Federated Rethinks Its Marketing Strategy For Macy's

by Sarah Mahoney, May 17, 2007, 5:01 AM

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Hoping to shore up disappointing sales, especially in home furnishings, Federated Department Stores said it's rethinking its marketing strategy. In the quarter ahead, it says it will spend more on public advertising for sales and special promotions--especially TV--and less on private marketing efforts.

"We do need to communicate more effectively, and we need to bring more customers in to try the Macy's store," said Karen M. Hoguet, Federated's CFO, during a conference call to discuss first-quarter earnings. "While we are having success building a proprietary database, we need more time to be effective. Until that happens, we are going to have to advertise more in the public media rather than in the direct mail."

The company also said that while first-quarter sales came in more or less as expected at its established Macy's stores, sales at the "new" Macy's--such as Marshall Field's and other stores converted from its merger with May Corp.--were disappointing in February and March, particularly in furniture. By April, that softness spread to all its stores, and while there was no clear geographic trend, apparel was also hit hard.

Poor sales "are primarily a traffic issue," she said, "and it's been a whole lot weaker in the home store. More public advertising will bring more people in the store." She also said Macy's would not consider exiting the home-furnishings business at this point: "We believe we have a real competitive advantage in this area."

The company lowered its sales forecast for the coming quarter. On a same-store basis, Federated--which will soon be known simply as Macy's--expects second-quarter sales to be flat to up 2%, versus prior guidance of up 1.5 to 2.5%.

But it's expecting better results in the second half of the year. "While April has given us some concern about the consumer and the economic environment, we remain optimistic that our trends will improve, particularly in the back half of the year as we reach the first anniversary of the Macy's brand conversion," the company said in its release.

"With the warmer weather, trends have improved," added Hoguet. "And research is showing that customers at the former May stores are understanding and liking Macy's more and more."

In the first quarter, sales fell 0.2% to $5.9 billion, versus the same period last year. Previously, the company had told investors to expect sales in the $6-6.1-billion range. And on a same-store basis, a measure observers say is especially critical in monitoring the company's post-merger performance, sales gained 0.6% in the quarter.

At Bloomingdale's, however, sales were much stronger, and--except for weakness in home furnishings-comparable with its competitors. In fact, based on the strong performance of the new Bloomie's opened in the first quarter, the company may decide to step up growth plans. "We feel good about Bloomingdale's expansion potential," a spokesperson said.

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