With Stores Nationwide, Macy's Goes Local

This holiday season, the shelves will be chock-full of Elvis Christmas tree ornaments at Macy's (M) stores across the Memphis area, where local shoppers just can't get enough of the King. In Minneapolis, however, an electric krumkake baker—used to make those tasty cookies prized by locals of Scandinavian descent—is expected to be a hot seller. And in the chain's Brooklyn (N.Y.) stores, the Imusa cookware popular in many Hispanic kitchens will be displayed prominently. It's all part of Macy's strategy to tailor store merchandise to individual markets, making the giant retailer appear smaller and in touch with local shoppers.

For the holidays, the nation's second-largest department-store chain is introducing 2,200 local-themed tree ornaments as part of its "My Macy's" program, an initiative begun in 2008 to better customize merchandise year-round. Some 1,600 district managers, who oversee goods categories in no more than 12 stores each, select the items.

Going local could pay off big. "My Macy's" may add as much as 3 percentage points to the chain's holiday sales at stores open at least a year. Sales will probably increase as much as 5 percent in 2010 after three years of declines, figures Citigroup (C) analyst Deborah Weinswig. And focusing on merchandise tied to, say, the Chicago Blackhawks hockey team in Illinois stores spurs other purchases by making Macy's more relevant to area customers, says Chief Executive Terry J. Lundgren. "We had to do something different," says Lundgren, 58. "I wanted to maximize the business on a local level. But how do you do that today with 810 Macy's stores?"

Lundgren hatched the "My Macy's" idea when consumer spending began to slow three years ago. Since then the company has directed tens of thousands of specially chosen items to local markets, says Jim Sluzewski, a Macy's spokesman. The department store's managers, for instance, identified strong demand for size 11 women's shoes in Chicago, formal wear for boys in Salt Lake City, locally made Sanders chocolate candies in Michigan, and coffee percolators on Long Island (where the retailer sells more of the 1960s must-haves than anywhere else in the country). Carolina Sekkel, an Arlington (Va.)-based district planner for 12 stores, says the process identified demand for separately sold pieces of women's suits in Washington, D.C. Increasing the selection of separates, which allow female shoppers to mix and match clothing sizes and buy off the rack without having to do alterations, has helped generate "double-digit" sales gains in percentage terms, Sekkel says.

Wendy Liebmann, CEO of WSL Strategic Retail, says that kind of strategy can generate sales throughout a store by developing customer loyalty and boosting frequency of visits. It also helps raise profits by reducing irrelevant and excess inventory that then has to be discounted, allowing "My Macy's" to "punch above its weight," she says.

In creating the "My Macy's" plan, Lundgren drew on his experience as a china buyer for the former Bullock's chain in the 1970s. He says he was so close to the 18 Southern California stores he supplied that he would transport sets of Lenox plates in his car trunk to stores that ran low. He was named CEO of Macy's predecessor, Federated Department Stores, in 2003. Two years later he spearheaded the $17 billion acquisition of May Department Stores, which doubled the size of the company.

After renaming the combination Macy's, Lundgren consolidated seven regional buying offices into one national center in 2008 and 2009. Abandoning his one-size-fits-all merchandising policy for his new megaretailer, Lundgren divided up the company's store locations into 69 local districts. Today, district managers oversee merchandise in almost half as many stores as they used to, giving them more time to interact with shoppers in each and to better gauge local tastes, he says.

Salesclerks record local requests from shoppers in log books to pass on to the district managers, who then electronically make about 1,000 requests to the main office each week for a customized mix of merchandise for their stores. Headquarters approves about 90 percent of the pitches, usually within seven days, Sluzewski says. Initially, top-level buyers resisted what district managers wanted to buy, Lundgren says. He also faced skepticism that a single buying office could supply everyone's needs. "This was a major cultural shift for the company," Lundgren says. "The hardest part was that not everyone could come along." (Implementing the divisional consolidation last year led to about 1,900 job cuts.)

Those still around have embraced their buying power. In Orlando, shoppers are now offered more twin bedding at stores near condominium rentals, and during peak vacation months, Latin American tourists can find the Nespresso coffee machines they covet, says Meredith Mescher, a home goods district merchant. "You can make a decision in a snap," she says. "It tells our sales associates, there is someone here to help them drive sales and, at the end of the day, this is what it is about."

The bottom line: Department store giant Macy's looks to raise profits by allowing local managers to customize the merchandise mix in their stores.

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