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The trickiest maneuver will be balancing fashion merchandising with regional tastes. Macy's needs to include national brands like Tommy Hilfiger and Ralph Lauren to pull in traffic but in a mix that will appeal to customers on a local level. "What fashion means in Miami is quite different from Atlanta," Lundgren says. Federated has set up seven new buying offices in different cities to merchandise locally and has installed a national logistics database that allows buyers to distribute merchandise more efficiently; slow sellers are marked down, and popular items are restocked faster.
The aim of having more of the hottest merchandise on hand, of course, is to convince shoppers used to a steady diet of Macy's one-day sales that there's value in paying full price too. "Will they be able to wean the customer off the sale heroin? It's not going to be easy," says retail consultant Cynthia Cohen, president of Strategic Mindshare. To earn that premium, retail consultants say Macy's has to offer more merchandise that shoppers can't get anywhere else. Private labels like Charter Club and INC already make up about 18% of Federated's sales. Deborah Weinswig, a financial analyst with Citigroup, says shoppers are likely to find more of that kind of merchandise in the months to come. The strategy has worked well for J.C. Penney. That chain, pegged to a slightly lower income demographic than Macy's, goosed its third-quarter profit 17% with lines that are only available at Penney, like Nicole Miller dressy-casual women's wear.
The danger is that Macy's will oversaturate its stores with merchandise that is exclusive but still unexciting. "Consumers don't want to go and find the same thing at every darn store," says Pam Danziger, president of Unity Marketing. Steven Keith Platt, head of a Hinsdale, Ill., retail think tank, the Platt Retail Institute, expects Federated to make deals with several well-known apparel and housewares makers to create products that consumers will find only at Macy's. Lundgren says he has already received at least half a dozen such offers but hasn't inked any deals yet.
With Macy's turning a more careful eye to fashion, fear is running rampant among suppliers. Those who filled the racks at the more down-market May department stores are in real danger of getting squeezed out of Federated's pool of thousands of suppliers altogether. Marshal Cohen of NPD Group, a marketing-research firm, anticipates that a vendor that sold only to May stores has a "1 in 100 chance" of being selected by Federated. Of course, the change will benefit the companies that fit into Federated's strategy. Barry Miller, president of sales for $50 million high-end hosiery maker Hot Sox, figures he will sell his products in 150 more stores than he did before the merger. Even the big guys are worried. Says Liz Claiborne's Charron: "I'm concerned too. I have to be." The CEO of the $4.6 billion company estimated $50 million in lost revenue annually from the stores that Federated will close. Charron says the uncertainty is "a bit like navigating the North Atlantic," but like many other companies, Liz Claiborne is shifting its focus away from department stores. It now sells its 40 brands overseas, has an online presence and runs its own stores.