Macy's Going Local, Liking Martha

Carole Sloan, May 19, 2008

Within the 8-month-old Martha Stewart Collection at Macy's, high-end luxury home textiles are "just tremendous," asserted Terry Lundgren, chairman, president and ceo.

Housewares and the recently introduced tabletop line from Wedgwood are also success stories in the exclusive program. In contrast, opening price point home textiles "didn't work," Lundgren said during a press conference following the company's annual shareholder meeting here last Friday, May 16.

"We tried to fill a void with bed in a bag, and we're reworking through that," he added. "Martha is a big business and one we're going to grow."

Discussing the My Macy's program — designed to assort stores to suit regional tastes —Lundgren said that the concept evolved from an analysis that showed the top 50 doors in each of the districts doing great. "Go past that, and it drops off," he said. "The managers in the lower-performing stores request things electronically and often are not responded to."

Launched over the past few weeks in more than 230 stores, My Macy's currently encompasses the North, Midwest and Northwest divisions. Ultimately, each of 20 districts with 10 stores each will be headed by a senior district merchant, aided by individual merchants for the home, apparel, men's and core segments.

Because of the existing the Macy's Home Store organization, based in New York, "We originally thought we would not include home, but home wanted to be included. After all, pattern, color, weights and fabrics in home textiles for example, are different in different areas. They're just as variable as apparel," said Lundgren.

Elsewhere in home, Macy's Herald Square store in New York last week launched a new mattress department emphasizing luxury goods. "Mattresses were a big challenge a few years ago. You could find a gas station, a liquor store and a mattress store everywhere. Over time, comfort, durability and quality really have become important, and the luxury premium mattress business is really significant. The business has been fantastic and mattresses are one of our best performing businesses," said Lundgren, adding, "We will still have opening price points."

Expansion of the concept beyond Herald Square will be a My Macy's organization decision, he said: "There are a lot of potential stores."

Earlier in the week, Macy's Inc. reported a loss for the first quarter, but reaffirmed its full-year earnings forecast.

The net loss of $59 million, or 14 cents a share, for the quarter ended May 3, compared with a profit of $36 million, or 8 cents a share, in the year-ago period.

The results were impacted by a cost of 13 cents per share and a reserve of 3 cents per share related to May Co. consolidation costs and a pending lawsuit settlement related to wages, respectively. Barring those items, Macy's earned 2 cents per share from continuing operations.

Sales fell 2.9% to $5.75 billion, with comps down 2.6%.

The weakest categories were ready-to-wear and home textiles, cfo Karen Hogue told analysts. Overall, the home department is "OK," she said, with strong sales of mattresses and housewares.

The $26 billion retailer kept its forecast steady: 2008 comps will be down 1.0% to up 1.5%, with EPS of $1.85 to $2.15, excluding one-time division consolidation costs.

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