Terry Lundgren’s strategy and execution behind Macy’s transition from Chapter 11 to a retail powerhouse Featured

11:00pm EDT January 30, 2013
Terry Lundgren’s strategy and execution behind Macy’s transition from Chapter 11 to a retail powerhouse

When Terry Lundgren was first approached by Macy’s in 1993, the retail company was bankrupt. Lundgren, who was chairman and CEO of Neiman Marcus at the time, was asked to come to New York to help turn around the company.

However, Lundgren had little interest in joining an insolvent company, especially since he had a good thing going at Neiman Marcus in Dallas.

With Lundgren’s ties to Neiman Marcus and his previous ties to Federated Department Stores as a former president and CEO of Bullocks Wilshire, executives at Federated persuaded Lundgren to come back with the idea of buying Macy’s.

“I thought that sounded pretty interesting, because I saw the synergy and the idea of the Macy’s brand being spread through the Federated stores,” Lundgren says. “It took six months to convince me, and then six months after that, we bought Macy’s.”

Today, Lundgren has built Macy’s Inc. into one of the biggest and strongest department stores in the country. The retail giant accounts for a third or more of the business for the brands that Macy’s is associated with. However, if you rewind just seven years, Macy’s wasn’t even big enough to advertise during its own Thanksgiving Day Parade.

“The No. 3 most-watched television program in America is the Macy’s Thanksgiving Day Parade after the Super Bowl and the Academy Awards,” says Lundgren, Macy’s chairman, president and CEO. “Fifty-eight million people watch the Macy’s Thanksgiving Day Parade every year. It was a spectacular event, and I couldn’t advertise on it, because we weren’t national.”

Lundgren watched the telecast as advertisements from Target Brands Inc. and JCPenney Co. Inc. aired on the parade, but none from Macy’s.

“I said, ‘We’ve got to fix this. We’ve got to think about how we get that Macy’s brand out there,’” Lundgren says.

Through well-planned and well-timed acquisitions and a strategy that brought Macy’s closer to its customers, Lundgren began to turn Macy’s into a force to be reckoned with, and the goal of advertising on the company’s own parade was beginning to look like reality.

“We had a lot of interesting turns in our industry and our company that really represent a lot of what happened in the industry over the last several years,” he says.

In October 2012, Lundgren spoke at an ACG Cincinnati luncheon event about the journey he and Macy’s has been on and what it took to build Macy’s into the powerhouse it has become.

 

Small beginnings

After Federated Department Stores bought Macy’s in 1994, Lundgren became the president in 1997 and then the CEO in 2003. At that point, Macy’s was a $14 billion company with multiple brands and 250 stores.

Lundgren began to test the waters of expanding the Macy’s brand by combining it with other Federated stores.

“Business didn’t go up and it didn’t go down; it just became a non-event,” he says. “It surprised most of us, but we knew it wasn’t a negative.”

During the time of this testing, a prized department store came up for sale — Marshall Field’s in Chicago. Marshall Field’s had a stranglehold on the Chicago market and was powerful in the Minneapolis and Detroit markets as well.

“Those were three markets where we didn’t have any representation,” Lundgren says. “This was a natural opportunity for us to fill in the geography and have key stores in these very important markets.”

Lundgren negotiated to buy Marshall Field’s against one of his largest competitors at the time, The May Co., which was also looking to go national. Lundgren felt confident he had submitted a bid that was in the ballpark, but May Co. ended up offering several hundred million dollars beyond what Marshall Field’s was worth.

Although Macy’s lost to May Co. for the Marshall Field’s stores, Lundgren didn’t lose sleep, because he knew that it would have been wrong to overpay for the stores. He had seen that scenario before.

“We walked away, and that was probably the best decision that the board and my team made because everything changed and the credibility that I developed with my board from that point forward was a game-changer, because I had been CEO only for a year,” he says. “That process turned out to be really positive for all of us.”

One year later, in 2005, The May Co. was in trouble — it had paid too much for Marshall Field’s. The board fired its CEO and Lundgren went in to talk with May Co.’s lead director.

“We did a deal and got great talent merged in with our company,” Lundgren says. “Still today, some of my top leaders are from that May Co. acquisition. It was all good timing, and of course, we got Marshall Field’s through that.”

 

Growth mode

Now Lundgren had to make sure the company saved some money. It went from 11 operating divisions down to seven, taking out $1 billion of operating expense.

It sold Lord & Taylor for $1.2 billion, which May Co. owned, but was not consistent with what it was trying to do. David’s Bridal business was sold for $800 million. It closed or sold 80 department stores that overlapped and sold the credit card business to Citi Group for about $5 billion.

“That was a very big deal — this now was paying for the acquisition in a very significant way,” Lundgren says. “We were quickly getting our balance sheet in order as we were moving forward with these changes.”

Part of those changes was spending a year researching whether they could change the store names to the Macy’s brand.

“What would that feel like?” he says. “If you asked somebody, ‘Would you like to change the name from your favorite store called Lazarus or not?’ They’re going to say, ‘No, don’t touch my store.’ But if you just do it and you treat the store right and treat the people right and put in the right merchandise, people will generally respond to that, and that’s what happened.”

When it came time to make the national announcement that the department stores would take on the Macy’s name, Lundgren went to Chicago to announce it.

“In one day, we changed 400 department stores to the Macy’s brand,” he says. “We went from 250 stores in 2004 to 800 in a two-year time frame. We finally were a national organization and could advertise on the Macy’s Thanksgiving Day Parade for the first time in 2006.”

With Macy’s becoming a national brand, Federated decided it needed to align with its new direction. In 2007, Federated Department Stores became Macy’s Inc.

“Eight hundred of our 836 stores were called Macy’s and 36 were called Bloomingdale’s,” Lundgren says. “Calling the company Macy’s Inc. made more sense when people were thinking about who to invest in.”

 

Get close to the customer

Following the name change, Macy’s was on the move. However, the financial collapse in 2008 caused customers to cut down on shopping.

“They literally put their credit cards away and stopped shopping,” Lundgren says. “We knew we had to do something, and I wanted to do something anyway, but this was a really good time for change.”

Macy’s got rid of three operating divisions in the Midwest from seven and replaced them with a new idea.

“The idea of having a division that’s based in Cincinnati, Atlanta or San Francisco was to be closer to the customer,” Lundgren says. “The problem was we had gotten so big now that each division was looking after 100 or 200 stores, and they were in three, four or five states. They weren’t close to the customer. We had lost that connection.”

Macy’s took the three divisions that it eliminated and replaced them with 20 small satellite groups called districts. The districts had approximately 20 people acting as merchants and planners in each of these areas that would supervise 10 to 11 stores.

“They are in these stores every day, they are talking to our customers and sales associates and they are guiding us for what we should buy for Cincinnati or Columbus, Ohio, or Detroit and Chicago,” he says. “They are the ones who are influencing size, color, types of fabric and the brands that we need to carry.”

Becoming more in tune with the local communities forced Macy’s to do a lot of communication.

“It’s a missed point by a lot of big companies,” he says. “Lots of face time with me and my executive team is important. People want to follow your lead. They want to do what you want them to do, but you have to be clear and consistent.

“You can’t have a list of 28 things. You have to be clear, simple, direct, and you’ve got to say it over and over and over again. If you do that, people will respond.”

Having that local focus made all the difference in the world. It worked so well that even in 2009, when the recession was still clearly under way, those stores were outperforming the rest of the country because of the responsiveness to the local city.

“It didn’t take long for us to say, ‘We’re going all the way,’” Lundgren says. “We eliminated the other divisions and replaced them with 69 of these district teams around the country and had one buying office.”

Creating one buyer in New York City for all of Macy’s rather than the previous seven was a crucial move.

“Most of our suppliers are right up the street on Seventh Avenue in New York City,” he says. “One buyer goes to the Ralph Lauren showroom and says, ‘I’m ready to place my order.’ And they are standing at attention because instead of one of seven buyers, they better hope we like the line, because we’re a third of their business.

“We’re a third or 40 percent of everybody else’s business — Estee Lauder, Coach, you name it — Macy’s is the largest customer for almost everyone that we do business with.”

That consolidation has turned Macy’s into the only store you can buy certain brands because of the power it has with the one purchase mentality.

“The combination of that with the localization of the stores has really made all the difference in the world,” he says. “That was all rolled out in 2009.”

Macy’s executed on that strategy in 2010 and had one of the best years in the history of the company.

“We picked up more than $1 billion in same-store sales that year,” Lundgren says. “The year 2011 was significantly better than 2010. We picked up another $1.2 billion in same store sales. In 2012, we are off to a great start.”

Macy’s Inc. had fiscal 2011 sales of $26.4 billion across its more than 800 Macy’s department stores, 37 Bloomingdale’s stores, seven Bloomingdale’s Outlet stores, bloomingdales.com and macys.com. The company employs 175,000 people.

“I really relate it to that structure — the name change and allowing us to have a national presence but to act locally, and then the strategy, which we have executed the last couple of years,” Lundgren says.

 

Takeaways

  • Look for the opportunities to build your business.
  • Make strategic moves that position your company for growth.
  • Understand what makes your business more effective for customers.

 

How to reach: Macy’s Inc., (513) 579-7000 or www.macys.com