By MICHAEL BARBARO
PORTLAND, Ore. — It was to be the most ambitious transition in the history of American retailing: To complete the merger of Federated and May, the nation’s largest department store companies, executives would abandon the names of 11 storied local chains, like Marshall Field’s in Chicago and Filene’s in Boston, and replace them with Macy’s, the very symbol of New York City.
And focus groups signaled that it could be a public relations disaster. “I left New York for a reason,” one consumer told Macy’s executives here.
But protests now seem remote as company officials prepare, in their words, to “Macyize” 400 stores on Sept. 9. And the reason has much to do with the diplomacy of one man who has crisscrossed the country, a chief executive cum politician, handing out money and promises, and calming local nerves as part of a campaign to neutralize opposition before it gathered strength.
Terry J. Lundgren, the chief executive of Macy’s parent company, Federated Department Stores, flew to Los Angeles, where he agreed, at the mayor’s request, to build a Macy’s at a mall in North Hollywood. In Chicago, he promised to resume local manufacturing of the famed Frango mints at Marshall Field’s. In St. Louis, he vowed to keep the downtown Famous-Barr store open, despite years of poor sales.
“When you are a company of our size, trying to make the changes we are making, you need a close relationship with local officials,” Mr. Lundgren said in an office at Macy’s Herald Square store in Manhattan. “You have to get off on the right foot.”
Any misstep would be costly. The merger Mr. Lundgren engineered in early 2005 was always a high-stakes bet that in a retail landscape dominated by big-box chains like Wal-Mart and specialty stores like J. Crew, consumers still needed department stores, and that they would warm to a retailer that wiped out century-old local brands.
The delicacy of the task may explain why Mr. Lundgren traveled here to painstakingly court Gerry Frank, whose family started Meier & Frank, a 149-year-old Oregon department store that Federated inherited when it bought May. Last year, Mr. Frank, the great-grandson of Meier & Frank’s founder, wrote a letter asking Mr. Lundgren, in no uncertain terms, not to tamper with the identity of the family’s department store. “I think I can speak for many, many Oregonians,” he wrote, “in asking that Federated maintain the Meier & Frank name.”
So, in the midst of the $11 billion takeover of May, Mr. Lundgren flew 2,500 miles to dine with Mr. Frank in Portland. Back at his office in New York, Mr. Lundgren exchanged flattering e-mail messages with him (“You are a Great Man and True Friend,” concluded one note from Mr. Lundgren. “Don’t be afraid to ask me or tell me anything,” read another.)
In a final flourish, Mr. Lundgren agreed to emblazon Mr. Frank’s family name on plaques outside the downtown Portland store after it became Macy’s.
“Today I would jump off a building for him,” Mr. Frank said of Mr. Lundgren.
It is a performance that Mr. Lundgren has repeated over and over, from Boston, where Macy’s will become an official department store sponsor of the Boston Red Sox, to St. Louis. “He called me on the phone several times, met me in person twice, then he had us up to New York,” said Francis G. Slay, the mayor of St. Louis, where the Famous-Barr chain is soon to become Macy’s. “Honestly, I was surprised that he gave so much personal attention to us.”
At the heart of Mr. Lundgren’s campaign is a simple insight into the politics of retailing: people care more about store symbols and traditions than the names behind them.
So instead of fretting over the loss of Hecht’s in Washington or Famous-Barr in St. Louis, Mr. Lundgren focused on the handful of rituals that matter to shoppers — the Christmas tree lighting ceremonies, the Santaland displays and the July 4 fireworks shows.
Even in Chicago, where 60,000 people signed an online petition to preserve the Marshall Field’s name, Mr. Lundgren has managed to win over detractors by emphasizing tradition, big and small. He has ensured, for example, that the downtown State Street store’s elaborate Christmas windows will remain untouched. He signed off on a plan to refurbish an abandoned express elevator that once carried shoppers directly to the store’s designer boutique, 28 Shop.
And he has seized on Frango mints, a cherished symbol of the State Street store and the source of a public relations fumble for Marshall Field’s earlier owner, Dayton Hudson, in the late 1990’s. Shortly after buying the chain, Dayton Hudson outsourced the mint’s production, laying off about 150 local workers and earning a very public rebuke from Mayor Richard M. Daley.
No wonder, perhaps, that at a luncheon in July that was expected to reveal long-simmering tensions over the Marshall Field’s name change, Mr. Lundgren announced that Macy’s would begin manufacturing Frango-mint-flavored cheesecakes in Chicago, a headline that dominated local newspapers the next day.
At the end of the lunch, members of the audience swarmed around the 54-year-old Mr. Lundgren, a silver-haired, meticulously groomed former Neiman Marcus executive. Several asked for his autograph.
“Very smooth,” was the verdict of one attendee, John S. Maxson, president of the Greater North Michigan Avenue Association, which represents 700 businesses in downtown Chicago. “Were this not handled as expertly as it has been, it could have been a big disaster. It has not been.”
Although Mr. Lundgren is credited with improving Federated’s financial performance, the company is by no means a runaway success. Before it bought May, it reported sluggish sales growth for several years. Bolstered in part by the merger, its earnings have improved; in the 12 months ended in January, revenue was $22.3 billion and profit was $6.5 billion.
All the more reason that Mr. Lundgren insists on sticking to the most disputed part of his plan, the name changes. The May department store chains, Federated executives maintain, have buried consumers under a blizzard of coupons and flustered them with crowded aisles of middle-brow fashions. As a result, the chains lost their relevance as purveyors of style and, with it, their ties to the community.
To prove the point, Mr. Lundgren tells a story. Soon after Federated disclosed that Marshall Field’s, an upscale Midwest department store, would lose its name, scores of shoppers wrote blistering letters to the company, with several threatening to cut up their Field’s charge cards.
Worried that the reaction might be widespread and hurt the chain’s sales, Mr. Lundgren asked the accounting department to pull the purchase records of the first 100 letter writers. “There was no activity,” he said. “Or incredibly little activity.”
“This is where the tension was coming from,” he continued. “There was a group of people who did not want a change. But do they like the merchandise in the store? Not according to their spending. In their letters, they talked about when they were a child. But nobody was talking in the present tense.”
The lesson was clear: changing the name was unlikely to hurt sales. In fact, it might improve them. Then there is the pure financial logic. The conversion to Macy’s will save Federated millions on advertising — one name is cheaper to market than 11 — and create one national brand with stronger negotiating power with clothing suppliers.
Mr. Lundgren said that power had already translated into exclusive product lines for Macy’s, which is trying to shake its reputation as a stodgy, midprice department store by carrying higher-priced, more fashionable brands. After the merger, Martha Stewart said she would develop an upscale furniture line for the chain — much to the chagrin of Kmart, which carries her Martha Stewart Everyday products — while the designer Elie Tahari agreed to create a collection of women’s clothing.
Mr. Lundgren’s commitment to stock more upscale merchandise has become a major selling point in his campaign to sell local political leaders on the Macy’s takeover. For years, officials in St. Louis, Washington and Portland have complained that May dumped cheap goods into their downtown stores.
“It was heartbreaking to watch,” said Mr. Frank, the Meier & Frank scion, who waged a bitter — and unsuccessful — battle to stop his family from selling the chain to May in the 1960’s. “Row after row of sales merchandise just turned people off.”
In their early conversations, Mr. Lundgren told Mr. Frank he would try to restore the luster to the Meier & Frank legacy, investing in elegant new store fixtures and more prestigious clothing brands. But Mr. Frank, at one time the chief of staff to the former Oregon Senator Mark O. Hatfield, a confidant of the Oregon governor and a columnist for the state’s largest newspaper, still opposed the name change.
Upsetting Mr. Frank could mean upsetting much of the Oregon political establishment, so Mr. Lundgren took his charm offensive on the road. He and his wife, Tina, attended a charity dinner in Mr. Frank’s honor in Portland, writing a donation check on the spot. He later invited Mr. Frank to lunch in New York City.
Mr. Lundgren also began exchanging frequent letters and e-mail messages with Mr. Frank, often venturing beyond business matters and speaking in strikingly personal terms. “Tina and I will be there for you if and when you ever need us,” concludes one e-mail message, which Mr. Frank shared with a reporter. “We both absolutely adore you.”
After Mr. Lundgren learned that a block in downtown Portland would be renamed “Meier & Frank Square,” he wrote: “Frankly (no pun intended), I would rather it be named Gerry Frank Square but we are all happy with the alternative. You are the very best.”
Mr. Lundgren has certainly let local leaders down, too. Shortly after Federated announced its plans to convert May stores into Macy’s, a team of political and business leaders from St Louis, where May is based, flew to New York to meet with Mr. Lundgren. In a conference room at Macy’s Herald Square store, they asked him to consider relocating Federated’s headquarters from Cincinnati to St. Louis, which would spare the city steep job losses. “I really appreciate this,” Mr. Lundgren recalled telling the group. “But we are not going to do this.”
In the end, the city lost several hundred jobs. But like their counterparts in Portland, Los Angeles and Philadelphia, St. Louis city leaders did not walk away empty-handed. Mr. Lundgren agreed to designate St. Louis the headquarters of Macy’s Midwest division, overseeing stores from Kansas City to New York, and to renovate the first floor of the city’s struggling downtown store. Mr. Lundgren delivered each piece of news himself, either in person or by phone.
To Mr. Slay, the mayor of St. Louis, the experience must have seemed strangely familiar. “That is,” he said, “a political approach.”