In Macy's fourth quarter conference call, CEO Terry Lundgren asked investors to give the retailer's restructuring initiative known as "My Macy's" time to pay off. He also conceded that Macy's executives are working on a Plan B after pinning some of the blame for My Macy's lackluster performance on the recession.
Fully implemented in May of last year, My Macy's carved the company's approximately 850 stores into 12 districts each with a team of regional merchandisers who are charged with informing buyers in New York about local tastes and what might satisfy them. Ultimately, though, the New York buyers decide what to purchase.
Lundgren, in a conference call transcribed by SeekingAlpha, reiterated that My Macy's pilot locations, which launched the customized merchandise assortments in the spring of 2008, have been outperforming other locations that joined the program in the middle of last year. He used the Chicago store as an example of how the company has been able to cater to local tastes by offering items from Windy City-based Patricia Locke Jewelry.
Later, Karen Hoguet, CFO, supported Lundgren's point by relating how Chicago was one of the department store chain's strongest performing regions. On the call Macy's executives chose not to revisit the pr headache they had to deal with when the company incurred the wrath of Chicago natives when it changed the name of Marshall Field department stores to its own in 2006.
Near the end of his presentation Lundgren insisted that Macy's would adhere to its strategic priorities executed through the My Macy's initiative, including upgrading the shopping experience and differentiating stores from the competition, providing unique brands and conspicuous values, and marketing to emphasize those brands and drive sales.
Then, apropos of nothing, he said. "Looking at big picture, of course, I do worry about some of the macroeconomic issues."
Lundgren continued on a pessimistic tack, "I know that some people are saying that those are behind us," without offering any names and added:
We still have high unemployment and I still see tightening credit on consumers and issues of that nature. Those are real, and a company of our size must recognize that macroeconomics do matter. But we're planning to grow the business at both Macy's and Bloomingdale's, and we'll continue to fuel our online business, and we're beginning an outlet strategy at Bloomingdale's as I think you know.So, why, after all the optimism about My Macy's, does Lundgren suddenly admit that, amidst the biggest downturn since the Great Depression, the economy could be a problem?
Perhaps for two reasons. First, and despite the generally good response to its fourth quarter financials, he knew Macy's recent results would disappoint shareholders. In fact, Deutsche Bank analyst Bill Dreher downgraded Macy's stock earlier in the month, saying the company had not benefited from department store consolidation as much as he would have liked and because, as he was quoted as saying, the My Macy's "decentralization initiative is developing awkwardly and will likely need years of refinement--"
Second, Lundgren may have been testing the waters for his Plan B, which seems to center on giving web and outlet sales a more prominent place in Macy's strategy. This may explain why Lundgren's mention of outletsand online sales piqued Citigroup analyst Deborah Weinswig's interest. When Lundgren conceded that Macy's had been late developing an outlet strategy for Bloomingdalesto match Nordstrom and Saks successful online efforts efforts, he added:
I still think there is plenty of opportunity for us to participate there. And so, to me, this is really not a strategy that I have to wonder about will it work or not because it's been proven by successful competitors. We clearly have a goal of expanding this concept as soon as we get it right. But we're new at the business, we've got new people running the business for us. I don't know how it would be, six months, 12 months or something of that nature, I don't think much longer than that before we understand how to get the most productivity out of the box. And then we'll expand from the there.In his comments, Lundgren laid out a time line that's interesting as he made the point that in most My Macy's regions, the local merchandising teams had begun work on May 1 of last year and had taken a few weeks to learn their jobs. Which means that as My Macy's hits its first anniversary and has year-over-year numbers to talk about, the reporting of these new figure may provide an opportunity for the company to reveal more about its Bloomingdales outlets strategy.
Online, however, is something Lundgren is happy to discuss right now. In fact, Internet sales were a big success for Macy's in the recession and have been since, up 27 percent in the fourth quarter. The retailer's overall Christmas marketing strategy for this latest season, Believe, developed from the well-received Internet selling theme of a year earlier.
Macy's has had a chance to think through the online business, and, as the marketing program suggests, it wants to better integrate it into the overall strategy. Lundgren said. "I just think that we've got just tons more of opportunity here, and a big, big push for us in 2010 will be to go after the multichannel consumer."
Getting the online consumer into stores is a priority, he said, noting:
I always tell my stores when you get a return from an online customer, give her a big hug, because this is a chance for you to take this customer and turn her into a store customer and, almost always, when she returns a $100 [item], she buys a $130 in the store. So, I really want to encourage this multichannel opportunity in 2010.So, it does sound like Macy's has a B-Plan in case My Macy's falls short. It even sounds a little like it might already be in effect.