Commentary by Jonah Bloom

Federated Department Stores Remodels Store Experience and Ad Mix

CEO Terry Lundgren is Architect of Changes, and a Mini-Bloomingdales in Soho

By Published on .

"I loved the whole process," says the CEO of Federated Department Stores, Terry Lundgren, recalling the agency pitches that saw the giant retailer whittle
Jonah Bloom, executive editor of Advertising Age.
down its list of 65 prospective shops to seven finalists and, eventually, to the winner, Lowe Worldwide.

He jumps up, strides to his desk and starts rifling through videotapes in a hunt for the new ads Lowe has produced for one of Macy's private-label brands: "You have to see this."

James Bond good looks
This is the passion and personal involvement that Lundgren -- an impeccably dressed 51-year-old with James Bond looks -- has brought to the rejuvenation of Federated and its key retail brands, Macy's and Bloomingdale's, since he was appointed last February. He has overseen a strong comeback for the retailer, which has reversed sliding sales, achieving a year-on-year doubling of first quarter earnings and a 6.9% same-store sales rise. His growth strategy? Marketing, marketing and marketing.

The overhaul started with in-store measures, based on customer research and piloted at the company's "Reinvent Store," a Lazarus-Macy's in Columbus, Ohio. Fitting rooms were moved from cramped corners to easy-to-find locations; cable TV and seating were introduced outside these areas; partially hidden checkout counters were shifted into the aisles; big way-finding signs were built; bar-code scanner stations installed to offer consumers information on their potential purchases; and -- to

Federated Stores' CEO, Terry Lundgren, has re-invented Bloomingdale's and Macy's.
Lundgren's initial distaste -- shopping carts were brought in.

Lundgren then turned to traffic-driving tactics. He scaled back couponing and simplified pricing, shifting 10% of items from sometime discounts to an everyday low price. Merchandising teams were tasked with ensuring clearer differentiation among the company's various $2.6 billion private label businesses; deals were struck with suppliers such as Hilfiger to create exclusive lines.

Shifting ad dollars ...
A McKinsey marketing-effectiveness study concluded Federated should shift ad dollars away from newspapers, long its stalwart medium, into the Internet (where more purchasing decisions are made), radio and TV. Having taken a host of different store names and rebranding them so that they all share the Macy's nameplate, Federated was set up for more cost-effective national ad campaigns to push its private-label brands. Lundgren appointed the company's first-ever CMO, Peter Soxy, to orchestrate the shift to one consistent national strategy.

Yet, with all these savvy marketing moves, it is Lundgren's latest innovation, the creation of a mini Bloomingdale's in SoHo -- at 90,000 square feet, it's less than half the size of the next-smallest store -- which may just prove his smartest. Federated's future depends on ensuring its large, mall-based stores continue to increase their revenues. But smaller, upscale stores in hip city-center locations, with potentially better margins, could provide a welcome injection of profit.

... and influencers' opinions
And, as Lundgren says, "the SoHo store is, itself, a great marketing vehicle." With fewer, carefully edited designer lines targeted to hip young Manhattan residents, and a setting and service more usually associated with a boutique, the store is already shifting influencers' opinions of Bloomingdale's -- and exceeding revenue expectations.

"There's no better advertisement than that," he says.

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