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Hoping for green holiday, Macy's refashions itself

The venerable chain, building on its nostalgic appeal, is updating its operations to attract modern shoppers

December 22, 2009|By Andrea Chang
  • Macy's relentlessly red Christmas decorations, such as at its store at South Coast Plaza in Costa Mesa, have a nostalgic appeal for many shoppers.
Macy's relentlessly red Christmas decorations, such as at its store… (Christine Cotter / Los Angeles…)

Wrapped in the music, lights and relentlessly red decor of Christmas at Macy's, Kathleen Kwiatkowski opened her wallet with a little pull from holidays past.

Like millions of other Americans, Kwiatkowski says she shops at the department store for its selection, ample coupons and easy return policy. But in part it's simply tradition.

"Macy's is Christmas," said the West Hollywood resident, 56, examining a stack of knit tops at the Beverly Center store. "My mother used to take me to the New York store when I was a little girl."

Since the classic film "Miracle on 34th Street," Macy's has been synonymous with the holidays in the minds of many consumers. This Christmas, amid a tough sales environment, the department store giant -- second only to Sears Holdings Corp. by revenue -- is hoping that nostalgia translates into a much-needed sales boost.

Amid the devastation the recession has wreaked on retail sales, the venerable chain has been trying to reinvent itself, tailoring its stores to specific regions, pushing its online presence and boosting its promotions to draw customers.

In the process, Macy's hopes to reverse the decades-long decline in the department store business model that has seen many mall-weary consumers shifting their shopping habits to big-box discounters, free-standing stores and the Internet.

"It's a critical holiday season for Macy's. They have to turn things around," said retail analyst Michelle Clark of Morgan Stanley, who is neutral on the stock.

The Cincinnati company, which owns luxury retailer Bloomingdale's and operates a total of 854 stores, is aware of the threat of becoming obsolete. With nearly one-third of its annual sales riding on the November-December season, Macy's is trying hard to stay relevant.

"Macy's as a department store is not just competing against other department stores," said John Gorham, senior vice president and director of stores for Macy's southwest region, which includes California. "In today's world, whether it's specialty, whether it's discount or whether it's department stores, the name of the game is capturing wallet share from the consumer."

The recession, the reshaping of the company and the competition have kept Macy's financial results volatile.

The company lost $35 million for the three months ended Oct. 31, even after slashing 7,000 jobs and closing about a dozen stores this year. Over the last eight quarters, its earnings have seesawed, swinging as high as $750 million in profits to a low of $4.77 billion in losses, a result of a write-down in assets.

In trying to reinvent itself, Macy's has been overhauling its merchandise structure -- a move the company says will allow it to better respond to customer preferences and needs by location.

Under the initiative, called My Macy's, stores are grouped into small districts of about 10 to 12 locations each. Previously, the clusters were about twice as large yet had half as many managers, resulting in merchandise missteps such as not adjusting product sizes by location.

"There was just no physical way that you could get into the detail of what the customer was demanding when you were that big," Gorham said. "It was a problem."

In a region as diverse as the Southland, the My Macy's strategy has helped the chain pinpoint store-specific issues.

In Westminster, for example, Macy's has increased its stock of small sizes to better serve the store's many Vietnamese shoppers, who tend to be more petite on average, Gorham said. After shoppers at the Macy's in Costa Mesa said they wanted more dresses, the chain upped that store's inventory by 30%.

Many customers say they've already noticed the changes.

"Before, there wouldn't be a lot, but now I find there's a lot I can choose from. There's definitely a difference," said Marivel Molina, 22, who had just spent $200 on Christmas presents at the Macy's at South Coast Plaza. "Every time I come I find something."

The company also has put significant effort into its online presence -- and it's paying off. Internet sales at Macys.com and Bloomingdales.com were up 21.1% in its most recent quarter and 15.6% for the year to date, the company said last month, although it didn't release exact online sales figures.

The merchandise improvements have cheered some industry watchers, who say Macy's is on the right track and that its long history and national footprint give it an advantage over its competitors. Macy's stock is up 70% this year, compared with a 23% increase for the Standard & Poor's 500 index of major companies.

Although it closed 11 underperforming stores this year, the chain opened six new ones and rebuilt two others. Last month it raised its financial outlook for the full year.

Analysts are cautiously optimistic. Half of those who follow the company's financial progress recommend that people buy the stock and half recommend that investors hold their shares, according to a Bloomberg survey.

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