PRINT THIS STORY:

CHANGE TEXT SIZE:

Federated takes steps to ramp up traffic at Macy’s

By Brannon Boswell

Federated Department Stores says digestion of its $17 billion acquisition last year of May Department Stores is going more smoothly than expected. Though same-store sales were flat during the three months ended April 29, Federated had predicted they would decline as much as 1.5 percent, with executives focusing on the consolidation of back-of-store operations for the 400 May units joining the Federated portfolio. “Considering this was the initial quarter of physically bringing together the Federated and May Company organizations, we were very pleased that first-quarter results were ahead of our expectations,” said CEO Terry J. Lundgren in a press release. “Performance was driven by stronger-than-expected same-store sales at Macy’s and Bloomingdale’s stores, as well as expense levels that were below plan.”

And though Federated posted a loss of $52 million for the quarter, it still has plenty of cash, thanks to the disposition of almost all of the 80 overlapping mall anchor stores it marked for sale last year. In April alone the company sold 20 mall anchor stores back to The Macerich Co. and Simon Property Group for undisclosed amounts. Federated also says it plans to get major cash infusions later this year from the sale of two divisions acquired in the May deal: Lord & Taylor, which comprises 49 stores, and the Bridal Group, which comprises 720 stores. Federated could get as much as $1.2 billion for Lord & Taylor and $1 billion for Bridal Group, sources say.

Lord & Taylor’s New York City flagship store accounts for a big chunk of the division’s value, says Deborah Weinswig, a retail stock analyst at Citigroup Global Markets. She pegs the value of the 611,000-square-foot midtown Manhattan store — excluding air rights — at $611 million. The store has 11 levels and is an ideal candidate for mixed-use conversion, sources say.

But Federated will be doing more this year than just selling assets, said CFO Karen Hoguet on the retailer’s first-quarter earnings call. The retailer has earmarked $400 million for converting some 400 former May stores into Macy’s units. Federated has organized the May store base into five conversion tiers, she says, with some stores getting only new signage and others getting floor-to-ceiling makeovers.

“Our number-one goal is driving same-store sales growth,” she said. To do this, Federated will ramp up the number of “exclusive” products it stocks, she said. Federated took a major step in this direction in early April through an announced deal with lifestyle guru Martha Stewart to develop a line of home products for sale only in Macy’s stores. “The Martha Stewart deal will allow our home store to distinguish itself,” Hoguet said. “We’ll be announcing more of these kinds of deals, though the Martha deal is bigger and broader than the ones to come.” The Stewart deal will run through 2012, when it comes up for renewal.

In another bid to drive traffic, Federated has hired a new chief marketing officer, Anne MacDonald, who will create a nationwide ad platform for Macy’s to capitalize on its new coast-to-coast presence. MacDonald was chief marketing officer of the global consumer group of Citibank and has worked for such iconic brands as AT&T, Pizza Hut and Procter & Gamble. MacDonald’s mission will be, according to Lundgren, “to lead us outside the traditional realm of retail store marketing and to establish Macy’s as a leading American consumer brand.”