The Deal
Saturday, July 4, 
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Two years into May deal, Macy's adjusts model

Posted on April 21, 2008 at 11:00 AM
Filed under: Corporate Strategy | Integration
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Macy's Inc.'s strategy for May Department stores, which it bought in a 2005 deal valued at $18 billion, was never going to be easy. As we discussed in a December 2005 Corporate Dealmaker piece, CEO Terry Lundgren's plan was to convert all the acquired chains to Macy's, including such storied names as Chicago's Marshall Fields. That would enable the stores, many of them beset by declining sales, to benefit from synergies in national branding and ordering, among other things.

The downside, we noted, was potential damage to the deep affinity that people in Chicago and elsewhere had for stores that were deeply embedded in the local scene. Lundgren was sensitive to the issue, promising, for example, that the supply of Marshall Field's signature Frango mints would continue uninterrupted.

But according to an article in Monday's Wall Street Journal (subscription required), Macy's now thinks localization must go even deeper. With 2007 sales off 2%, it is reconfiguring its executive ranks and taking other measures to try and stock goods more attuned to local tastes. The article notes that Macy's is thus following the lead of Best Buy Co. and other retailers who have figured out how to be national and local at the same time. 

As retail aficionados know, the approach that Best Buy has used so successfully goes by the name of "Customer Centricity," and was put forth by finance professor Larry Selden in a book he co'wrote with Geoffrey Colvin, called "Angel Customers and Demon Customers."

It's funny to think that these giant company's need an elaborate intellectual framework and attendant systems to implement insights that Mr. Field, Mr. Macy, and Mr. Schulze (who founded Best Buy) probably knew in their bones. But in business and even in social exchanges this is perhaps the central trade-off of our age. With scale you gain power, but you lose something too -- whether it's a sense of credit quality in mortgage lending, a sense of
deeper friendship when you're keeping up with 200 friends on Facebook or a sense of what individual customers care about when you're running 800 or so stores. - Kenneth Klee



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Comments
Comments
From: L. Grand,

Localization efforts, eh? Lundgren missed the boat the first time around by deep-sixing LOCAL NAMEPLATES. While his efforts may seem wise on the surface, I doubt they will ever succeed in bringing business back to the places whose customers were alienated by his first blunder.

There's really no nice way to say it.


From: JasonM,

It won't work. What Terry has done is taken what was once an "okay" brand like Macy's and totally ruined it by alienating millions of people across the nation. Macy's now stands for a brand that destroyed every single local brand left!


From: Marion M,

Gosh, who knew? Had Mr. Lundgren and his executive staff asked, his sales staff and customers would have told him. Actually, the rumor was that Marshall Fields as well as Bloomingdale's would retain their names. Anyone with half a brain and a few years retail experience knew it was a mistake to rename MF.


From: Rich,

Marshall Field should be restored in name and also in quality of service and merchandise. The change to macy's meant a severe downmarket of the store and a great loss of quality merchandise. This included many brands in Chicago exclusive to Field's through long term relationships and now those relationships are lost. Those brands have easily moved on to Sak's and Neiman's to the delight of these competitors. With an appropriate and serious owner, Field's could be restored. Macy's would not be able to do this. They do not understand or know how to operate a truly upscale store such as Neiman's or Sak's. This was a debacle that was probably unavoidable given the plan and intentions of macy's, however it is also likely that macy's will never truly recover from this fiasco-- at least not in the Chicago and Minneapolis markets.


From: Robert,

I used to shop both Marshall Field's and L.S. Ayres.

I refuse to shop Macy's.

The stores are so generic, similar merchandise can be had for lower prices at the likes of Penney's and Kohl's or even Elder Beerman and the service is terrible.

And never did anyone think Macy's or L.S. Ayres was on the same tier as Marshall Field's.

This isn't about reinventing the department store, it's about Terry Lundgren's ego, hubris and arrogance. Mr. Lundgren needs to be removed from Macy's, Inc before it will gain traction in making a come back, or, actually a back track which is what the "My Macy's" strategy tip toes at doing.

Even if these stores were doing so-so with their local brands and merchandise. Clearly, they are doing much, much worse as Macy's. Even worse than their competitors in this economy.


From: Frank,

macy*s blows


From: lauren,

Well, I worked at the former Marshall Field's and Macy's is an extreme downgrade in style, value, service and sensitivity to the consumer.

As Field's employees, we hoped there would be a reprieve, like a stay of execution that fateful September. I mean, you would look around you at the splendor that was Marshall Field's and think "how could all this be squandered". It was a fantastic shopping experience and a good and interesting place to work.

Not any more...


From: Drew, Pittsburgh PA,

JC Penney and Kohl's have been very successful in operating "nationwide" department stores. By converting regional icons into yet another nationwide brand, Terry Lundgren created a retail venue which has been unable to establish a connection with shoppers. The marketplace had NO NEED for another department store that could be found at every mall or shopping area. The regional stores had ties to their community and were unique to a geographic area. Had Lundgren combined back office functions and emphasized the strong points of the regional department stores, the merger could have been a great success.

Instead the country is dotted with 800 cookie cutter macy*marts--boring, bland, nondescript. In other words, there is absolutely nothing special that would draw shoppers into the stores. In trying to compete with JC Penney and Kohl's, Lundgren attempted to beat them at their own game--and lost! Despite many laughable attempts such as "celebrity" merchandise to attract customers, macy*mart has lost market share as other retailers offer better value, higher quality, improved amenities, superior service, lower prices. There is really no reason for shoppers to select macy*mart over the plethora of retail outlets.

Granted, the economic times are difficult and consumers have cut discretionary spending. In its present configuration, macy*mart offers nothing that can't be found elsewhere.


From: A. Fieldfan,

Hmm--Macy's decides to trash all local brands, and the goodwill associated with each, to go national. In the process it angers the local shoppers, tarnishes the Macy's brand, and in the case of Fields at least, downgrades the product. Now, Macy's has decided it needs to go local again. But that won't change the perceptions it has already created in Chicago and elsewhere as an arrogant interloper with inferior service and merchandise. I will never shop at Macy's on State Street or anywhere else, no matter what they do. If they really want to go local, they should give us our Marshall Field's back--under new ownership!


From: Jimmy Gimbels,

Don't believe the comment about sales only dropping 2%. Macy's has a history of fudging data. According to retail analysts, sales at the former Marshall Field locations has nosedived up to 40%! The world famous State Street location (once the third most popular tourist destination in Chicago) is virtually a ghost town! A suburban branch(Lake Forest, IL) was recently closed - a location that was a money maker for Fields. Several more suburban stores are rumored to be candidates for closure due to lack of business - as are several stores in Wisconsin, Minnesota and Michigan.

What's the problem? Virtually no service (most the the former Field's staff quit or had their positions eliminated). Poorly maintained stores. Overpriced, bland and poorly made house brands (Donald Trump suits? Ick.) and poor merchandise selection. It is no wonder that every exclusive designer at Field's fled to Nordstrom and Neiman Marcus because they did not want their brands tarnished by Macy's. Fact is - everyone from Kohl's and Penney's to Saks and Von Maur do a better job at retailing.

Let's not forget the nearly 10,000 jobs that Macy's eliminated last year. Wow, that really made people warm up to the Macy brand.

Oh but Lundgren and crew left the Marshall Field's name on Frango Mints to keep us "happy." Please! Those mints aren't selling either. They are still trying to sell candy made in 2006. And Macy's changed the recipe too. Everything Macy's touches is cheapened.


From: NAW,

Answer me this Mr Lundgren, why should I shop at Macy's? Martha and Donald don't do anything for me. INC and Alfani (just to name a few) have to be some of the worst names ever created for in-house knock offs. And the merchandise attached to those labels is not any better.

I know Target Corp had let Marshall Field tarnish a little under there ownership. But attempts to polish the stores as Macy's have only made things worse. The remodelings (fitting rooms, bath rooms, signage, employee dress code, etc) completed so far are bland and off putting, lacking any defining or signature style. Hell, they don't even have class or elegance.

In Chicago, Field's was always the Gold Standard. Carson's was a knock-off of Field's, but a good knock-off. Macy's is bad knock-off of Carson's and I'm not sure they will ever improve--at least with there current management. I think I'll go to Lord & Taylor this weekend where they know how to run a retail store--merchandise, history, and all.


From: Steven,

Someone needs to pull that fork out of Montgomery Ward and stick it into Macy's. It's done as far as Chicago and the Midwest is concerned. Unappealing merchandise, uninspiring displays and unengaged employees have ensured that consumers are uninterested, and nothing short of a complete redo to turn Macy's back into Marshall Field's is going to get them back. Anything less is a waste of money.


From: Steve,

Are all you people for real??? I work for Macy's and the only think ailing it right now is the economy, stupid. Macy's same store sales were down 1.6% in 2007, near or in line with most other retailers, none of whom doubled in size only a year earlier! As bad as the economy is, a 1.6% drop does not a failure make. Actually, based on recent retail numbers, that is an enviable SSS decline!

I work for Macy's. I have access to the numbers daily (all employees do!) and see the sales in Chicago and other Midwestern cities. For people from the extremist Fields web-site to claim the stores are dead and sales are down 40% in the North shows a disingenuousness that is quite concerning. The old May stores were slow at first but began to pick up in the back half of last year and for the most part are on par with the legacy stores, with the only issue being the economy at this point. The old Foley's stores in Texas are going gangbusters! Macy's continues to invest in State Street and is spending upwards of 25 million this year to remodel 3 suburban Chicago locations.

If you look at the Field's locations, none of them are in modern buildings, with the only modern store being the one Macy's opened on Bolingbrook in 2007. Field's used to operate several old small stores in the suburbs, all of which closed while under the Field's name. Macy's finished that process by not renewing the lease on Lake Forest store. It was old, small, and very outdated. It's closure had nothing to do with it's sales. Another lie put out there by the radical Field's web-site.

In conclusion, Macy's is NOT failing, it's merely tweaking it's business plan, as any good company does on a regular basis. The soon to be former Macy's North stores are NOT losing millions of dollars (where do you people come up with this nonsense?) and are not ghost towns. Those who trash Macy's always say they don't shop there so how do you know how busy the stores are or the quality of merchandise??? It's all just propaganda! Just so all of you know. The old Dayton's (turned Field's) offices on Minneapolis closes in a few day, the old antiquated Field's warehouse in Chicago has now closed and a beautiful, brand spanking new one has opened in Minooka, Ill, so any hope of Field's ever coming back is officially dead and buried. All that now exists are the physical buildings. Macy's is in Chicago to stay!


From: John,

Attention: The Deal.com. Field's fans were given marching orders on the web-site to comment on this article (and others). The fact that ONLY about 10 people responded speaks to how dead their movement is. Ever try to post on their site with an idea that differs from their narrow minded, often times utterly rediculous viewpoints? No opposing views are published. Talk about anti-American! It's communism in action.


From: Jordan,

ATTENTION EVERYONE:

On every forum there are some Macy's employees (surprisingly Steve admitted as much) and subcontractors spinning Macy's abysmal results into a THE BIG FIB of how everything is fine and dandy. Their latest excuse for poor sales is the economy. Yeah, the economy's bad yet other stores manage to post much better results than Macy's, which is less than forthcoming and downright dishonest with its results.

And, you're dead wrong, John! The movement to bring back Marshall Field's is alive and well all over the country. Macy's has alienated former Field's shoppers in Chicago, Wisconsin, and Minnesota FOREVER! They're NOT coming back, Macy's! Take a look at your customer now on State Street. You'll be getting even fewer of them b/c with the recession they're the ones that will have even less discretionary income to spend on the junk Macy's proffers as finery. The shoppers who spent money at Field's have bolted to Nordstrom, Carson's, Boston Store, and Lord and Taylor.

Your goose is cooked in Chicago, Macy's. The shareholders really should start the ouster of Terry Lundgren and his ilk, who've raped and pillaged countless hometown department stores while making truly obscene bundles of money.

BTW, both Steve and John need to work on their grammar and spelling. That's usually the case with the Macy's spinmeisters.

And yet again we hear talk of the great Minooka warehouse out past Joliet -- pleaaaaseeeeee!


From: Erick Ambassador,

Steve,

The Marshall Fields Lake Forest store was the most beautiful retail creations I ever saw. Those gorgeous Roman columns round that petite edifice was absolutely a site to behold. Yes the building was old, but graceful reflective of the Marshall Fields tradition of timeless elegance and beauty. Before the name change, the store was always busy, especially Saturday afternoons between 12-4. Then the store died. Why? Not because of Macys's sort of speaking. Business died simply because Marshall Fields was gone. Period.

I am not a businessman but ordinary consumer so I do not knowing profit margins or other information regarding Macy's sales figures. But I am proud to have had the exeperience of being a loyal customer, patron, fan and friend of Marshall Fields, its legacy and unswerving devotion to the wants and needs of the Chicago consumer.

We all miss Marshall Fields, Steve. I hope one day Macy's will wake up and realize this for their own sake as well as ours.


From: gle,

Chicago seems to hate everything Macy's tries to do with that store. It's gone beyond simply changing the name from Marshall Field's. They have also changed the whole style to tacky, cheap, trendy and apathetic. The customer isn't special anymore, and neither is the store.


From: Brad,

It is clear that customer good-will for Marshall Field's remains strong and that Field's return would be a cause for celebration in Chicago and many communities throughout the region. The resulting increase in customer traffic and sales revenues would benefit everyone. However, it appears that Macy's is unwilling to accept this set-back to their national branding strategy and prefers to suffer lagging sales, extraordinary customer education and "transition" costs and customer revolts throughout the entire Macy's chain.

One poster here attributes Macy's same-store sales declines to the economy, rather than to Macy's decision to eliminate Marshall Field's stores (and other popular regional brands) and replace them with Macy's.

There are a some aspects of this discussion that should be considered:

1. Marshall Field's was profitable and revenues were growing in the 2 years prior to Macy's decision to eliminate and replace Marshall Field's stores. During the year following this transition, Field's higher-end competitors in Chicago - Neimans, Saks, Nordstrom and Barneys continued to grow and outperform the mid-tier and discount store category in which Macy's operates. This suggests that Field's growth also would have continued, especially in the Chicago area where Field's enjoys strong customer loyalty and tourism appeal as a unique Chicago destination department store.

When Macy's moved in, revenues immediately took a nose dive by as much as 40%, as estimated by analysts, in-store vendors and a review of tax receipts. Macy's would not reveal these numbers and only began to included former Marshall Field's stores in Macy's same-sales disclosures in March 2007, 6 months AFTER the transition.

2. The sales decline for 2007, as reported by Macy's, represents the decline only from the time they began to report same-store sales that included Field's stores in March of 2007. This means that Macy's continued to decline even when compared to their own performance beginning in March 2007. The larger initial decline of the first 6 months months is not reflected in Macy's same-store sales figures.

3. Macy's reported performance includes the 40 Bloomingdales stores and does not separate Bloomingdales revenues from Macy's branded stores. Since Bloomingdales is positioned more closely to the higher-end stores, it is likely that Bloomingdales enjoyed the same growth in 2007 as did Neimans, Saks, Nordstrom (and that would have been enjoyed by Field's.) Bloomingdales growth would off-set Macy's losses.

4. While the economy certainly impacted all retail sales, Field's higher-end peers posted growth, while Macy's posted losses. Macy's losses were lower than Macy's own mid-tier and discount peers, many of which were able to post revenue and profit growth.


From: Carol,

In Atlanta Macys took over Richs Department Stores. Macys lost a lot of good will with that move. They even added shopping carts - shopping carts??!! Very down scale.

They need to improve the upkeep of their stores they are looking rough. What use to be shimmering glass and marble has been changed over to a rundown version of Target.

If I want to use a shopping cart I can shop at Marshalls, buy the same clothes for less than the Macys sales price, and enjoy a clean, well maintained store.


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