Christopher Tritto St. Louis Business Journal
Change is coming. Federated Department Stores' Famous-Barr division in St. Louis is less than three weeks away from officially converting to Macy's Midwest. But don't expect dramatic upgrades on Feb. 1.
Although many local shoppers desire more upscale merchandise and trendier fashions at area department stores, customer habits and long-standing perceptions of the St. Louis retail scene mean Macy's stores here will not match up with their counterparts in Chicago, New York, Los Angeles and other larger metro markets, analysts say.
Famous-Barr customers can expect some merchandise improvements in the coming months. Federated, which acquired St. Louis-based May Department Stores Co. for $17 billion last year, plans to replace most of Famous-Barr's private-label clothing lines. Macy's private labels, generally regarded as more fashion-forward and higher quality, will take their place. Some of its successful lines include Charter Club, Alfani, INC, Tasso Elba and Style & Co. Macy's has seven private-label brands that generate more than $1 billion in annual sales each, and private labels account for about 17 percent of Federated's total revenue, said Jeffrey Stein, an analyst with KeyBanc Capital Markets in Cleveland.
"Federated did not acquire May to preserve the status quo," Stein said. "They paid a lot of money for it, have a plan, and I would expect they would apply the 'reinvent' initiatives to the May portfolio as they have done successfully in previous acquisitions."
Like most department store chains, however, Federated categorizes its stores within a tier system to determine the merchandise mix and capital investment thought to best impact sales performance. The tiers are based on historical sales patterns, geography, store size, market size, customer demographics and other variables.
"You go to Neiman Marcus and Nordstrom in other cities, and it's nothing like what you see here," said Margo Kopman, owner of Byrd, an upscale women's boutique in Clayton. "There aren't enough people in St. Louis to support the super-duper high-end department stores. St. Louis is hungry for it, but our city has been conditioned for the department stores with sales, deals and mass marketing."
Industry analysts said Macy's will likely follow the same trend here as its competitors. Few expect more than one of Macy's local stores -- probably at the Saint Louis Galleria -- to be included in Federated's top tier.
Federated also groups shoppers into four profile categories, ranging from traditional to trendy. The traditional "Catherine" model is classic and conservative. Neo-traditional "Julie" prefers classic styles with a twist. Contemporary "Erin" is fashion-conscious and individualistic and leans toward minimalism. Updated "Alex" is a cutting-edge fashionista.
Each region and store carries some merchandise for each set, but a store's tier level and customer base influences the percentage of clothing, household goods and other items carried within each model category at a given location.
Analysts expect local Macy's stores to lean much more toward the conservative end of the spectrum than the cutting-edge fashion trends often seen on the East and West coasts.
Trendy or higher-end stores typically come late to St. Louis, working their way in from larger cities in the East and West. But upon arrival, many have done well. Recent examples include Crate & Barrel at The Boulevard-Saint Louis and Anthropologie at the Galleria.
"St. Louis is starving for better goods and better stores," said Christopher Thau, a former Famous-Barr executive who now owns Christopher's Home Accents in Kirkwood. "Whenever I go in that (Crate & Barrel) store, it's packed."
Several clothing, accessory and home decorating boutiques also have gained loyal followings in recent years.
"People look at population and consumer spending, and we're not generally considered a Tier A market," said Laurie Solet, owner of a Clayton boutique that carries her name. "But women here demand up-to-the-minute clothing that is not very conservative, from my standpoint. I don't know why it takes so long (for stores to come here). We don't have as much wealth or as many millionaires as New York, but we have a lot of people with cash to spend, and we don't lack for style or taste."
Still, St. Louis shoppers have a tough time shaking their conservative image in the retail industry, and high-end department stores have to operate on a much larger scale than specialty retailers and boutiques.
"The May Co. customer and the Midwest have always been less fashion-forward and more price conscious," said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a national retail consultancy and investment banking firm based in New York City.
That image has diminished somewhat in the past five to 10 years, but the Midwest still tends to see more conservative styles and muted colors than on the coasts, said Murray Forseter, editor of Chain Store Age, a New York-based monthly news magazine for corporate retail executives.
Federated executives remain tight-lipped about the specific changes former May stores will see on a regional or local level. Terry Lundgren, Federated's chairman, president and chief executive, said last September that the company would "begin buying and planning Macy's assortments this October (2005) so goods are in-store during the third quarter of 2006." The official launch of Macy's Midwest is scheduled for Feb. 1. Yet local spokeswoman Sharon Bateman said it is still "so early" in the conversion process that executives are not ready to discuss their plans for Macy's Midwest.
Macy's Midwest and Federated's six other geographic divisions each will be responsible for store management and operations, soft goods merchandise buying and planning, and other functions. That structure will provide "regional decision-making and insight so that variances in customer preferences can best be translated into distinctive fashion and affordable luxury in each store," Lundgren said in a statement in September.
Most of the Midwest division's senior executives have been selected from among May's talent pool, largely for their knowledge of the regional market and customer base. It's unclear if they will choose to bring in trendier brands such as ABS, Betsey Johnson, Anna Sui, or Vera Wang or simply stick with more familiar lines such as Calvin Klein, Tommy Hilfiger and Guess.
"My prediction of the St. Louis stores after the Macy's conversion is that they are not going to change much at all," Thau said. "It's a lot of the same people running the stores that were running them under May."
Jerry Talamantes, a special events coordinator for Dillard's and a former personal shopper for Neiman Marcus and Saks Fifth Avenue, said Macy's might bring in some high-end merchandise to test the local waters and get customers excited about checking out the stores. After a year or two, however, Macy's is likely to revert to the more traditional style St. Louisans are used to seeing.
"People can rant and rave about wanting top lines," Talamantes said. "It comes down to whether local customers are supporting the product at regular price at the store."
Analysts, however, said at least a certain degree of lasting change will come because it is required for success.
"Everybody is going to be accountable for results," Davidowitz said. "May Co. was in the shithouse. They don't have the option of staying in the shithouse. But they have to be very careful. Their new merchandising strategy has to be aimed at adding new customers without turning away old customers."
Byrd's Kopman said she expects a Macy's conversion to higher-end stores could be successful here, but it may take time to bring the shopping masses on board.
"The majority of St. Louisans are bargain shoppers, and they like shopping at all-in-one stores," Kopman said. "When we opened three or four years ago, we had to condition our customers to the price points we sell, the environment and our products. You have to understand your customer and take it from there."
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