By Cotten Timberlake
Macy’s Inc. Chief Executive Officer Terry Lundgren calls store managers from his car as little as 10 minutes before conducting a surprise visit.
“The first five minutes are a little uncomfortable,” he said.
Lundgren, 61, spends 40 weeks a year visiting stores to make sure his handpicked managers are stocking merchandise that appeals to local shoppers. The visits also help Lundgren keep in touch with the marketplace and maintain annual sales growth that in the past two years has outstripped rivals including Kohl’s and J.C. Penney.
The drop-ins have taken on added urgency since Americans began pulling back on such discretionary purchases as clothing. Apparel, cosmetics and accessories account for about 84 percent of Macy’s revenue. Last month, the largest U.S. department store chain reported second-quarter profit that missed estimates and lowered its forecast.
“In soft times, if you’re able to give the customer what she wants, the size of the pie may be shrinking but you’ll be able to capture a greater share of the customer and market,” said Craig Johnson of researcher Customer Growth Partners.
In such an environment, Lundgren’s localization strategy — dubbed My Macy’s — is all the more important, said Johnson.
Cincinnati-based Macy’s shares are up about 13 percent this year, compared with an 18 percent advance for the Standard & Poor’s 500 index.
The My Macy’s concept stands out in an industry that increasingly relies on sales data to figure out which items to stock next season. Lundgren, once a buyer, spent much of his time grilling store associates about what customers wanted.
Lundgren said technology alone can’t provide an answer to what customers want.
“Only people can answer that question,” he said.
Lundgren recently learned that the Macy’s store in McAllen, Texas, was stocking more smaller-sized denim for Mexican tourists. In landlocked Indianapolis, he saw the men’s shoe department had a big display of boating shoes and recalls wondering, “Where’s the water, where is the ocean?”
Turns out the store had identified a major men’s fashion trend. In Portland, Ore., associates told him shoppers wanted boots, especially Western styles, and lots of them.
“The unanticipated bonus that we received was the engagement from the associates, who asked for it, received it and then became totally engaged in selling it,” Lundgren said. “That for me is what really makes it work.”
The My Macy’s program isn’t without potential pitfalls, said Brian Yarbrough, an analyst with Edward Jones & Co. in St. Louis. Leftover localized inventory cannot easily be sold in other locations, and the chain might lose buying power, since some merchandise for local shoppers isn’t purchased in bulk.
“You are also putting a lot of faith and trust into local management, so there could be some risk,” said Yarbrough, who recommends holding the shares.
In 2003, Lundgren became CEO of the Federated department store chain. Two years later, Federated merged with rival May Co. and went on to create the modern Macy’s. In 2008 and 2009, Lundgren populated cities around the country with 1,600 talented and experienced merchandising and planning executives.