularly Christmas," said Martine Reardon, Macy's executive vice
president of marketing.
That's what drew Carla Cotti to the Macy's at Glendale Galleria recently
when she was looking for trendy gifts for her grandchildren.
The senior housing consultant grew up shopping regularly at the department
store but lately has broadened her options, making her visits to Macy's
less frequent.
"With this economy, there's not a person who isn't going to make their way
to a Costco or a Wal-Mart or a Target," she said. "But I still need
Macy's."
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