Corner Office

Macy’s adapts to the downturn

Kai Ryssdal Nov 24, 2008
Corner Office

Macy’s adapts to the downturn

Kai Ryssdal Nov 24, 2008


Who: Macy’s Chairman and CEO Terry Lundgren.

Education: Lundgren earned an undergraduate business degree from the University of Arizona.

What you may not know: The Lundgren Center for Retailing at the University of Arizona is named for him.

Kai Ryssdal: Terry Lundgren, good to have you with us.

Terry Lundgren: Good to be here Kai.

Ryssdal: Here we are in the biggest department store in the world the Thursday before Thanksgiving. We are in the middle of a recession, the economy is terrible, there is a credit crisis and yet this morning when I waited to get in here, there were hundreds of people trying to get in the door. What’s going on with that?

Lundgren: Well, that’s a good thing right?

Ryssdal: Well, I suppose, yeah!

Lundgren: That’s a good thing. Look, it’s a challenging economy, there’s no question about it. We fortunately have been able to outpace our competitors all year long and I suspect we will be able to do that through the Holiday season so I’m looking for lots of our stores to have lines outside their doors all the way through the Holiday season in spite of the challenging time.

Ryssdal: You say you are going to outpace your competitors but in fact, sales are down. I mean, you’re not doing great.

Lundgren: No, we’re not doing great, we’re not happy about being down. Unfortunately, we’re down less than just about all of our competitors and that’s how we are trying to look at things now. They are choosing us and we’re still taking a market share. In a time like this with negative sales, we’re actually taking market share from almost all of our competitors. But it doesn’t feel good to be down, there’s no question about it. And you have a sense that the consumer is feeling that same way, you know they’d like to be here, they’d like to be full of confidence in spending, but that’s not in the cards at the moment so we are going to do the best we can to take as much share as we possibly can during the rest of this Holiday season.

Ryssdal: Getting bigger when times are bad, right?

Lundgren: Well you have to because you know, when times are bad, when strong companies have been around for 150 years, what we have to do is think through, how do you get through this time? And how do you position yourself so when the consumer does come back, and come back in full force, which will be some time from now; but when that in fact does happen, that you’re stronger, that you’re positioned right, your brands are strong and that you’re in position to do business and do business very successfully. So that’s how we’re thinking about the time we are in.

Ryssdal: Give me your guess, based on your experience in retail as to when that consumer is going to come back. How long is it going to take?

Lundgren: Well I could do that but I’d probably be wrong . . .

Ryssdal: Oh, go ahead. C’mon.

Lundgren: There have been so many guesses out there and everybody is sort of re-calibrating those guesses at this point and time, so I don’t want to put a number on it because I don’t want to be long. I don’t want to be the one who claims it’s going to take longer than it is, I obviously don’t want to “jump the gun.” So I think our plan, Kai, is to make sure that we are just thinking through for our sales. How do you remain competitive? How do you make sure that value is a crystal clear message? How do you represent the fashion drive that has made our company successful for so many years? And we’ll continue to do that.

Ryssdal: Let me pick up on that theme. You have been in retail basically your whole career, 30 something years…

Lundgren: That’s correct.

Ryssdal: What have you learned in those three decades that is going to help you in what is arguably the toughest recession we have seen in 30 years?

Lundgren: I think you’re right, I think this is as tough as I’ve ever seen in the 30 years. We’ve been through some tough times. I was in New York through 9/11 and watched the unfolding there at that moment, I mean we were all feeling pretty bad. We got through that and I think this is a very different situation than 9/11 of 2001. But what the experience of going through challenging times does to you, particularly for a company like ours, is I can say with confidence to my organization, my 183,000 employees, “We’re gonna get through this!” We will get through this. We will be standing tall at the end of this period. And so it’s just a matter of how we do it and we’re gonna have to all make some sacrifices between now and then. So we’re gonna tighten the belt, we’re gonna make sure that our inventories are in line with whatever sales expectations there are by store and by family of business or product. But we will get through this and work with us to help us do all the right things for our customer and for our business for as long as it takes us to face the challenge that we’re all going to face.

Ryssdal: When you say sacrifices, do you mean cost-cutting and layoffs, I mean people losing their jobs?

Lundgren: I hope not but in our case, you know in the retail business I’m sure you know, we typically hire up this time of year. So we actually add a lot of jobs this time of year and so we will not be adding as many jobs as we’ve had in the past because the business doesn’t warrant it.

Ryssdal: Obviously this is a busy time for you. You have to go out to the credit markets and find some capital to do the business that you do. How are you being affected by the credit squeeze?

Lundgren: Well everybody is because that impacts customers, so whatever impacts customers, that definitely impacts us. One of the things that we’ve taken on, because you mentioned capital, I look at the capital in terms of forward building and new stores and renovations and like a big part of our strategy is to make sure we are continuing to move forward here. But I’ve reduced the capital by 400 million dollars in 2009 so that’s a very big step in my entire career. I’ve never had to do anything to that proportion, not even close in the past, so we’re taking very serious steps in terms of managing our cash and managing our outlay and postponing things that we can get by with postponing.

Ryssdal: Back to getting through this recession…Heavy marketing…ads…is that going to be enough to do it for you?

Lundgren: I think so. First of all and foremost, I think what we are doing in marketing is pretty unique and special. But I shouldn’t say that’s the answer. It’s a combination of so many things but I think what we have is that right combination of the right inventory with a value message. We’re editing so that we aren’t going to be in everything but we are going to be deep in the things that we believe in, in the subjects that we believe in, the fashions we believe in, the categories we believe in; make sure it’s value priced. Make sure that we are marketing both a combination of the brand itself and a lot of the advertising that we have been doing of late, has been focused on brand marketing, not just price and driving for a promotion. But some combination of those two things we think is very important. And then, finally I think that the service element in our stores has to maintain a high level. We can do that, in fact it’s more and more important in our communication to that message into our stores is a very high priority for me and for our organization and we are in fact delivering that level of service that we need to do to capture customers for the long term.

Ryssdal: The big ad campaign for you guys this year is the 150th anniversary. You’re making a big splash about it, I’ve seen the newspaper ads saying, “Yes Virginia, there is a Santa Claus. Come back to Macy’s, we’re a 150 years old.” Wal-Mart, on the other hand, is basically saying in its ad campaigns, “Hey! Christmas costs less here.” How do you compete with that in a down economy?

Lundgren: Well, you know, Wal-Mart is a terrific retailer and they focus on a very simple message…low price. And that’s their whole thing. I think we offer something quite different than that. We offer a different level of service, hopefully. We offer, certainly a different level of fashion. We offer brand names that would never be in many, many stores across the country. And there’s all of these reasons that customers choose to come to a store like Macy’s for very different reasons. And in our case, you know frankly people come here to get away from stress, get away from the challenges that they are facing, whether it is job related, family related, home related, or whatever. This is sort of a break for them and so…I think that there’s a lot of stress out there right now and so my hope is that if we can help in any way, come shop at Macy’s. We’ll take a little of that stress away.

Ryssdal: I don’t know if retail shopping during the Holiday season is stress relieving or stress inducing, depending on the crowds, right?

Lundgren: Well when you finally make that buy of something special and you walk out with it in your hands, there’s a sense of accomplishment. And hopefully the gift-giving aspect will make people feel good also.

Ryssdal: Those doors downstairs are going to open at 5:00 in the morning on the Friday after Thanksgiving…Black Friday. How are you going to know if Black Friday is a success for you?

Lundgren: Well I’ll know by noon…(laughter) We track on any day, with technology is such that I can track sales of any individual store the total on an hourly basis or a minute to minute basis if I choose…

Ryssdal: Do you do that?

Lundgren: I do it on the day after Thanksgiving for sure. I do it on all the big days leading up to the Christmas period so it’s at my desktop. It’s very easy for me to access.

Ryssdal: How does that make your store managers feel when they know that the big boss is sitting there watching their sales? (literally in real time).

Lundgren: Hopefully they’re motivated. I do make quite a few calls on the day after Thanksgiving when I’m here in the office.

Ryssdal: What do you say?

Lundgren: You know, mostly encouragement because there’s so much that you can do. At this point in time, we’ve done the work. You know, we’ve made the buys, we’ve set the store. I do the majority of my store visits are unannounced. People don’t know that I’m coming to the store. I show up and I’m in the cosmetics department. I make a phone call to the store manager, he has a slight heart attack or she has a slight heart attack and then we get by that and then I see the store as our customers see the store. And I do that with a great deal of frequency; literally every week and so they’re used to this happening. And at this point, I really do believe our stores look as good as they’ve ever looked. I mean, they look fantastically strong, the value message is there, you can see the items that we believe in whether it’s cashmere sweaters, or boots, or whatever the item is. And that’s the job that I needed them to do by now and they’ve done it. And so by now it’s really just execution…giving the right level of service and presenting properly. And they’ve done the hard work and so I feel confident that any calls that I’m going to be making are calls of encouragement and reinforcement.

Ryssdal: You’ve said value message, I think three times now. Define the term for me and then tell me how that applies in your business?

Lundgren: Value in our business doesn’t necessarily mean the lowest possible price that you could pay for a t-shirt. What it really means is that the price-value relationship registers in the minds of the consumer quickly and easily. If it’s a Ralph Lauren t-shirt verses a no brand t-shirt, if it’s a Tommy Hilfiger pair of jeans verses a no brand pair of jeans, if it’s a brand that fits verses one that doesn’t fit consistently. Those are the values that we talk about as quality and price-value relationship.

Ryssdal: Do you think we, the consumer in this economy have hit the bottom yet?

Lundgren: I hope so. I think we have still some issues to sort through on the economic front. The housing issue has not been solved but I think at least we are now getting our hands around the size of the problem of the housing issue. I think a large percent of the homes today don’t have a mortgage and there’s a relatively small percentage of total homes that are actually in foreclosure. It means a lot to the people who are in that small percent but it is, in fact a small percent. So getting our hands around it and addressing it from a Federal perspective is a right answer and I think we’re making progress there but we’re not done yet. And then the whole consumer credit issue, still in front of us, still has to sort its way out. Have we reached bottom yet? I don’t know. Every time we think so, every time we think that the stock market has hit bottom, we are all stunned a bit about just how low it’s gone. So it’s hard to say if in fact we’ve hit bottom but I do think that we’ve got an opportunity in the Holiday period when consumers are ready to come back. You saw it in the stores, you mentioned it in your opening comments. They’re here, I mean consumers are back. Whether they’ll be back long-term, I don’t know but I certainly expect they’ll be back for the Holidays.

Ryssdal: You’d think that you’d have a pretty good sense of it though, I mean the guy running the biggest department store chain in this country, who literally can get into that data on a minute by minute basis. You’d know when we’re back, right?

Lundgren: I will know when we’re back and we’re not back, for sure. What you’re going to see in the Holiday and the final period of the year is still negative. It’s just a matter of will it be as negative as it’s been before, but my forecast for retail is it will still be negative.

Ryssdal: Mmm. So what’s your biggest fear then?

Lundgren: Oh, I tell you, this is a time when fear is not in the vocabulary. This is a time when leadership is required; and not just for myself but for my management, my store management, for my 800 store managers out there. Leadership is required and this is a time when you can’t be in your office. You’ve got to be out there talking to your people, answering their questions, responding to their challenges, helping them accomplish what they need to accomplish for our customers. So I don’t look at it that way. I really look at it as this is a time for all of us to take the lead, to be proactive with ideas and to learn from the experience that we’re in and translate that into action that is going to help us going forward.

Ryssdal: Have you in your career in retail ever been a store manager in a recession?

Lundgren: I have.

Ryssdal: What’s it like?

Lundgren: You know, it’s challenging. I’ve spent a good part of my career in the store. I’ve done almost everything; starting at the bottom and selling, and Department Manager, and you know all the way up and Store Manager, and Director of stores and all of those things. So I’ve been in those roles for lots of periods; good and not so good. And it’s certainly challenging but you always can find something that’s working. You always can find a person that’s risen above the challenges and exceeded your expectations. You can always see well why is this business working and that one’s not and it typically comes back to ‘the product is just right.’ The product is just so desirable that consumers are buying it no matter what the case is. You know we have certain brands that are like that right now and in spite of the challenges, they’re charging ahead with great sales growth. And so you can always find the good in a department store like ours that is carrying so many brands and so many different businesses and you try to focus on those. You try to exaggerate the things that are working and emphasize how certain people are rising above the occasion to give others that example.

Ryssdal: Do me a favor and give me the three sentence explanation of what the Macy’s brand is as you see it.

Lundgren: Macy’s is…it is the store that is the largest seller of almost any name brand that you can think of. So we sell more Ralph Lauren than any store in the world. We sell more Calvin Klein or Estee Lauder cosmetics or Coach handbags, and we sell exclusively brands like Tommy Hilfiger, and Martha Stewart brand, and the Lush cosmetics, and Donald Trump ties and shirts and accessories. There are a number of brands that are only sold at Macy’s. So when you think about fashion and the fashion business of clothing, accessories, shoes, or for your home, men, women, children; all of those brands…the logical place for you to find them is Macy’s. And it’s all under one roof and we can satisfy those in a value-oriented way. That’s what Macy’s is all about. If you want brands, if you want options, if you want to choose from many different brands and put brands together as opposed to just shopping head to toe in one, Macy’s is the place to go. And then if you want, of course the service and the value attached to those brands, we offer all of those things and you can do it on a Macy’s credit card.

Ryssdal: Nice plug! Good job. Let me back you up a couple of years. 2005 you decided to buy Mays, the department store company, and you decided to launch Macy’s as a national brand. You re-branded a bunch of acquisitions that you made, especially Marshall Field’s in Chicago and Filene’s out of Boston. We did some stories on that at the time at Marketplace and I can’t tell you how irate people were. They were just so angry with you for re-branding those things and taking them out of the localities. Why did you do it?

Lundgren: Well, first of all, I know there’s a lot of emotion attached to those brands but I wouldn’t have done it if they were working. So if the customers who are so emotional were actually in those stores and buying instead of just reacting, we would never have done it. But it was an absolute need to do it because they were having a hard time competing on a local level. The competition had changed, you know the world had changed in the last 50 or 100 years since those brands had been in existence and so while it was emotional, there was really no option. Macy’s couldn’t even advertise in our own Thanksgiving Day parade. We weren’t a national brand. We had stores on the east coast and the west coast, and the acquisition of the May Company was to fill in the entire middle of the United States. And that’s what we did. And so now it just made the whole idea possible to go competitively on a national scale, but still be locally relevant with the Macy’s brand and that’s what we’re doing.

Ryssdal: But now in fact, what you’ve done is you’ve taken those Macy’s stores that you’ve now re-branded…you got 800 or something across the country…and you’re putting an emphasis on locality. You’ve got this “My Macy’s” campaign where different things in Chicago, and Atlanta and New York. Doesn’t that sort of say to you that you over-reached a little bit on this national campaign?

Lundgren: No. I think it’s mandatory. First, I couldn’t have Tommy Hilfiger exclusively at Marshall Field’s. They’re just not big enough! It just doesn’t mean anything. They couldn’t survive, Tommy Hilfiger couldn’t survive on that type of distribution. Macy’s…800 stores…I can do a deal such as that and have a brand like that exclusively. So I couldn’t advertise on national television because you couldn’t do that for Chicago. You could do that for the Nation but you couldn’t do that for a local market. And so you think about all those synergies that are possible on a national scale, that’s why you had to do it. Then take that and say, O.K. Now, how do you make sure that not only do you cover this business nationally, and market it nationally and get these big brands nationally but also become more locally relevant? And that’s what the whole “My Macy’s” structure is. And we’ve actually put people in…there was nobody living who was buying product and planning for product in Chicago in the past when it was called Marshall Field’s; it was all being bought out of Minneapolis. Now we have people living in that market place. 55 people in fact, have been added to Chicago that are working and focused on that region of the country to do specific buys for that local consumer.

Ryssdal: So tell me how Macy’s Herald Square is different than Macy’s Chicago and Macy’s at Union Square in San Francisco?

Lundgren: Well Macy’s Herald Square is a completely unique store in itself.

Ryssdal: Let’s take that out of the equation.

Lundgren: This is all things to all people; this is the largest store in the world.

Ryssdal: Let’s talk Chicago verses San Francisco.

Lundgren: O.K. Chicago verses San Francisco. First of all, Chicago very simply…Chicago sells medium to large sizes in almost every category of business. Whether it be shoes, whether it be dresses, or whether it be sportscoats.

Ryssdal: Really?!

Lundgren: San Francisco…very skewed toward small sizes in San Francisco. And perhaps that is influenced by a large Asian population in the San Francisco marketplace but there’s a very simple and major difference in terms of size scale. Obviously there is a totally different weather pattern in Chicago verses San Francisco. I mean when it gets cold in San Francisco, you put on a cashmere sweater. A little bit different in Chicago.

Ryssdal: Although, I will tell you at 29 degrees in New York today, I could do with a sweater or two.

Lundgren: Well we’ve got some downstairs, by the way. We could take care of you on that. So there are very, very different local preferences of product: weather related preferences of product, size related preferences of product, and I could go on.

Ryssdal: How has retailing changed in the 30 years that you’ve been doing this?

Lundgren: Well it’s changed a lot. First of all, you’ve already brought up the fact that it was a regional business in department stores at one point in time. When I started, the company which is now called Macy’s in Southern California, was Bullock’s Department Stores and that’s where I worked. And then I became president of Bullock’s -Wilshire Department Store, part of the same family of Federated Department stores and so that regional business has almost vanished and now the only ones who are able to compete are the ones who can buy so you can buy on a large scale so that you can get great prices for the consumer and compete in that way.

Ryssdal: What is it about retail that made you want to go into this business and stay in it for so long?

Lundgren: The people was the number one issue for me because coming out of college I wasn’t really sure what I wanted to do.

Ryssdal: Get out of here! Really?! You know we’re all so sure…

Lundgren: We’re all so positive! You know, I speak on campuses frequently and I tell everybody, is say, “I know you think that you know exactly what you want to do…well then that makes you unique.” I said the only person I knew in college was my college roommate who came to study engineering, became an engineer and has a company in Iowa that is an engineering company. I’ve never met anybody else who’s actually done that before. Or so I said in my case, I interviewed with anybody who would talk to me and got a whole bunch of job offers and ended up taking the offer for a retail at Bullock’s because of the people that I met in the process. When I said no to the human resources department, they took me upstairs and introduced me to a 35 year old general merchandise manager and I looked up at him and I said you know maybe I can see myself 13 or 14 years from now doing that. Now it was really about that, that was the first connection and then from then on, it was all about that. It was all about the people that I met, and I became fascinated with all of the options that you could do in this business. You basically had your own P & L. In 2 ½ years you had your own P & L; you were responsible for buying, for selling, for advertising, you know the expense impact for your business. And you learned so much that I just became addicted to the retail and fashion business.

Ryssdal: Let me get back to the economy for a second. How is this economy affecting Macy’s day to day?

Lundgren: Well I think day to day certainly, as we’ve reported, where all retailers for the most part, who are not selling food; food is growing for one reason…inflation…so if you’re not selling food, you’re typically in a negative territory. So that’s obviously very different for us. It’s a lot different when you’re trying to go after and chase a business and get in front of it because you’re running out of inventory, and this time you’re trying to manage your inventory. So it’s quite different obviously in terms of expense management, receipt inventory management and planning for the future.

Ryssdal: Once we get through this recession, however long it lasts, where is growth for Macy’s in the next five years?

Lundgren: Well first of all the primary place that it will come from will be on our comp store sales growth and again…

Ryssdal: Say that in English.

Lundgren: O.K. In English, that means on the same number of stores that I had last year, really growing them as opposed to adding 50 or 100 stores here and there. I mean that’s the primary message that we have to be and I want to come through this period of time that we’re in right now stronger, more focused, and emphasizing the categories that our customers are saying that they want from us, one…Two is, we’re going to get growth from International expansion. We’ve announced our first store in Dubai for Bloomingdale’s. I definitely believe, and particularly because of the Macy’s Thanksgiving Day parade and the like, that the Macy’s brand has world-wide recognition. That opportunity is in front of us, we’re talking to several people and you’ll hear more about that over time. The third idea is our dot com business, Macy’ first and eventually Bloomingdale’ is growing very rapidly. We are close to a billion dollars in business at Macy’ already, and really only in a five year run on that business and so there’s much more business there. But I think more importantly is the opportunity for the multi-channel customer. So you come into our stores, we’ll show you what’s available on line. If we don’t have it in our store, we’ll get it for you. If you go on line, we’ll show you what we have in our stores, we’ll try to encourage you to shop in stores. So the whole multi-channel experience will be a big area for growth for us in the future.

Ryssdal: Since you brought it up, I wanted to ask you about reporting same store sales. You guys decided to stop doing that earlier this year. It’s a pretty useful metric for us in Business Journalism and for analysts on Wall Street as well. Why did you stop?

Lundgren: We stopped because people were evaluating our company on a month to month basis and that’s just wrong. We have much more insights than what you could possibly get from a sales sheet on a monthly basis. An example being last November, we told people do not get overly excited about our increases that we are going to have in November because the calendar is shifting. We’re up 13½% and people were raving, ” This is fantastic! This is incredible!” Of course we dropped in December because of the calendar shift. And I said, “You know, that was it! We are going to stop doing this.” I still think that’s the right answer to focus on a quarterly look at our business, forecast a quarterly look at our business and report on a quarterly basis when all of our shifts are comparable. Having said that, our timing was lousy. I mean our timing was lousy and so I just said that we’ll go back. We’ll change our position. If this is what people want, I’m gonna give them whatever they want at this point and time because we just have to make sure that we are being as crystal clear as we can be. And monthly reporting was the answer for now and glad to be right back at it.

Ryssdal: Last question before I let you go. Do you get special seats for the parade?

Lundgren: I do.

Ryssdal: Where do you get to sit?

Lundgren: Right in the middle. If you look at the camera shot you’ll see my family right behind it. We get really good seats and that’s something I haven’t missed in 14 years and I’ll definitely be there Thanksgiving.

Ryssdal: Terry Lundgren is the Chairman and CEO of Macy’s. Terry, thanks a lot.

Lundgren: Thanks, Kai.

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