Business

Lundgren: Macy’s Doesn’t Have Any Other Purchases ‘On The Plate’

Macy’s CEO Terry Lundgren spoke with Bloomberg Television’s Alix Steel and Matt Miller today about the company’s acquisition of Bluemercury, saying, “…we’re in the beauty business in a very big way at Macy’s and Bloomingdale’s, but this is a specialty store business that attracts a different customer that we don’t normally get in the shopping mall.  So this is staying with our core strength but a new avenue of growth for us. ”

On what company he’ll buy next, Lundgren said, “…we’ll always look at other ideas, but we don’t have anything on the plate at the moment.”

Lundgren: Macy's Doesn't Have Any Other Purchases 'On The Plate'

On whether Macy’s is seeing an increase in consumer spending correlated with falling gas prices, he said, “The size of the opportunity is gigantic in terms of what’s being put back in the pockets of consumers, in the range of $50 – $70 billion.  I mean, that’s massive.  I don’t know of a bigger pay raise that the middle-class consumer ever received in a decade.”

Terry Lundgren: Macy’s Boosts Full-Year Forecast, Will Buy Bluemercury

ALIX STEEL, BLOOMBERG:  And on the phone with us now here in New York City is Macy’s CEO Terry Lundgren.  Terry, thank you for joining us today.  I’d like to start on your acquisition.  $210 million for Bluemercury.  Why did you decide to make this purchase now?

TERRY LUNDGREN, CEO, MACY’S:  Well, this is a new channel of distribution for Macy’s in a category we know very well and consider a core strength of ours.  So we’re in the beauty business in a very big way at Macy’s and Bloomingdale’s, but this is a specialty store business that attracts a different customer that we don’t normally get in the shopping mall.  So this is staying with our core strength but a new avenue of growth for us.

STEEL:  But what part of this was to compete with JCPenney?  I mean, they have Sephora shops in their stores.  Sephora, of course, very popular.

LUNDGREN:  Yes, quite different.  And first of all, this company, Bluemercury, is much more focused on higher end and much more focused on a high service level of business with the brands they carry.  It is very customer touch business.  I think much more so than Sephora.  And they have 60 stores; I think Sephora has 1,500 stores.  So it’s very, very different in terms of where they are today in their growth opportunity. So this is a big growth opportunity for us.

MATT MILLER, BLOOMBERG NEWS:  Terry, let me ask you now, I walk into your store across the street here on 59th and Lex and I’m seeing already makeup and salon kind of stuff, hair care products.  All of that stuff is all over the first floor.  Why do you need to add yet another?

LUNDGREN:  Well, first of all, Matt, many of the brands you are seeing that are at Bloomingdale’s are not at Macy’s .  You might see many of them at one store, Herald Square, maybe two, one in Chicago or one in San Francisco. We have 700 stores.  So there are many, many, many more Macy’s stores that do not have these products where it could be an opportunity, that’s one.  And also, there is an opportunity by itself, to attract this customer who’s going to these specialty store environments and not coming into a Macy’s or a Bloomingdale’s or even the shopping malls.  So it’s definitely a new channel of growth for us.

MILLER:  And we were talking to somebody before, Robin Lewis, who told us the U.S. is over-stored.  And he showed us, for Americans, there is an average 20 square feet of store space per capita as opposed to two in Germany and in France.  Do you — from your perspective, are we over-stored here?

LUNDGREN:  Well, I think we do have a lot of places to shop in America.  There’s no question about it.  And the only way that I would be interested in buying physical stores, which this represents, is if it was offering a new channel of growth for us in a category that’s just not at all been exploited or even serviced with this customer.

There really is not — and listen, I was on the phone yesterday with Leonard Lauder and Fabrizio Freda, the head of L’oreal, and these — Estee Lauder Corporation and the like — and these are the major suppliers.  And they have said the same thing to me.  There really is not a retailer who is servicing this very high end specialty business of these high-end brands.  And many of the brands that are carried at Blue Mercury here are quite unique and quite different, and they’re sold in a smaller environment that is, like I said, very, very service-oriented.  So it’s a different experience than going into a department store where you have the major brands, the large brands, the major brands.  We do some of those at Blue Mercury, but we do many of these niche brands and new brands that are just coming out from make-up artists.  So it’s a different touch for a different opportunity.

STEEL:  So if you’re looking at the specialty customers, what are you going to buy next?

(LAUGHTER)

LUNDGREN:  Alix, you’re kind of jumping the gun here. It took me 10 years to make this acquisition.  So I’ve got a little more room in the future to think about what’s next.

But, listen, for us, we are a big cash generator.  We have a lot of opportunity to continue to pay a dividend, to continue to buy back shares.  But if there is a strategic opportunity like this one, we clearly want to jump on it because this is going to be the best return for our shareholders.  And so we’ll always look at other ideas, but we don’t have anything on the plate at the moment.

STEEL:  Terry, I guess what I’m getting at is the distinction between organic growth and the growth that you have to buy.  Because, like you said, you are quite large and at some point you hit the law of large numbers and the only way you can really move the needle is with these kinds of acquisitions.

LUNDGREN:  Well, one of the things we just did, Alix, also with this announcement yesterday is we resshuffled our organization to — My president, Jeff Gennette, I took him out of the day-to-day operating and running of the merchandise strategies and replaced him in that role.  But also just giving him a more chance to work on some of the organic growth opportunities that have been so important for our company.

With fewer stores than we had five years ago, we have grown by more than $5 billion.  So we are definitely finding ways to grow in our company.  And it’s been a lot through this omni-channel consumer, the way the consumer has changed in their shopping. And so Jeff is going to make sure we continue to keep that focus on that omni-channel consumer and make sure — the one who begins the journey with their phone but comes