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Should Macy’s have never gone national?
Through a special arrangement, what follows is an excerpt of an article from WayfinD, a quarterly e-magazine filled with insights, trends and predictions from the retail and foodservice experts at WD Partners.
Federated’s 2005 acquisition of May Department Stores promised scale. Get big enough, the competition couldn’t touch you.
At last, one unified “national branding message” and one singular go-to-market strategy would guide Federated. No more unique, locally-based brands merely popular in specific metro markets. There would soon be stores in 64 of the nation’s top 65 markets under a single banner: Macy’s.
Heralded as “truly an exciting day in American retailing,” the merger, in retrospect, obliterated the department store category’s greatest strengths. Consolidation was favored over differentiation and elusive “efficiencies” were chased at the expense of specialization. As brands from Marshall Field’s in Chicago to Lazarus in the Midwest were shed, loyal local shoppers felt betrayed and rebelled.
Decades of distinct market knowledge ended up devalued and then simply disappeared, rolled up into a singular corporate branding and buying approach. You might argue that Federated had Big Data before Big Data was a thing. It just wasn’t the kind of data visible at the corporate level. It was Big Data dis-aggregated. Data inside the minds of experienced employees, the kind of local market knowledge a top-down buying process doesn’t really have.
By becoming big generalists in a category that had personalization and specialization right decades ago, department stores dismantled the differentiation that might have saved them from obsolescence in an era of online algorithm-driven commerce.
The lesson here is that not everything that can be measured is valuable, and some things that can’t be measured have great value. The consequence of losing intimate local knowledge offers insights on where retailers should focus today. For retailers with physical stores, there’s one choice that stands out: Go back to the principles of local-market retailing, shop-floor buying decisions, and hyper-personalization.
The presumption that nationalizing a local buying approach can save money isn’t wrong. It can. But a national brand like Macy’s also ended up being less meaningful to many shoppers in specific markets. The ultimate model of survival for physical retailers today is to go local and stay there. This is not a new idea. It’s the founding principle of department stores.
Discussion Questions
DISCUSSION QUESTIONS: To what degree can Macy’s struggles be linked back to its decision to consolidate regional nameplates under one national banner? What lessons, if any, does it offer around balancing the benefits of scale versus local knowledge?
Poll
BrainTrust
Jasmine Glasheen
Content Marketing Manager, Surefront
Lee Kent
Principal, Your Retail Authority, LLC
It is a department store problem. Look around. Who is doing well? Department stores NEED a new operating model.
I hate to get off topic and confuse the problem. But, assuming that someone fixed my earlier point, a single brand makes sense.
Local is not (according to research) enough of a powerful switching trigger to foster a store as a destination. The problem is that Federated does not understand BRAND as it is today.
What is the Macy’s promise? Can anyone tell me in a single sentence? Can anyone tell me how that statement it is different and better from ANY of the competitors? I rest my case.
A few short years ago, when Macy’s was doing well financially and the company was being touted for its omnichannel approach, we were singing its praises. Now, when sales are down, critics are piling on. Did Macy’s lose its way internally or did consumer tastes change? Certainly, some of the blame can be attributed to ending the local brands it acquired. But let’s remember, some of those brands were underperforming at the time of acquisition. Macy’s needs to examine consumer desires and adjust accordingly. Some of those adjustments may mean moving towards localization, others may point to national realignment.
I’d go one step further. Federated is responsible for the great beige-ing of mall retail in America. When everything is the same, nothing stands out. And the one thing that stands out for anyone when you mention Macy’s isn’t exceptional retailing, I’ll bet it would be: coupons.
I’d add one to the list of excellent points Lee included — the loss of the career personnel in those regional players who trained employees on what the brand stood for and what “customer service” looked like. Derided as blue hairs, they often were the true brand ambassadors, not someone taking a pic on their phone.
Yes, the great beige-ing of America. Well described!
My thumbs up re: the beige-ing of the mall comes with a caveat. I can’t agree that Federated is responsible. Back when Macy’s, Federated and May Co. were separate companies, they had very different platforms. Macy’s was almost pure right brain … highly creative and dynamic. May Co. was almost pure left brain…by the numbers. Federated did a great job of balancing the two … and survived. Federated operated many of their divisions with very real connections to their local markets and at the same time exercised solid financial disciplines.
Federated/Macy’s does not deserve to be singled out. Beige-ing is a virus that many retailers are suffering from. Tough to inoculate against and tough to cure. This one has to run its course.
The department store concept is something that usually started as one man’s idea in his favorite city and did well in that city serving the local demographic. My perspective as a consumer with years of experience is that that more than five of any department store is too many to sustain success.
Tom is closer to the point — new operating models for all department stores are the way. And around the world this is the change taking place. Macy’s has changed in many ways internally and the change will continue — even after Terry retires. They have committed to their need to change and they still have many many loyal shoppers — but those shoppers are changing. The benefit is that many of the kids shifting up from Generation Z grew up shopping Macy’s with their parents or friends — more of them will depend on Macy’s online and in-store for their needs.
Stop the pondering of the past and think forward. Neither we nor Macy’s can change the past but we can leverage and adapt to the future of retail.
2005 was the wrong time for Macy’s to consolidate. Differentiation and specialty stores are the name of the game nowadays. Millennials are skeptical of big umbrella brands and corporations. Customers prefer to shop local. Customers won’t leave their house for a product they can find just as easily online, so this was poor timing for Macy’s.
After the merger, Macy’s laid off some of their seasoned employees and started hiring space-fillers with no concept of customer service. It doesn’t matter how many runway shows and parades Macy’s sponsors when their in-store experience and product selection is lacking.
I never thought the consolidation under one banner was a great idea, but Terry Lundgren made it work for a decade. So I had to declare that I was wrong.
I think a.) he deserves some kind of award for steering that ship as long as he did and b.) as Tom points out above, the whole sector has a problem. People simply don’t want to shop “by brand by department” anymore. They prefer to shop by lifestyle.
If I had an easy fix, I’d report it here. But I’ve worried about department stores since long before the Macy’s consolidation. They have felt dinosaur-like for a very long time. The world has changed.
Some of our observations about Macy’s are based on 20/20 hindsight, not based on what seemed like a smart move at the time. Even though there was plenty of debate about the disappearance of powerful local nameplates like Marshall Field’s, the reality is that several of those retailers were in their own slow decline. So Macy’s effort to create a national brand (and economies of scale) paid off for a while.
Where Macy’s has lost its way is in the failure of the “My Macy’s” initiative to cater more effectively to local tastes. The best data science in the world may not be a substitute for experienced managers who really understand their customers’ taste (and when things sell in a given climate). But the bigger issue is the overassortment of women’s brands, erosion of customer service and lack of capital spending; no amount of localization can overcome those hurdles.
20/20 hindsight … well said. But there are also those of us that viewed Macy’s commoditization of regional department stores with horror and heartbreak. I always viewed My Macy’s as an embrace of the late recognition of what was lost in nationalizing the chain. My Macy’s used to be Bullock’s, and Burdines, and Foley’s, and Filene’s, and Woody’s, and Hecht’s and so on. I grew up at Bullock’s at the same time as Terry Lundgren. He was a stand-out then and I continue to view him as one of the real exemplary retail executives. But at the time, the siren song of nationalizing Macy’s was irresistible. Of course they could keep the local touch but bring the power of a national brand to the equation. Impossible to argue with at that moment. Oops. The loss of a powerful local perspective was a brain drain that left a vacuum filled with cookie-cutter stuff. Which would have been fine if the market didn’t already have Sears, J.C. Penney, Kohl’s, Target, etc. How many layers of commodity stuff can the market digest? Not as many as we now have. Local relevancy + emotion = some level of insulation from being dragged into the race to the bottom.
For me, back then, the seeming excitement of Macy’s was based on their Herald Square store in NYC and the Union Square store in San Francisco. If each city could have had an exciting catalytic store on that scale it would have made a difference.
And that kind of experiential marketing is what is necessary to save some department stores? Great center city stores do make a difference. That being said, the mall stores pale by comparison.
When you specialize in everything, you end up specializing in nothing.
I think this topic is well covered by several of the Brainiacs, in particular Paula’s observation that “we no longer shop ‘by brand by department.’”
It recently occurred to me that we no longer live a departmentalized life. Life is more elastic and less formal. Dressing occasions have merged. Material possessions are replaced by material experiences.
Marriage has evolved: bridal registries are no longer the domain of Wedgewood and Waterford because entertaining in that way is out of vogue. Recently, we inherited a china cabinet only to donate it to a local shelter fundraiser. The mover who picked it up said he gets one a week and, like entertainment centers, they gather dust in their store.
Re: scale. Macy’s was a moderate offering in the Federated portfolio which had Bloomies as the high end. When the regional brands were consolidated and converted most lost their high end and therein their aspirational attraction. Then Lehman Bros. cratered, consumerism stepped upon a banana peel, Jobs launched the iPhone and the world was turned upside down.
It became clear that “retail ain’t for sissies!”
Ask yourself: were the reasons for management’s decision to make this move motivated by the customer or by their own self-interest? In the “buy local” culture of today, driven largely by the recession but also by “farm to table,” do customers really care about national return policies, singular advertising synergies and creating buying efficiencies?
And at the same time, where is the excitement for going into a big box store anymore? Where are the Marvin Traubs and the vision for making shopping a fun and exciting event?
Today’s department stores are in a sale price-driven race to the bottom.
This just in…
Macy’s is dismantling its assets ala Sears. Here the once locally proud sub-brand of Marshall Field & Co., Frango Mint, is being sold off.
Having been a member of the Federated Systems Group at its inception, I watched this go down. It all began with the consolidation of systems. We started by running 3 of Federated’s department stores to prove the concept. What we proved was the great economies of scale we could accomplish. Next we brought on all of the Federated stores. Each running their own brands still, but using the same systems. With this under our belts and common system running, consolidating buying practices was a logical next step.
Now mind you, Macy’s was not a part of Federated at the time. They actually came on board as a paying customer of Federated Systems Group first in order to leverage the economies of scale we proved with consolidated systems. How many of you remember that retail was notorious for having one of the lowest IT spends of any industry? Back in the day it was less that a half cent on the dollar. If you could save IT dollars by using the same systems, it was a no-brainer.
Bottom line, Macy’s came on board and a few years later became part of Federated. It was all about the savings. Not only did these department stores run the same systems, they bought from the same vendors, they used the same allocation algorithms, the brands were all about the same thing. If, by consolidation, they could improve margins, it was a good move. Rebranding under the Macy’s name made perfect sense also since they had such great street cred.
Everything was jolly until … the consumer decided to play the game their way. The good news is, Under Terry Lundgren’s superior guidance, Macy’s is poised for change. Can they do it? Let’s wait and see.
And that’s my 2 cents!
In a few cases — specifically THAT one — where there were strong plates, I think it was a mistake, just as Bloomingdale’s was never “Macy-ated” (or even contemplated, AFAIK). But for others, I’m not so sure: Lazarus, for example, had already gone from being a Columbus store to a mashup with Shillito’s, Rikes, Hornes, etc…, so much had already been lost.
I think the bigger mistake was the May acquisition. May itself was, of course, a merger of two fundamentally different companies which many would argue never really worked. And you don’t build a strong company by combining a so-so company with a flawed one. But whatever the merits, it’s clear Macy’s ended up with too many stores that didn’t really fit any consistent image.
This was many years ago, and maybe not a valid comparison, but when I worked at the now long dearly departed Borden Co., a marketing VP thought that the revered Borden name could sell anything. They bought a successful BBF (Burger Boy Foodorama) regional fast food chain competitor to McDonald’s. Then changed the name to “Borden Burger.” In a few years, that was shuttered. I suggested they convert all that real estate to “Elsie’s Premium Ice Cream” parlors but that idea fell on deaf ears.
They also bought up several thriving potato chip/snack companies. An attempt to convert to a “Borden” brand failed miserably. Here in Columbus, many still remember “Lazarus,” in Dayton it was “Rikes,” in Cincinnati “Shillitos,” in Pittsburgh, Kaufmann’s etc. Everything seems like a good idea at the time — and perhaps it was, at a time.
One size does not fit all as they say. Macy’s product lineup lacks imagination, instead competing on price. Macy’s apparel is an overwhelming sea of stuff … all of it looks the same as customers are confounded with complicated discount coupons making one feel like they lost out if they do not have a coupon, like a person in front of them in the checkout line. Plus, customer service is rare, very rare. Sorry, Macy’s.
In comparison, Nordstrom has always assorted based on location. Regional assortments are always Nordstrom-esk maintaining the Nordstrom brand while servicing the regional customer. An art more than data science.
For Macy’s, going national and becoming first full line, truly national department store was not a mistake. When I got into the business there were 100 regional department store names. There is not one really successful regional department store left. Dillard’s is the most successful, and it is a melting ice cube. Bon-ton is a shadow of its former self, and hardly a successful regional store. Boscov’s has been bankrupt already, and is very likely heading for another round. Belk’s has been bought out by private equity, is now levered up, and unlikely to grow again. Saks, Neiman’s, Lord & Taylor, and Nordstrom are not regional department stores. They are specialty stores and always have been.
If being a regional department store in the current environment is such a great idea, why are there no successful ones left? When regional department stores were still successful and viable, the off-price players were still “children.” When department stores were winning, Walmart was a “teenager.” When department stores were winning, Amazon was not even a twinkle in Jeff Bezos’s eye. Terry Lundgren has done an amazing job, and yet Macy’s is still in a battle to the death with all of the above.
Oh, and I do have some knowledge of all this. I left the Icahn organization to go to May Company in 1984 to do the largest transaction in the department store space that had ever been done at the time, the acquisition of Associated Dry Goods. I was still there to sell the business to Macy’s … hmmm … and years before I stocked shelves in Walmart store number 26, the first one opened outside Arkansas. Take it from me, the decision to be a national department store was not why Macy’s is fighting a fierce battle today. It is what is allowing them to still fight the battle.
Haven’t been to one, but Von Maur’s seems to be expanding. And Boscov’s too, although they had their scare already. In Hardware Retailing Magazine there is a current issue about how the Sears Hometown company (spun off from Sears a few years ago) is co-locating appliance stores with independent hardware stores, and working well for both. There probably is a niche for department stores, at least in center cities, and in some suburban and exurban locations, but if they just sell the same stuff that everyone else is selling, without decent service, and with little pizzazz, yes, they are doomed.
Well, I also lament the loss of the great regional nameplates and stores and the incredible local people who understood the market and ran those stores. It was a great time, without the likes of Walmart, Ross and TJMaxx Marshalls. Competition was each other, other regional department stores. It was fun and more genteel.
But it is over. The landscape has moved beyond that ideology just as dinner theatre is no longer seen as a fun evening out. By the way, we now have at least one and possibly two generations who, for the most part, have NO IDEA of what that shopping experience was like. Find any 22 year old and say any of the names, e.g. Shillito’s, Halle’s, Kaufmann’s, Hudson’s, Rich’s, Foley’s, Robinson’s, Burdine’s etc., etc., etc. I guarantee that they will either NOT care or have NO idea of what you are speaking about.
I believe Mr. Lundgren was correct, although he should have maintained Marshall Field’s — Field’s was different But I do believe that he was right and as noted, we were applauding him and Macy’s a few years ago when all was smooth. The problem is the format, but still, the in-store experience would do the MOST to change their fortunes. There MUST be a show and excitement — Mr. Traub Knew that; Mr. Tansky knew that; Mr. Ullman knows that. (Mr. Ullman is the ONLY reason we still can choose J.C. Penney! And I think Mr. Ellison is doing a great job in a VERY difficult business.) But, in-store experience with a re-emphasis of trained smart knowledgeable sales associates would go far in changing fortunes. That is too expensive you say? Then the sector is failed and doomed.
There must be a differentiating factor — a reason to be — that will drive the whole company forward. Nordstrom has that. I do NOT consider Nordstrom a “department store.” I consider it more towards the specialty store format. But even with a department store there has to be more than coupons and a sale, there must be a compelling experience and this is lost, as said by Mr. Phibbs, all is “beiged.” No differentiation, no excitement, no “reason.” I do applaud Dillard’s; they seem to be trying. But all, especially Macy’s, can and should increase the customer experience where appropriate.
Another question: Do the customers WANT that? Certainly in some places, yes, but perhaps not everywhere? Customers in many areas have been trained to hold price as king, so localization and modification as per market may be necessary. Again, KNOW your customer. What the old regional people knew 50 years ago may not be worthless; “one size” likely does not fit all! Different areas across the nation are very different in tastes, income and aspirations, and there needs to be catering to that. (The middle is a terrible situation, and becoming more and more so….)