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R. H. Macy & Co., Inc.

R. H. Macy & Co., Inc.

151 West 34th Street
New York, New York 10001
U.S.A.
(212) 695-4400
Fax: (212) 629-6814

Private Company
Incorporated:
1919
Employees: 60,000
Sales: $6.35 billion
SICs: 5311 Department Stores; 5632 Womens Accessory & Specialty Stores

R. H. Macy & Co., Inc. operates through three department store groups: Macys East, Macys West and I. Magnin. The groups, in turn, operate approximately 133 stores that collectively occupy some 30 million square feet of space, located in 17 states. Macy also operated 70 specialty stores, 12 inventory closeout centers, and had interests in shopping centers. However, the companys dramatic bankruptcy filing in January, 1992 led to the closing of 66 stores by July, 1993. Macy stores target the middle-to-higher-priced market, offering womens, mens, and childrens clothing and accessories; housewares; home furnishings; and furniture.

Rowland H. Macy made his fifth attempt at opening a retail store in Manhattan in 1858. His previous four attempts with similar stores had failed resoundingly, culminating, with the demise of his shop of Haverhill, Massachusetts, in his bankruptcy. Although Macys store was situated far north of the traditional retail market, the store on Sixth Avenue near Fourteenth Street sold a healthy $85,000 worth of merchandise within one year.

Macy instituted a cash-only policy not only for customers but for himself as well. No Macys inventory was purchased on credit, and no Macys credit account was issued until well into the 1950s. This was unusual in a day when most stores routinely sold on credit. He maintained each products assigned price, so customers could routinely estimate how wide to draw the purse-strings. The new store benefited from his advertising and promotion skills as well as his product line instincts. By 1870, when sales broke $1 million, a stable clientele could purchase not only dry goods, but items like mens hosiery and ties, linens and towels, fancy imported goods, costume jewelry, silver, and clocks.

Macys son was not interested in the retail business, so Macy passed ownership into other hands. In 1860 he hired his cousin Margaret Getchell to do bookkeeping at the store, and she subsequently married a young Macys salesman, Abiel T. LaForge. Macy increased LaForges responsibilities, and eventually chose him as heir to half his store. The other half went to Macys nephew, Robert M. Valentine.

Valentine and LaForge became the proprietors when the founder died unexpectedly in 1877 on a buying trip in France. LaForge died soon after. Valentine bought LaForges share, and attempted to continue the family succession by bringing in LaForges relative, Charles Webster. When Valentine died, Webster married his widow, and brought in his brother-in-law, Jerome B. Wheeler. In 1887, however, Webster bought Wheeler out, becoming the sole proprietor of a thriving business, which he felt he could not perpetuate single-handedly.

Searching for a partner, Webster approached the Straus family, who for 13 years had leased space in Macys to operate a chinaware department, the stores most profitable section. In 1887 it generated almost 20 percent of the stores sales. The Strauses eagerly accepted Websters offer, the partnership culminating many years work and launching the family into a social role comparable to that of the Rothschilds in Europe. Lazarus Straus, the familys patriarch, emigrated in 1852 from Germany to the United States, dissatisfied with Germanys collapsed 1848 revolution. After several years as a peddler, he was able to send for his wife and four children. The family developed a successful general store in Talbotton, Georgia, then moved to New York City in 1867 after the end of the Civil War. Lazarus Straus bought a wholesale chinaware-importing firm and brought his sons Isidor, Nathan, and Oscar into the business, renaming the company L. Straus and Sons.

Lazarus Straus died only a year after buying into Macys but his sons carried on the business. Under the new partnership, Macys matched and outpriced its rivals, including A. T. Stewarts, Hearns, and Siegel & Cooper. Macys sales rose to $5 million within a year, and subsequently continued to grow by 10 percent annually. The Straus brothers introduced their odd-price policy, now used virtually everywhere in U.S. retailing. Charging $4.98 instead of $5.00, the store motivated consumers to buy in quantity in order to accumulate substantial savings. Following in Macys footsteps, the Strauses brought in line after line of new merchandiseOriental rugs, ornate furniture, lavish stationery, new-style bicycles, even pianos. They also instituted the stores depositors accounts, in which shoppers could make deposits with the store and then charge purchases against them. This, in effect, provided Macys with interest-free loans, and was a forerunner of installment buying and layaway plans.

In 1896 Charles Webster sold his half interest in Macys to the Strauses, ending the founding familys line of ownership. Jesse, Percy, and Herbert Straus, Isidors sons, urged their father to relocate the store to its Herald square location at 34th Street and Broadway in 1902. The giant new store cost $4.5 million, but funds were easily raised on the Straus familys good name, built upon the success of Macys and the independently operated Abraham & Straus, acquired in Brooklyn in 1893.

No modern convenience was lacking in the Herald Square store. It was equipped with newly designed escalators, pneumatic tubes to move cash or messages, and an air exhaust system that provided the store with a constant supply of fresh air. Macys spacious building had ample fitting rooms, accommodation desks, an information counter, and comfortable rest rooms. Macys had a fleet of comparison shoppers who checked out other stores prices to be sure Macys merchandise was competitively priced. Sales pushed to $11 million within a year of the move. Called the worlds largest store, Macys Herald Square thrilled tourists and locals alike.

After his fathers death, Isidor Straus had emerged as the family patriarch, and remained, among the sons, the most interested in the store. Nathan gradually developed more as a philanthropist than a businessman, and Oscar, after taking a law degree, disregarded the business in favor of politics. Isidor and his wife, Ida, were among the passengers on the ill-fated voyage of the Titanic. After their deaths in 1912, Isidors sons Jesse, Percy, and Herbert bought out Nathans interest in Macys and ceded their interests in Abraham & Straus to Nathan. Nathan, thus, became the sole owner of Abraham & Straus.

As it did most of its products, Macys sold books at substantially below their wholesale price25 percent below. In 1909 a book publishers association sued Macy, charging that the price-cutting hurt their copyright value. The Strauses countersued, claiming that the group constituted an illegal trust under the Sherman Antitrust Act. The publishers responded by cutting Macy off completely. The Strauses, however, obtained stock through other channelswholesalers, transshippers, or other retailers who had overstocked; they even cut deals directly with authors. The U.S. Supreme Court decided in Macys favor in 1913, but the controversy made it even tougher for the store to acquire well-known brands in any product line, prompting Macys to develop its own private labels.

When World War I ended in 1918, sales were up to $36 million, twice that of 1914. Macys began its expansion into other cities, acquiring substantial interests in LaSalles & Koch Co. in Toledo, Ohio, in 1923 and Davison-Paxon-Stokes Co. in Atlanta, Georgia, in 1925. In subsequent years the balance of stock in both companies was acquired. In the 1920s Macys began the tradition of sponsoring New York Citys Thanksgiving Day parade. The public relations impact of the event went national when two major television networks began to cover the parade in 1952. Just before the Great Depression, Macys bought L. Bamberger & Co. of Newark, New Jersey, a division that would later lead a renaissance for Macys. In the 1940s, it added stores in San Francisco, California, and Kansas City, Missouri. By the late 1940s, Macys was not only the worlds largest store but the United Statess largest department store chain.

Jack I. Straus, Jesses son, became chairman of Macys in 1940. He had grown up with the store, having been present at age two at the Herald Square opening. He realized that the family line was thinning, and began training and promoting outsiders into the top executive positions in the firm. Over the years the Strauses would gradually lessen their holding in the company, but the family remained at the helm of Macys until the 1980s, when Edward S. Finkelstein, a manager hired by Macys in 1948, led the company into an entirely new phase.

Straus passed the chairmanship of Macys on to Robert (Bobby) Weil, his sisters son, as the 1940s ended. Weil beefed up Macys advertising campaign, billing the store as the community store. Nevertheless, as the postwar economy picked up, New Yorkers no longer craved the bargains that were Macys stock in trade, and did more shopping at other stores. Macys stock fell from $3.35 per common share in fiscal 1950 to $2.51 in fiscal 1951. Further problems lay ahead.

In 1931 the Federal Fair Trade Law had allowed suppliers of certain products to specify a minimum retail price in order to stabilize the depression-era economy. With the exception of Korvettes, Macys competitorsAbraham & Straus, Gimbel Brothers, Bloomingdales, and B. Altmanabided by these minimums. In 1952, however, Schwegmann Brothers, a New Orleans, Louisiana, drugstore chain, contested the law and won its case. The reversal of the 20-year-old practice of price fixing undercut Macys strategy. Macys had undersold its competitors with its 6 percent-less-for-cash policy, but now that fixed minimum prices were not protected by law, all retailers could lower their prices without fear of being sued by suppliers.

Weil decided to combat this by cutting Macys prices even further. The huge Herald Square store proved to have several weaknesseswhile no one could match the giants prices across the board, Gimbel could undersell Macys in pharmaceu-ticals; Gertz of Long Island, New York, in books; and Bloomingdales in stationery and menswear. In 1952 Macys posted the first year of loss in its history. Its battle plan was outmoded; Macys fumbled in directions it had previously ignored, instituting charge accounts and catering more to its suppliers.

While the flagship store struggled with image problems, a renaissance began in another division: Bambergers of New Jersey. David L. Yunich took the helm of the decaying urban store in Newark in 1955. During his eight years of guidance, Bambergers mushroomed, opening in suburbs all over New Jersey. The chains annual sales rose from $82 million to $500 million, its profits being among the highest in the nation and topping even those of the mammoth New York division. Herbert L. Seegal and his protege Finkelstein came to Bambergers in 1962 to step up its growth, using new customer-oriented merchandising. Instead of buying whatever suppliers offered, Bambergers bought the top of the line in any new group of goods, and featured that in the most glamorous displays Bambergers customers had ever seen. The technique garnered notice not only within Macys but from top executives of other chains as well. The store began its push out of New Jersey to the south and west in 1968, and by the 1980s had three times as many stores as in the late 1960s. Bambergers of New Jerseys sales for the fiscal year ending July 31, 1981, were $799 million; with Macys California and New York divisions, it formed a powerful triad generating 86 percent of Macys sales.

Macys had acquired the old OConnor, Moffat Co. store as its first California outpost in 1945. It was renamed and made Macys flagship in San Franciscos then-posh Union Square. Like other urban retail centers, however, Union Square and its surrounding complement of chic shops, including I. Magnin, Liberty House, the Emporium, Bonwit Teller, Gumps, and a host of others, fell victim to urban decay in the 1960s. Finkel-stein was sent to bail out Macys California in 1969. Macys upgraded its image, aiming its product lines at a more well-heeled buyer. The transformation of Californias 12 stores helped Macys surpass most of its competitors, leaving it as one of the top three retailers, along with the Emporium and I. Magnin.

Finkelstein was brought back to the East in 1974 to work on the Herald Square store. He trimmed off such departments as phar-maceuticals, major appliances, sporting goods, and toys in which the store could not compete. Macys put an end to its concentration on household durable goods, departments that got heavy competition from Korvettes and Sears as well as local department stores. In place of the discontinued departments, inventories were increased and presentations were refined in certain departments, including linens and domestics, furniture, menswear, and jewelry.

Finkelstein remodeled about 35 percent of the space in New Yorks 16 stores, including the Herald Square store, which benefitted from the installation of the Cellar in 1976. Macys basement, which had been a no-frills depository for bargain merchandise, was transformed into a sparkling esplanade of airy specialty shops offering gourmet foods, yard goods, stationery, baskets, and contemporary housewares. Geared to a trend-conscious consumer, the cross between a European boulevard and a chic suburban mall also offered frequent cooking demonstrations, an old-fashioned apothecary, and a pottery shop complete with a working potter at the wheel. The Cellar caused such a stir that Bloomingdales hastily installed a similar group of boutiques, although Bloomingdales management claimed its conception predated the Cellars opening. The revitalized Macys had its biggest holiday season ever in 1976, and increased its annual earnings greatly from the previous year.

The chinks in Macys formidable front were minor; competitors claimed that Macys modern image was tarnished by its refusal to accept major credit cards. In addition, Macys as a corporation lacked diversity. It operated only department stores, while most other similarly sized operations had diversified into specialty stores. Macys eventually began development of such stores in the early 1980s.

In 1978 Finkelstein was promoted from president to chairman of Macys New York division. The Macy Miracle, as it was called, gained momentum as annual sales soared between the years 1979 and 1982. In 1982 corporate sales gains of 20.1 percent topped the industry, and Macys surpassed its major competitors in operating profit per square foot.

While other stores were consolidating departments under fewer buyers, Macys added more buyers, encouraging them to find unique products. Stores were overstocked by 10 percent to 20 percent, so that unpredicted buying surges could be accommodated. It hired many executives for its training program, up to 300 per year in larger divisions. In 1984 Macys had its best year ever. Sales rose 17.2 percent to $4.07 billion from 1983s $3.47 billion, which was up 16.4 percent from the previous year. At each of its 96 stores, Macys averaged after-tax profits of $2.31 million. During 1984 Macys common stock soared in value.

The year 1985 was tough for most retailers, including Macys. For the year, sales were $4.37 billion, up 6.4 percent from the previous year, but net income dropped almost 15 percent from $221.8 million to $189.3 million. The increase in sales was small compared to steady gains of 12 percent to 17 percent in the previous four years. Sales costs had risen, due to an increased advertising push, and to new staff training programs.

By 1984 Macys bulky inventories had gotten out of hand. Inventories were 35 percent larger than in 1983. Prices were slashed, but the store could not seem to get rid of its excess. The store continued to build stock instead of eliminating it, miscalculating the buying force of the public; other stores were reducing their inventories. Finkelstein had attempted to expand his private-label lines; he kept the prices too high, however, to attract buyers. Finkelsteins vigilant management had never slipped before; the uncharacteristic miscalculation worried analysts. Wall Street began to waver in its praise. Macys had the second-best year in its history in 1985, but the radical drops were not taken kindly in an institution that had been on a steady upward incline for over a decade.

Mergers and acquisitions abounded in the retail industry in 1985. A company with a weak profit record was a likely target because that performance pushed its stock value down, and a change in management could improve it. Although Macys ten-year profit history was phenomenal, the recent questions from analysts were pushing Macys stock prices down, and Finkelstein worried about a hostile takeover. In addition, he felt that his best executives were being lured to other stores. Rapid growth and subsequent compensation had satisfied his players over the past ten years, but now the store approached a plateau. Finkelstein had to do something to restore the companys vitality.

Finkelsteins solution was to lead the top 350 executives in a leveraged buyout of Macys, at $70 per share, not much above a recent market high. He saw ownership and the subsequent share in profits as a way to motivate employees. Some shareholders objected, and one even filed suit, but the offer was sufficiently attractive that they eventually agreed. As for the Straus family, patriarch Jack was outraged, but in effect he had relinquished ownership long ago. In 1924 the Straus family had total ownership; by the 1960s, it was down to 20 percent; and by the 1980s, the family held only about a 2 percent interest in the chain. Its attachment to the store could not stop management from executing the biggest takeover of a retailer at that time and the first leveraged buyout of a major retail chain.

The year after the buyout, Macys stores did so well that the chain could almost report a net profit, despite the debt service on the heavy borrowing needed to fund the buyout. In 1988 Macys added further to its debt, however, by purchasing Federateds Bullocks and Bullocks-Wilshire and the I. Magnin chains. The $1 billion expenditure weighed heavily on company finances, but a confident Macy stocked stores with merchandise in anticipation of a strong holiday season in 1989. The economic recession of the late 1980s, however, had lowered consumer demand for the entire retailing industry, and sales during the holidays proved disappointing. Moreover, when a troubled major competitor, the Campeau retailing empire, ran huge sales to increase its cash flow, Macy had to follow suit. Burdened with an overstocked inventory that was selling too slowly, coupled with high spending on expensive promotions, Macy saw its earnings for the holiday season drop 50 percent.

Factoring companies that finance manufacturers shipments to retailers tightened credit for those who did business with Macy, but the company was able to show that it was managing its cash flow through financial maneuvering that allowed Macy to get additional monies from major stockholders. In addition, the company sold two subsidiaries, Macy Credit Corp. and Macy Receivables Funding Corp. to General Electric Capital Corp. for $100 million, relieving the company of $1.5 billion in debt. Several months later, Macy completed the sale of its equity interest in the Valley Fair Shopping Center in San Jose, California.

The company, however, still had $4 billion in long-term debt, and in early 1990 rumors of bankruptcy started to circulate. The rumors persisted throughout the year and on December 4, 1990, Finkelstein took out a full-page ad in the trade journal Womens Wear Daily to quash them once and for all. Once again the store looked forward to holiday sales to boost cash flow, and once again there were heavy promotions and discounting to spur consumer demand. But the recession had persisted, consumer confidence was low, and sales were again below expectations. Sales throughout 1991 continued to be slow and Macy sustained further losses. Still another disappointing holiday season made it increasingly difficult for Macy to service its debt. To further cut its deficit, Macys bought back $300 million of its bonds for less than 50 percent of their face value.

However, the poor retail climate combined with ineffective merchandising, diminishing public image, and lack of management focus led to further revenue losses. In early 1992 Macy announced an indefinite delay in paying its suppliers. A last minute effort by investor Laurence Tisch to buy $802 million of outstanding stock did not win creditor support. The final blow came on January 27th when Macy declared bankruptcy. By April, Finkelstein had been replaced by Myron E. Ullman III and Mark S. Handler.

The new co-executives devised a five-year business plan that included reducing the advertising budget from over 4 percent of sales to under 3 percent, fewer one-day sales, more-focused promotions, fewer private-label items, improved customer service, and a new computerized inventory management system. Store expansion continued, however, and in August of 1992, a new department store was opened in Mall of America in Minneapolis, the companys first in the Minnesota area. Later in the year a new Bullocks department store was opened in Burbank, California, and new I. Magnin stores replaced existing department stores in Phoenix and San Diego.

By early 1993, the plan had begun to show its effectiveness as Macy showed its first profit$147.7 millionsince filing for bankruptcy. Moreover, sales during the 1992 holiday season were better than expected, reaching $1.2 billion, while revenue was 3.8 percent higher than the previous year. Even with these promising results, however, Macy continued to rid itself of unprofitable operations. In March of 1993 the company announced that it would close 11 stores with low growth potential. The latest store closings included five department stores in Connecticut, New Jersey, and California, and six I. Magnin specialty stores in Seattle and cities in California.

Continuing its marketing strategy of reaching out to consumers in new ways, Macy announced in June of 1993 that it was planning to start a 24-hour television home shopping channel. Orders and customer service would be provided by the Home Shopping Network Inc. That month brought more promising newssales of $1.34 billion for the quarter were 5.8 percent higher than the same period the previous year. In addition, sales in stores open at least one year increased 3.1 percent. Macys cash flow was $28.5 million in the quarter, exceeding the requirements of its bank loans by about $6.5 million. Industry analysts reported that the strategy of increasing productivity and cutting costs, in spite of the continued poor economy on the coasts, was beginning to pay off for Macy. With these indicators of Macys strengthened performance, the company hoped to end its bankruptcy by early 1995.

Principal Subsidiaries

Macys Northeast Inc.; Macys California Inc.; Macys South Inc.; Bullock Inc.; I. Magnin Inc.; R. H. Macy Overseas Finance N.V.; Funding Corp.; Macy Receivables Master Servicing Corp.

Further Reading

Barmash, Isadore, Macys for Sale, New York: Weidenfeld & Nicolson, 1989.

Chakravarty, Subrata N., Survivor on 34th St., Forbes, August 6, 1990, p. 10.

Macys New York 125th Anniversary: 1858-1983, New York: R. H. Macy & Co., Inc., 1983.

Macys Plans to Close Additional 11 Stores with Layoffs of 1,500, Wall Street Journal, March 2, 1993, p. B4.

Peterson, Thane, Macys is Trimmed in Red, Business Week, December 30, 1991, p. 48.

Pomice, Eva, Macys Hopes for Santa Claus, U.S. News and World Report, December 3, 1990, pp. 6062.

R. H. Macy & Co., Inc. Annual Report, New York: R. H. Macy & Co., Inc., 1992.

R. H. Macy & Co., Inc. Quarterly Report, New York: R. H. Macy & Co., Inc., May 1, 1993.

R. H. Macy Shows Profit for Five Weeks, Its First Since Bankruptcy-Law Filing, Wall Street Journal, February 2, 1993, p. B3.

Strom, Stephanie, Home Shopping to Get Work for Macy Channel, New York Times, June 8, 1993, p. D5; Macy shows Gain in Sales, Cash Flow, New York Times, June 12, 1993.

Zinn, Laura, Prudence on 34th St., Business Week, November 16, 1992, p. 44.

Zinn, Laura, and Christopher Power, Its Too Soon to Write Macys Obituary, Business Week, December 17, 1990, p. 27.

Elaine Belsito

updated by Dorothy Kroll

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R. H. Macy & Co., Inc.

R. H. Macy & Co., Inc.

151 West 34th Street
New York, New York 10001
U.S.A.
(212) 560-3600
Fax: (212) 629-6814

Private Company
Incorporated: 1919
Employees: 78,000
Sales: $6.97 billion

R. H. Macy & Co., Inc. operates through four department store groups: Macys of New York, Inc., Macys New Jersey, Macys California, and Macys Atlanta. The groups in turn operate approximately 90 stores that collectively occupy some 23 million square feet in 13 states. The corporation owns several shopping centers and has an interest in several others. The Macys stores target the middle-to-higher-priced market, offering womens, mens, and childrens clothing and accessories; housewares; home furnishings; and furniture.

Rowland H. Macy made his fifth attempt at opening a retail store in Manhattan in 1858. His previous four attempts with similar stores had failed resoundingly, culminating, with the demise of his shop of Haverhill, Massachusetts, in his bankruptcy. Although Macys store was situated far north of the traditional retail market, the store on Sixth Avenue near Fourteenth Street sold a healthy $85,000 worth of merchandise within one year.

Macy instituted a cash-only policy not only for customers but for himself as well. No Macys inventory was purchased on credit, and no Macys credit account was issued until well into the 1950s. This was unusual in a day when most stores routinely sold on credit. He maintained each products assigned price, so customers could routinely estimate how wide to draw the pursestrings. The new store benefited from his advertising and promotion skills as well as his product line instincts. By 1870, when sales broke $1 million, a stable clientele could purchase not only dry goods, but items like mens hosiery and ties, linens and towels, fancy imported goods, costume jewelry, silver, and clocks.

Macys son was not interested in the retail business, so Macy passed ownership into other hands. In 1860 he hired his cousin Margaret Getchell to do bookkeeping at the store, and she subsequently married a young Macys salesman, Abiel T. LaForge. Macy increased LaForges responsibilities, and eventually chose him as heir to half his store. The other half went to Macys nephew, Robert M. Valentine.

Valentine and LaForge became the proprietors when the founder died unexpectedly in 1877 on a buying trip in France. LaForge died soon after. Valentine bought LaForges share, and attempted to continue the family succession by bringing in LaForges relative, Charles Webster. When Valentine died, Webster married his widow, and brought in his brother-in-law, Jerome B. Wheeler. In 1887, however, Webster bought Wheeler out, becoming the sole proprietor of a thriving business, which he felt he could not perpetuate single-handedly.

Searching for a partner, Webster approached the Straus family, who for 13 years had leased space in Macys to operate a chinaware department, the stores most profitable section. In 1887 it generated almost 20% of the stores sales. The Strauses eagerly accepted Websters offer, the partnership culminating many years work and launching the family into a social role comparable to that of the Rothschilds in Europe. Lazarus Straus, the familys patriarch, emigrated in 1852 from Germany to the United States, dissatisfied with Germanys collapsed 1848 revolution. After several years as a peddler, he was able to send for his wife and four children. The family developed a successful general store in Talbotton, Georgia, then moved to New York City in 1867 after the end of the Civil War. Lazarus Straus bought a wholesale chinaware-importing firm and brought his sons Isidor, Nathan, and Oscar into the business, renaming the company L. Straus and Sons. Lazarus Straus died only a year after buying into Macys but his sons carried on the business. Under the new partnership, Macys matched and outpriced its rivals, such as A. T. Stewarts, Hearns, and Siegel & Cooper. Macys sales rose to $5 million within a year, and subsequently continued to grow by 10% annually. The Straus brothers introduced their odd-price policy, now used virtually everywhere in U.S. retailing. Charging $4.98 instead of $5.00, the store motivated consumers to buy in quantity in order to accumulate substantial savings. Following in Macys footsteps, the Strauses brought in line after line of new merchandiseOriental rugs, ornate furniture, lavish stationery, new-style bicycles, even pianos. They also instituted the stores depositors accounts, in which shoppers could make deposits with the store and then charge purchases against them. This, in effect, provided Macys with interest-free loans, and was a forerunner of installment buying and layaway plans.

In 1896 Charles Webster sold his half interest in Macys to the Strauses, ending the founding familys line of ownership. Jesse, Percy, and Herbert Straus, Isidors sons, urged their father to relocate the store to its Herald Square location at 34th Street and Broadway in 1902. The giant new store cost $4.5 million, but funds were easily raised on the Straus familys good name, built upon the success of Macys and the independently operated Abraham & Straus, acquired in Brooklyn in 1893.

No modern convenience was lacking in the Herald Square store. It was equipped with newly designed escalators, pneumatic tubes to move cash or messages, and an air exhaust system that provided the store with a constant supply of fresh air. Macys spacious building had ample fitting rooms, accommodation desks, an information counter, and comfortable rest rooms. Macys had a fleet of comparison shoppers who checked out other stores prices to be sure Macys merchandise was competitively priced. Sales pushed to $11 million within a year of the move. Called the worlds largest store, Macys Herald Square thrilled tourists and locals alike.

After his fathers death, Isidor Straus had emerged as the family patriarch, and remained, among the sons, the most interested in the store. Nathan gradually developed more as a philanthropist than a businessman, and Oscar, after taking a law degree, disregarded the business in favor of politics. Isidor and his wife, Ida, were among the passengers on the ill-fated voyage of the Titanic. After their deaths in 1912, Isidors sons Jesse, Percy, and Herbert bought out Nathans interest in Macys and ceded their interests in Abraham & Straus to Nathan. Nathan, thus, became the sole owner of Abraham & Straus.

As it did most of its products, Macys sold books at substantially below their wholesale price25% below. In 1909 a book publishers association sued Macy, charging that the pricecutting hurt their copyright value. The Strauses countersued, claiming that the group constituted an illegal trust under the Sherman Antitrust Act. The publishers responded by cutting Macy off completely. The Strauses, however, obtained stock through other channelswholesalers, transshippers, or other retailers who had overstocked; they even cut deals directly with authors. The U.S. Supreme Court decided in Macys favor in 1913, but the controversy made it even tougher for the store to acquire well-known brands in any product line, prompting Macys to develop its own private labels.

When World War I ended in 1918, sales were up to $36 million, twice that of 1914. Macys began its expansion into other cities, acquiring substantial interests in LaSalles & Koch Co. in Toledo, Ohio, in 1923 and Davison-Paxon-Stokes Co. in Atlanta, Georgia, in 1925. In subsequent years the balance of stock in both companies was acquired. In the 1920s Macys began the tradition of sponsoring New York Citys Thanksgiving Day parade. The public relations impact of the event went national when two major television networks began to cover the parade in 1952. Just before the Great Depression, Macys bought L. Bamberger & Co. of Newark, New Jersey, a division that would later lead a renaissance for Macys. In the 1940s, it added stores in San Francisco, California, and Kansas City, Missouri. By the late 1940s, Macys was not only the worlds largest store but the United Statess largest department store chain.

Jack I. Straus, Jesses son, became chairman of Macys in 1940. He had grown up with the store, having been present at age two at the Herald Square opening. He realized that the family line was thinning, and began training and promoting outsiders into the top executive positions in the firm. Over the years the Strauses would gradually lessen their holding in the company, but the family remained at the helm of Macys until the 1980s, when Edward S. Finkelstein, a manager hired by Macys in 1948, led the company into an entirely new phase.

Straus passed the chairmanship of Macys on to Robert (Bobby) Weil, his sisters son, as the 1940s ended. Weil beefed up Macys advertising campaign, billing the store as the community store. Nevertheless, as the postwar economy picked up, New Yorkers no longer craved the bargains that were Macys stock in trade, and did more shopping at other stores. Macys stock fell from $3.35 per common share in fiscal 1950 to $2.51 in fiscal 1951. Further problems lay ahead.

In 1931 the Federal Fair Trade Law had allowed suppliers of certain products to specify a minimum retail price in order to stabilize the depression-era economy. With the exception of Korvettes, Macys competitorsAbraham & Straus, Gimbel Brothers, Bloomingdales, and B. Altmanabided by these minimums. In 1952, however, Seh wegmann Brothers, a New Orleans, Louisiana, drugstore chain, contested the law and won its case. The reversal of the 20-year-old practice of price fixing undercut Macys strategy. Macys had undersold its competitors with its 6%-less-for-cash policy, but now that fixed minimum prices were not protected by law, all retailers could lower their prices without fear of being sued by suppliers.

Weil decided to combat this by cutting Macys prices even further. The huge Herald Square store proved to have several weaknesseswhile no one could match the giants prices across the board, Gimbel could undersell Macys in pharmaceuticals; Gertz of Long Island, New York, in books; and Bloomingdales in stationery and mens wear. In 1952 Macys posted the first year of loss in its history. Its battle plan was outmoded; Macys fumbled in directions it had previously ignored, instituting charge accounts and catering more to its suppliers.

While the flagship store struggled with image problems, a renaissance began in another division: Bambergers of New Jersey. David L. Yunich took the helm of the decaying urban store in Newark in 1955. During his eight years of guidance, Bambergers mushroomed, opening in suburbs all over New Jersey. The chains annual sales rose from $82 million to $500 million, its profits being among the highest in the nation and topping even those of the mammoth New York division. Herbert L. Seegal and his protege Finkelstein came to Bambergers in 1962 to step up its growth, using new customer-oriented merchandising. Instead of buying whatever suppliers offered, Bambergers bought the top of the line in any new group of goods, and featured that in the most glamorous displays Bambergers customers had ever seen. The technique garnered notice not only within Macys but from top executives of other chains as well. The store began its push out of New Jersey to the south and west in 1968, and by the 1980s had three times as many stores as in the late 1960s. Bambergers of New Jerseys sales for the fiscal year ending July 31, 1981, were $799 million; with Macys California and New York divisions, it formed a powerful triad generating 86% of Macys sales.

Macys had acquired the old OConnor, Moffat Co. store as its first California outpost in 1945. It was renamed and made Macys flagship in San Franciscos then-posh Union Square. Like other urban retail centers, however, Union Square and its surrounding complement of chic shops, including I. Magnin, Liberty House, the Emporium, Bonwit Teller, Gumps, and a host of others, fell victim to urban decay in the 1960s. Finkelstein was sent to bail out Macys California in 1969. Macys upgraded its image, aiming its product lines at a more wellheeled buyer. The transformation of Californias 12 stores helped Macys surpass most of its competitors, leaving it as one of the top three retailers, along with the Emporium and I. Magnin.

Finkelstein was brought back to the East in 1974 to work on the Herald Square store. He trimmed off departments in which the store could not compete, like pharmaceuticals, major appliances, sporting goods, and toys. Macys put an end to its concentration on household durables, departments that got heavy competition from Korvettes and Sears as well as local department stores. In place of the discontinued departments, inventories were increased and presentations were refined in certain departments, including linens and domestics, furniture, mens wear, and jewelry.

Finkelstein remodeled about 35% of the space in New Yorks 16 stores, including the Herald Square store, which benefitted from the installation of the Cellar in 1976. Macys basement, which had been a no-frills depository for bargain merchandise, was transformed into a sparkling esplanade of airy specialty shops offering gourmet foods, yard goods, stationery, baskets, and contemporary housewares. Geared to a trend-conscious consumer, the cross between a European boulevard and a chic suburban mall also offered frequent cooking demonstrations, an old-fashioned apothecary, and a pottery shop complete with a working potter at the wheel. The Cellar caused such a stir that Bloomingdales hastily installed a similiar group of boutiques, although Bloomingdales management claimed its conception predated the Cellars opening. The revitalized Macys had its biggest Christmas season ever in 1976, and increased its annual earnings greatly from the previous year.

The chinks in Macys formidable front were minor; competitors claimed that Macys modern image was tarnished by its refusal to accept major credit cards. In addition, Macys as a corporation lacked diversity. It operated only department stores, while most other similarly sized operations had diversified into specialty stores. Macys eventually began development of such stores in the early 1980s.

In 1978 Finkelstein was promoted from president to chairman of Macys New York division. The Macy Miracle, as it was called, gained momentum as annual sales soared between the years 1979 and 1982. In 1982 corporate sales gains of 20.1% topped the industry, and Macys supassed its major competitors in operating profit per square foot.

While other stores were consolidating departments under fewer buyers, Macys added more buyers, encouraging them to find unique products. Stores were overstocked by 10% to 20%, so that unpredicted buying surges could be accommodated. It hired many executives for its training program, up to 300 per year in larger divisions. In 1984 Macys had its best year ever. Sales rose 17.2% to $4.07 billion from 1983s $3.47 billion, which was up 16.4% from the previous year. At each of its 96 stores, Macys averaged after-tax profits of $2.31 million. During 1984 Macys common stock soared in value.

The year 1985 was tough for most retailers, including Macys. For the year, sales were $4.37 billion, up 6.4% from the previous year, but net income dropped almost 15% from $221.8 million to $189.3 million. The increase in sales was small compared to steady gains of 12% to 17% in the previous four years. Sales costs had risen, due to an increased advertising push, and to new staff training programs.

By 1984 Macys bulky inventories had gotten out of hand. Inventories were 35% larger than in 1983. Prices were slashed, but the store could not seem to get rid of its excess. The store continued to build stock instead of eliminating it, miscalculating the buying force of the public; other stores were reducing their inventories. Finkelstein had attempted to expand his private-label lines; he kept the prices too high, however, to attract buyers. Finkelsteins vigilant management had never slipped before; the uncharacteristic miscalculation worried analysts. Wall Street began to waver in its praise. Macys in 1985 had the second-best year in its history, but the radical drops were not taken kindly in an institution that had been on a steady upward incline for over a decade.

Mergers and acquisitions abounded in the retail industry in 1985. A company with a weak profit record was a likely target because that performance pushed its stock value down, and a change in management could improve it. Although Macys ten-year profit history was phenomenal, the recent questions from analysts were pushing Macys stock prices down, and Finkelstein worried about a hostile takeover. In addition, he felt that his best executives were being lured to other stores. Rapid growth and subsequent compensation had satisfied his players over the past ten years, but now the store approached a plateau. Finkelstein had to do something to restore the companys vitality.

Finkelsteins solution was to lead the top 350 executives in a leveraged buyout of Macys, at $70 per share, not much above a recent market high. He saw ownership and the subsequent share in profits as a way to motivate employees. Some shareholders objected, and one even filed suit, but the offer was sufficiently attractive that they eventually agreed. As for the Straus family, patriarch Jack was outraged, but in effect he had relinquished ownership long ago. In 1924 the Straus family had total ownership; by the 1960s, it was down to 20%; and by the 1980s, the family held only about a 2% interest in the chain. Its attachment to the store could not stop management from executing the biggest takeover of a retailer at that time and the first leveraged buyout of a major retail chain.

The year after the buyout, Macys stores did so well that the chain could almost report a net profit, despite the debt service on the heavy borrowing needed to fund the buyout. In 1988 Macys added further to its debt, however, by purchasing Federateds Bullocks and Bullocks-Wilshire and the I. Magnin chains. The $1 billion expenditure weighed heavily on company finance, as did a mediocre 1989 Christmas season. The companys outlook remained marred by its onerous debt. Bankruptcy was a threat, and Macys needed to tighten management control in the early 1990s.

Principal Subsidiaries

Bay Fair Shopping Center; Brunswick Square (50%); Columbia Mall; The Garden State Plaza Corp.; Kings Plaza Shopping Center & Marina (50%); Macy Credit Corp.; I. Magnin & Co.; Mission Shopping Center; New Park Mall (50%); Quaker Bridge Mall (50%); Sunnyvale Towncenter (50%); South Shore Mall; Valley Fair Shopping Center.

Further Reading

Macys New York 125th Anniversary: 1858-1983, New York, R. H. Macy & Co., 1983; Barmash, Isadore, Macys for Sale, New York, Weidenfeld & Nicolson, 1989.

Elaine Belsito

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