Meckler on Federated

In my last post, I shared a post by blogger Michael Meckler concerning the Federated-May merger and the future of Marshall Field's, along with my response to it. Mr. Meckler sent me a response to my rebuttal that I must admit includes many more observations and insights I hadn't considered. My main question after reading his e-mail, though, is this: Miller High Life was once considered a "premium" beer? My oh my, times really have changed.

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From: Michael Meckler
To: Mitch Glaser
Subject: Re: Marshall Field's
Date: Tue, 9 Aug 2005 05:38:58 -0400

Mitch, Thanks for your response.

In essence, my complaint about Federated's strategy really concerns the perceptions of the Macy's name, and the positioning of Macy's against bigbox competitors.

Macy's has very high "negatives" among most shoppers outside of the Northeast. In part, this is due to the changes brought about through consolidation as Federated cut back on merchandise and customer service. When the local department store's name changed to Macy's, shoppers also noted a decline in the quality of the merchandise and the availability of staff. Shoppers got mad, and they accelerated their departure to stores like Kohl's and Target, which provided products of similar quality at a cheaper price. If Macy's is to present any sort of competition to these retailers, Federated needs to compete at that level. I'm glad to hear that Macy's is attempting such a strategy in some of their California stores.

But Macy's can't reinvent themselves "upward" as a "good" quality, full-service retailer. That's like McDonald's pretending to be Applebee's. Federated needs to forget about the perception of Macy's Herald Square store in Manhattan. That store is an anomaly. During the rollout of the Macy's name nationwide earlier this year, Federated sent giant inflatable balloons to malls all over the country to try to tie the renaming with the Thanksgiving Day parade and the Herald Square store. These events were not particularly well attended and failed to make any real impression on shoppers. The Macy's name for much of the country is retailing poison at the full-service level.

My discussion of a three-tier strategy was not one of "good"/"better"/"best", but rather one of "white linoleum tile"/"commercial-grade carpeting"/"luxury carpeting". In other words, I see the best strategy for Macy's as a national brand involving stripping the stores to value-priced housewares and home furnishings, and youth-directed casual apparel. In this way, Macy's can directly compete with Target, Kohl's, JCPenney and Sears. The traditional department-store category, as you point out, continues to shrink. Transforming most of the Macy's properties, especially all of the smaller-sized locations, to value-priced stores is the only longterm means of Federated staunching the bleeding.

Now there will continue to be shoppers who want a full-service department store and are willing to pay slightly higher prices for greater selection and service. Here is where I would employ the Marshall Field's brand. Lundgren is, of course, correct to point out that the demographics of the recently rebranded Macy's are close to those of Marshall Field's, but it must be kept in mind that most Marshall Field's stores were themselves only recently rebranded from Dayton-Hudson. I suspect that the pre-Dayton-Hudson stores (and the ones in Columbus were opened when BAT owned Field's) have a slightly different clientele. Furthermore, Marshall Field's clearly has some cachet, or else Target would not have renamed the Dayton's and Hudson's stores. A far more successful longterm strategy for the full-service department store is to employ a brand perceived as having higher quality such as Marshall Field's, over a brand that is perceived as low quality, such as Macy's. You can always reposition a brand downward, but it is difficult to reposition it upward. Miller High Life will never be a premium beer again, and Macy's will never be considered a "good" quality retailer.

So in my view, a properly positioned Macy's will compete against Sears, JCPenney, Target and Kohl's. Bloomingdale's will compete at the top end with Saks, Neiman Marcus and Nordstrom. Marshall Field's will provide something different: the full-service, midrange department store, though with far fewer stores nationwide, as indicated by the current retailing environment. What Federated is proposing places Macy's in that midrange category, but I don't think the market is large enough anymore for as extensive a nationwide chain as Federated envisions for Macy's. Furthermore, Macy's has a terrible reputation at that level, and this current strategy in essence provides no competition whatsoever to Target and Kohl's. Macy's name prevents the brand from competing with the bigboxes as a full-service alternative. Another name is needed to fill that niche, and the Marshall Field's name is the best option Federated has at its disposal.

All the best,

Michael Meckler