Is solution in the bag?

Could Macy's be the key to preventing the department store from becoming a retail relic?

Federated Department Stores Inc. hopes that in buying up regional competitors such as Hecht's, Burdines and Marshall Field's and rebranding them with the Macy's nameplate it can create a national department store chain that once again excites shoppers.


People like Marty Rogoff think Macy's can pull it off.

"I think the name is good enough that they can bring back department stores if they do it the right way," said Rogoff, a professor of marketing and retail studies at Philadelphia University in Pennsylvania.


Once the apex of American shopping - first as the centerpieces of downtowns, later as the anchors of suburban malls - department stores have faced a string of challenges in trying to appeal to a new generation of shoppers. Mid-tier stores such as Macy's have been squeezed from both ends, from discounters such as Target and upscale department stores such as Neiman Marcus and Nordstrom.

Cincinnati-based Federated acquired May Department Stores Co. for $11 billion last year. As it phases out 11 regional department store names that May owned, some among the most storied in the business, Federated is in the process of creating a huge coast-to-coast Macy's chain to be unveiled Sept. 9.

There have been national department stores for decades, but mostly they aimed at middle-market consumers with a budget-conscious pitch: Sears, JC Penney, Montgomery Ward. But the more fashion-focused regional department stores, once famed for their tearooms and attentive sales personnel but in recent years criticized for disheveled departments and too few clerks, have struggled.

Consolidations and bankruptcies have shrunk the pool of competitors but have done little to lure back shoppers. The high-end retailers, such as Nordstrom, with their focus on customer service and upscale fashion have continued to perform well. Though Federated posted stronger sales than May's stores last year, it has not been able to tap the immense overall growth in retail spending.

"If high gas prices were supposed to slow things down, someone forgot to tell the consumer," the National Retail Federation, an industry trade group, said last week in a news release that pointed out that retail sales for May (excluding automobiles, gas stations and restaurants) grew an impressive 8.2 percent over May 2005.

Those who applaud Federated's plans say bigger will be better. Size alone will give Macy's an advantage. The department store will be able to buy more national advertising rather than splintering the money among regional campaigns.

"When you go national with something, you begin to get economies of scale in terms of your brand that you can't as easily accomplish if you're local and decentralized," said Larry Chiagouris, an associate professor of marketing at Pace University in New York.

Macy's will also be able to better able to distinguish itself with fewer players in the market.


Department stores around the country may have carried different nameplates, but they carried similar - and what some considered stale - merchandise. Shoppers did not seem very excited by what was being sold.

Now, Macy's will have more influence with suppliers, which should mean better merchandise, analysts said. By wiping out much of the competition and rechanneling savings in marketing costs, Macy's can sharpen its focus on creating a unique shopping experience. It plans to bring in more exclusive products and add services such as eyebrow waxing.

"They're going to have to work to get exclusive merchandise from high-quality vendors and from their own private-label brands," said Stephanie Hoff, a senior retailing analyst with the investment firm Edward Jones. "They're going to have to make it appealing so Macy's becomes the ultimate shopping source."

Federated chief executive Terry J. Lundgren announced last month several initiatives during the annual shareholders meeting. Macy's across the country will sell Frangos mints, long popular at Marshall Field's. It will launch an exclusive line of Elie Tahari sportswear at 122 stores in September.

After testing it in several markets, Macy's will roll out a new Style & Co. home line in hundreds of its stores and a private label clothing line of Style & Co. apparel. By fall 2007, it will begin selling an exclusive, high-end home line designed by Martha Stewart.

Macy's also wants to attract a younger generation, which has beaten a path to shops such as Abercrombie & Fitch and Aeropostale but eschewed the more staid department stores. Macy's has partnered with Zoom, a reseller of Apple computer products, to sell iPods and other new gadgets through high-tech vending machines.


Macy's locations are also being modernized, with new signs, price-check kiosks and bigger dressing rooms with an adjacent lounge area with televisions.

Federated's gambit may be well-timed: A recent survey concluded that shoppers might be experiencing a renewed interest in department store shopping. A survey of 950 women in March conducted by WSL Strategic Retail, a New York consultancy, found that 47 percent shopped at a department store. It was the first time in months without a decline.

Just as the fast-food industry has been transformed in recent years by the rise of slightly more expensive "fast casual" restaurants that offer a bit more style and comfort than the burger chains, consumers may be drawn to a modern remake of the department store - more stylish than the big-box stores but not too pricey.

The Macy's name also carries cachet: Tourists from all over the world visit the flagship store in Manhattan's Herald Square, famed for the Thanksgiving Day Parade and the 1947 Christmas classic, Miracle on 34th Street.

"It's a very smart move for Macy's and, hopefully, folks from other parts of the country will consider having Macy's make them part of the fashion loop," said Candace Cortlett, a principal at WSL Strategic Retail. "Macy's does carry that aura of New York City fashion."


Which shopper are you?

When making merchandising decisions for its hundreds of stores, Macy's examines the balance among four types of shopper, based on their buying habits:

Traditional --Conservative, with classic tastes.

Neo-traditional --Pays more attention to fashion and wants something with a little flair.

Contemporary --Prefers sleek, uncluttered and streamlined styles.

Fashion --Craves the newest, the hottest. First to have the latest gadget but also the first to tire of it.


[Federated Department Stores Inc.]