Macy's working hard for miracle

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U.S. retail sales rocketed 90% from 1992 to 2004-but only a piddling 3.5% for department stores. Factor in inflation, and department store sales plunged 23%. The stores have two choices: Change the game or admit defeat.

Macy's is doing the former, betting on better goods to differentiate it from discounters and mid-tier rivals. That's a good move.

Macy's will grow to more than 800 stores next year when parent Federated Department Stores folds in the recent May Department Stores Co. acquisition. It will emerge as a truly national retail brand, expanding the world's largest store (as Macy's in 1924 touted its 34th Street flagship in New York) into a coast-to-coast colossus.

In this troubled, overstored category, Federated made the right decision to consolidate mainline department-store brands. But strategy can't be only about scale; that could make Macy's simply a bigger retail dinosaur.

Macy's must develop more compelling, appealing advertising to show consumers what's in store. It also must deliver the goods. We're encouraged to see the retailer press suppliers to move upmarket to help give Macy's a product point of difference.

For some old May Co. suppliers, it's a mayday call. But this isn't about bashing suppliers. Target, at the low end, is a master at working with suppliers and designers to come up with creative, unique wares. Macy's has the talent and ability to do more of this.

It won't be easy. Retailing expert Paco Underhill, in a discussion for this week's American Demographics story (P. 19), noted how the landscape has changed. "In 1970," he said, "most merchants fought very prescribed wars-it was Kmart against Korvette's, Federated against May Co." Now Federated owns May-and faces more competition than ever. Retail, he said, has turned into "an all-out bar fight."

Macy's Thanksgiving parade ends at the store's front door, but that's only a start. Macy's needs another miracle on 34th Street-and at more than 800 malls across the country. The retailer is taking the right steps to make that happen.

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