Shopping Behemoth

This is a partial transcript from "Your World with Neil Cavuto," February 28, 2005, that was edited for clarity.

NEIL CAVUTO, HOST: Well, attention shoppers. News of one really, really big shop. The folks who brought you Macy's and Bloomingdale's now bring you, among others, Marshal Field's and Lord & Taylor and many, many more. A lot of stores under a whole lot of umbrellas. Try about $30 billion in combined sales umbrella.

Both stocks dipping on the news, but that hardly seemed to discourage Federated boss Terry Lundgren, who told me he's tickled pink and seeing green with the deal.

(BEGIN VIDEOTAPE)

TERRY LUNDGREN, CEO, FEDERATED DEPARTMENT STORES (FD): First of all, I'm in this business. I'm not in, you know, the supermarket business or some other thing. I'm in the department store business, so it's really a matter of taking what you've got and making it better. And in this case, this gives us an opportunity to create a truly national department store, and we're very excited about that.

CAVUTO: But why not let, I think as one retail analyst had said today, sir, may kind of die on the vine, that it really didn't have much hope if you don't come to rescue it on its own, so let a competitor just sort of fritter away.

LUNDGREN: First of all, I don't believe that would have happened. We grew last year on a comp store sales basis and while May did not, there's a lot of high quality people in that organization. They have great stores and great brands.

And to me it's a matter of time when they got stronger and competitive. And I think it's an opportunity for us to do that, accelerate that pace, use some of our strategies, use some of their great people and put it together and make a great, fantastic national department store, largely with the Macy's nameplate.

CAVUTO: All right, largely with the Macy's nameplate. So does that mean that some of the stores that are May stores now have a Macy's store on them or what?

LUNDGREN: Yes. I think that will be the case.

CAVUTO: What would that be?

LUNDGREN: I don't know. I don't know. But I just know that we had our own regional brands and we've listened to the customer, did a lot of research, and then we hyphenated the stores, and we ended up having a very good year.

So with all the changes that we did, the consumer clearly responded to the national Macy's nameplate versus the very good local names.

Now we will research the names and do the same kind of work we did with our own nameplates, but the truth is, I'm sure that some portion of those May Company regional brands will become Macy's over time.

CAVUTO: What about shutting down Marshal Fields and Lord & Taylor, as has been talked about?

LUNDGREN: Well, those names are very good names. I think those two are standout names. And we wouldn't...

CAVUTO: So you'll keep those names?

LUNDGREN: I'll say this, I wouldn't do anything without listening to the customer and doing the same kind of research that we did.

CAVUTO: I see. Usually when I talk to retail experts such as yourself, sir, they invariably say it's a two-tiered world, either the very, very high end or the very, very low end and really not much room in between.

Hence the talk that Saks might want to spin off anything that isn't the high end Saks name, and stick to the high end. And Wal-Mart maybe even go more downstream to stick to the low end.

How do you see it?

LUNDGREN: Well, first of all, you know, we did $30 million between the two companies last year, so some customers, including your wife, are in our stores and shopping.

CAVUTO: Right. You're right about that. Right.

LUNDGREN: And so for us, it's not a matter of are there enough customers in our stores. It's a matter of converting those customers who are in our stores into buying more from us.

CAVUTO: But clearly you are trying to one up Wal-Mart, right? Mass and scale gives you have the buying advantage that you wouldn't have had, had you not done these pairings. Right?

LUNDGREN: We clearly compete with Wal-Mart to the high-end specialty stores.

CAVUTO: But does that make it confusing? Certainly, your style...

LUNDGREN: Apparently not to your wife.

CAVUTO: No, I mean, the fact of the matter is I think around last August or September when your stock was in the low 40's, a lot of people at the time had been saying that traditional department stores, maybe the Macy's, the vast middle ground as you might call it, had no future. Of course they'd have made 50 percent on their money had they refused to listen to that.

But do you see the vast middle ground as the staking ground?

LUNDGREN: What I believe is that there is a big underserved market there, and that's where our strength is. I mean, we sell affordable luxury. We're not going to focus on the customers that make a million dollars a year for the Macy's brand. And...

CAVUTO: You'd like to have them. Tiffany doesn't complain, Barney doesn't complain.

LUNDGREN: I'd love to have them but I'm not going to...

CAVUTO: Did you want to be a Tiffany?

LUNDGREN: I'd love to have them, but you know, I know where my bread is buttered, and it's with the middle market consumer across the nation.

And now I'm going to be able to fill in those geographic blanks we've never been able to do before and be very responsive to it. As I said, we grew last year, and we think the formula that we've got will allow us to grow in the future, as well.

CAVUTO: Mr. Lundgren, this is no offense, again, to your industry. I hate shopping. My wife loves it. She loves your stores. I don't like to go into the stores, yours or anyone else's for that matter.

But having said that, you staked out your niche in trying to appeal to both crowds. Is the future more on the Internet for you, or people just coming into a traditional store to touch and feel goods?

LUNDGREN: Yes. Very different businesses, and I think the answer is there's room for both in our case. I mean, Macys.com has grown at 30 percent to 35 percent in the last few years. Each year, which has been above the market for the dot-com businesses.

CAVUTO: But is that new businesses or does that just steal from traditional business?

LUNDGREN: It's largely new business, because as you know, certainly young males in particular are shopping more and more online, but they haven't been shopping in the past for apparel and they haven't been shopping for our type of products.

CAVUTO: Do you like to shop?

LUNDGREN: I love to shop. And I'm not a big online shopper. I look online, but I'm mostly a guy who likes to touch and feel the goods inside the store. I want to see what I'm getting, and I believe that long term we're going to be able to do both.

Clearly we're going to do a lot of business on the Internet over time but we're going to do a lot of business in our department stores.

CAVUTO: So the people who thought the traditional department store would go by way of the dinosaur were proven, at least at this point, wrong?

LUNDGREN: Well, at least there's $30 billion worth of sales between May and Federated last year that was rung up. So somebody is in our stores.

(END VIDEOTAPE)

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