Macy's Marches Into the Future
BY SUZANNE MCGEE
For real estate developer David Levinson of L&L Holding Company (and partner of another New York tradition, the New York Yankees), the Macy’s Thanksgiving Day Parade “never gets old, it just gets better.” Generations of children have grown up in the city with vivid memories of walking across Central Park early on Thanksgiving morning, sitting on their father’s shoulders, eagerly anticipating each parade’s new balloons. In his own youth, says Levinson, the parade was about “the giant balloons of the classic cartoons, the smell of the fall leaves walking through the park, a hot chocolate from the street vendors, the marching bands, and sometimes my cold feet from standing in the crowd on the sidewalk.”
Dan Colarusso, head of global programming for Thomson Reuters, recalls two parades spent wrangling mammoth hot air balloons, first Kermit the Frog and then SpongeBob SquarePants. “How often do you get to walk down Broadway to cheering, screaming throngs?” he asks, still feeling overwhelmed by the experience. “I mean, for my generation, Kermit raised me. And to see 5-year-olds crying with joy at the mere sight of SpongeBob....”
Also memorable to Colarusso, who now looks forward to the day he can bring his daughter to the parade, was the experience of collaborating with so many people to create this kind of marvel for his fellow New Yorkers. “At 5 AM, you’re sitting on a bus beside someone dressed as a flower pot.”
“Let’s face it: The Thanksgiving Day Parade is about as much a part of everyone’s tradition as the turkey is,” says veteran Today weather and feature coanchor Al Roker, a regular fixture of the Macy’s Thanksgiving Day Parade on NBC. “I, like millions of Americans grew up watching the Macy’s Thanksgiving Day Parade on NBC as the smell of turkey and stuffing wafted out over the living room.”
To Levinson, that’s what reminds New Yorkers—and viewers around the country—of Macy’s parade sponsorship. It “represents New York at its best: a melting pot,” he says. “Bands from all over the country filled with people from all over the world; family, friends thankfulness, joy, youthful excitement, and wonderment for all who participate.”
That level of activity and engagement means New Yorkers lives are more entwined with Macy’s than most retailers. The parade is one of the most iconic events of the year for New Yorkers of all ages and has been a Macy’s production since the tradition began in the 1920s. As the holiday season kicks off, the parade is a gift from the retailer back to the city; an acknowledgement of the way New Yorkers transformed a dry goods store in lower Manhattan that generated $11.06 on its first day of sales in 1858 into a national behemoth that saw its stores ring up approximately $80 million a day this past September. Along with Macy’s Fourth of July Fireworks and the Macy’s Flower Show in the spring, the parade binds the brand with its hometown in a way that is unusual in global corporations nowadays.
That engagement is reinforced by the store’s other philanthropic endeavors. If there’s an agency or organization in the Big Apple that needs funding, like a museum, performing arts center, scholarship program, or health service, Macy’s most likely appears on its list of donors. Its name is associated with major cultural organizations like New York City Ballet and social service agencies such as God’s Love We Deliver. And as Macy’s has become a national brand, its philanthropic activities have followed suit; recipients of Macy’s gifts include the American Cancer Society, United Way, and The Nature Conservancy.
All of that positive energy flows from the massive building that occupies an entire city block in Midtown Manhattan, Macy’s Herald Square. That’s where the parade concludes and Santa Claus takes to his throne within the store. It’s also where Amy Kule, the executive producer of Macy’s Thanksgiving Day Parade, oversees her staff as she puts the finishing touches on this year’s parade and prepares for 2013’s extravaganza. Herald Square is where the New York staffers find ways to deploy their share of the philanthropic budget to local civic causes, reporting back to Sharon Bateman, the company’s head of philanthropy, in Cincinnati. It’s also where Terry Lundgren, the company’s chairman and CEO, is watching over what will bring the retailer’s operations into the 21st century and consolidate Macy’s role in the city: a four-year-long overhaul of the 110-year-old store. It’s a seismic change, which Lundgren describes as “the single largest store refurbishment in the history of retailing.”
It’s a tricky task: Lundgren must find ways to ensure he doesn’t alter the things to which Macy’s shoppers have the same kind of emotional bond as they do to the parade. “Almost the only original features left today are the wooden escalators,” says Patti Lee, general manager of the Herald Square store, who points out even those have been overhauled over the years. Those “Art Deco” chandeliers that are a feature of the ground floor shopping hall? They date back to the 1970s, Lee says.
The marble-style coverings on the fluted pillars do as well.
When the renovation is complete, Macy’s will have added another 100,000 square feet of selling space to the 1.1 million square feet it already boasts. The work won’t be complete until 2015, but shoppers can already get a glimpse of the future by visiting the new shoe floor, a vast, glittering minimalist expanse that stretches half a city block. The shoe floor occupies 63,000 square feet and contains some 280,000 pairs (making it the world’s largest women’s shoe department) and 548 seats on which connoisseurs can recline while they try on the latest styles. “This store can sell anything, so our job is to make sure that we fill it only with products that we can be extremely proud of,” says Lundgren.
In the meantime, much of what was “traditional” at Macy’s has quietly vanished. Lee argues that the renovation actually will take the Herald Square store back to its roots. “The design opens up the main floor all the way back to the original ceiling, which has dropped by several feet over the years. When the work is finished, Lee declares, the ground f loor will once again look as it was intended to back in 1902—“like a single vast ‘grand hall of commerce,’” she says. The only difference? It will be a 21st century version of that vision, white and gleaming.
But then Macy’s itself has evolved from the store that it once was. When the doors of the iconic Herald Square building opened more than a century ago, it was one-of-a-kind; a quintessential New York shopping emporium. Once, Lee points out, the store had its own butcher’s department and sold Ford Model Ts to its customers; the early Thanksgiving Day parades featured live animals from the Central Park Zoo.
Today, 20 million visitors each year make Macy’s (arguably) the city’s second most popular tourist destination after the Empire State Building, little more than a city block away. The Herald Square store may still claim to be the world’s largest retail outlet—the place that popularized the baked potato and introduced Americans to the idea of colored bath towels—but however significant, currently it is part of a national brand, a process that began seriously in 1994, when Macy’s merged with Federated Department Stores (the parent company of Bloomingdale’s, another city landmark).
Which means the dynamics for profitability have changed, helped of course by the digital revolution of the past 10 years. Now, says Lundgren, two-thirds of the 20 million or so individuals who set foot inside the Herald Square store each year begin their Macy’s experience online, using smart phones to scan the store’s offerings and pick which products and brands they want to examine more closely. All that digital browsing has clearly helped the bottom line—Macy’s has been thriving as a company, with its same-store sales growth rates amongst the highest in the department stores category and generating $1.5 billion in additional sales in the last two-and-a-half years without having opened a new retail store.
Looking back, however, the one constant in Macy’s history has been innovation; one might even argue that innovation is part of the retailer’s heritage. Whether it was those colored bath towels or being among the first to sell clothes in standardized sizes, Macy’s has been a pioneer, even when it didn’t realize it at the time. The retailer even helped launch the concept of event marketing, long before the moniker was born, when it introduced the first in-store Santa Claus at its original outlet in lower Manhattan. Today, entire teams are devoted to ensuring that its events—the Thanksgiving Day Parade, the Fourth of July Fireworks, the Flower Show—have become so integrated in the fabric of the city that they can end up being viewed by visitors as New York City initiatives rather than ideas devised, organized, and financed by Macy’s.
Given that word of mouth is one reason for Macy’s ability to maintain a global brand, keeping the Herald Square store up to the mark is vital. Reardon is well aware that Macy’s success is the result of a complex formula, always ready for tweaking. While Macy’s face-lift will inject a dose of glamour into what even ardent store customers might consider dated surroundings, it will also offer the retailer an opportunity to boost the selling space devoted to luxury brands and make that space more distinctive. The store already had a small Louis Vuitton boutique; when the renovations are completed, shoppers will be able to browse at a new LV store-within-a-store—a three story boutique that links the ground floor vertically with the shoe floor, including a mezzanine level. And Macy’s is adding three new luxury retailers to the mix by opening similar three-story boutiques from Burberry, Gucci, and Longchamp—brands it hasn’t carried before now.
Not only will these additions make the visual impact of the renovation more dramatic, they should contribute nicely to the bottom line. In the aftermath of the recession, industry analysts point to two retail segments that have continued to thrive—luxury and discount. In the last few years, as Lundgren has pointed out, Macy’s has done well despite straddling that gap as a “broad-line retailer,” offering some luxury brands as well as more value offerings. Now, the renovation offers Macy’s the chance to tilt its product mix further in the direction of luxury products, both by expanding the shoe floor and adding the in-store boutiques. Shoes and handbags of all kinds generate higher margins for retailers as a rule, and the margins on luxury goods are just as attractive.
Lee and Reardon are convinced that the massive and costly Herald Square overhaul is just a down payment on the store’s future successes. By Labor Day, the work was almost finished in the jewelry department, which now boasts a corner devoted to wedding and engagement rings and other bridal jewelry. Although you are no longer able to order your Ford automobile from Macy’s, in the future you will be able to pick out a loose diamond to be placed in the platinum setting of your choice. “We don’t stand still; new products come; old products go,” says Lee. Among the new jewelry department’s offerings are pieces from new designers that she and Reardon believe will appeal in particular to “millennials,” customers who have come of age in the 21st century and have a distinct set of tastes and preferences.
As Macy’s changes its public face, perhaps the trickiest piece of the puzzle will be ensuring customer loyalty. Today’s shoppers have far more options at the click of a smart phone keypad than their greatgrandparents did when the Herald Square store opened its doors in 1902. Back then, simply assembling so much merchandise in one location was a novelty. Today, loyalty to any brand tends to be more fleeting—something that Macy’s execs know they must bear in mind a they forge ahead with the renovation. Sometimes, the homage to the past is fleeting—the fluted shapes of the pillars on the ground floor remain the same, even if their color and finish change. In other cases, its more obvious: the Herald Square store’s venerable wooden escalators won’t be replaced with ultra-modern ones in the name of style. And anyone sipping a soy latte or pink champagne at the Herald Square Café adjacent to the shoe department will be able to watch passersby on the street below through the buildings original Beaux-Arts window and appreciate the metal clock that is a mirror image of the one hanging over the stores main entrance that New Yorkers have viewed as a landmark for more than 60 years.
And then, of course, there is the parade. “It’s about connecting with the consumer emotionally and celebrating on national holidays,” says Reardon. And its impact on the bottom line? “I tend to close my eyes to that ROI,” she says. “One way or another, it pays for itself—either people want to work for the brand or they become familiar with it.”
Still, given that nearly 60 million people who associate a retail brand with the biggest secular holiday of the American calendar, it’s hard to imagine that they would relinquish that kind of association, however costly. And needless to say, while other sponsors of other Fourth of July fireworks displays and special events nationwide walked away from their commitments during the recent recession, Macy’s stuck to its guns. “These are sacred cows; the cornerstone; what the brand is all about,” says Reardon.
So much so that Macy’s employees often will describe the length of time that they have worked for the Herald Square store by the number of parades in which they have participated. “You’ll hear someone say, ‘I’ve been here for 13 parades,’” says Kule. Only two elements are beyond their control: the weather and human behavior. “We once had rain on Seventh Avenue, but on the parade route, a block away, the sun was out.” A few years ago, when parade organizers tried to reclaim a bit of their own heritage by devising balloons that looked like real animals—walking along the road, with human beings enveloped in the front and the back, rather than floating above spectators’ heads—the two individuals who had volunteered to be the front and back of the elephant started moving on cue, but in different, opposing directions. The ensemble “banged into the chairman of the company (Lundgren),” recalls Reardon.
On Black Friday, Kule will participate in another vintage Macy’s tradition that no renovation, however glitzy or costly, is likely to alter in the slightest. “All of us who worked on it get together with each other and our loved ones—about 100 of us—to celebrate Thanksgiving as part of the Macy’s family,” says Kule. “We have the parade playing on a big screen, we share all our war stories about what happened behind the scenes, and each of us stands up to say what they are most thankful for or proud of accomplishing this year.” On Monday morning, it’s back to Herald Square.
PHOTOGRAPHY BY KENT MILLER STUDIOS (SHOE FLOOR); PAUL ZIMMERMAN/GETTY IMAGES (FLOWER SHOW); BRYAN DERBALLA (KULE); PHOTOGRAPHY BY HARRY HAMBURG/NEW YORK DAILY NEWS ARCHIVE VIA GETTY IMAGES (MICKEY, SOLDIER); MATTHEW PEYTON/GETTY IMAGES (CHEERLEADERS); COURTESY OF CAROL SEITZ (MARCHING BAND); MACY’S (LUNDGREN); PHOTOGRAPHY BY WALTER KELLEHER/NEW YORK DAILY NEWS ARCHIVE VIA GETTY IMAGES