Macy's 2005 Annual Report Download - page 7

Effective February 1, 2006, we realigned the company’s stores
into eight retail operating divisions – seven Macy’s and one
Bloomingdale’s. Two new Macy’s divisions, St. Louis-based
Macy’s Midwest and Minneapolis-based Macy’s North,
were created in areas of the country where the presence
of the Macy’s brand will expand significantly in fall 2006.
Concurrently, five existing Macy’s divisions – Macy’s East,
Macy’s Florida, Macy’s Northwest, Macy’s South (formerly
Macy’s Central) and Macy’s West – were expanded to
incorporate new stores and geographic markets serving
millions of new Macy’s customers.
Through the integration process, we were able to identify and
retain many of the very best people from the May Company
organization. This includes store management and associates,
as well as May Company corporate and division executives in
merchandising, operations and specialized support functions.
We will be making dramatic changes to the assortments
in former May Company locations as we tailor our offering
door-by-door. This includes introducing Macy’s private brands
throughout all of the former May Company stores in fall 2006
and offering more exclusive and differentiated merchandise
from market vendors.
We are optimistic about our strategy to improve our stores
to provide both a better shopping experience for customers
and enhanced financial results for shareholders.
We’ve already begun the process of investing to “reinvent”
stores acquired from May Company. Over the next several
years, our plan is to reinvent stores accounting for 70 percent
of the sales volume of former May Company locations. In all,
over the 2006-2008 period, we expect to spend as much as
$4 billion on new stores, store improvements, systems and
e-commerce infrastructure. This includes a capital budget
of $1.6 billion in 2006.
Cost synergies remain an important component of the
May Company integration. We are on track to achieve our
initial estimates to realize approximately $175 million in
cost synergies in 2006 and at least $450 million in annual
cost synergies in 2007 and beyond.
A Commitment to Marketing
A key benefit of the May Company acquisition and Macy’s
brand conversion is our ability to market and advertise
Macy’s on a truly nationwide basis for the first time as we
move to a common promotional calendar. Macy’s stores
will be located in virtually every major geographic area
of the United States, supported by an enhanced online
shopping experience on macys.com.
We believe we have an extraordinary opportunity to
transcend the traditional realm of retail store marketing
and to establish Macy’s as a leading American consumer
brand that stands for fashion and affordable luxury.
Fostering Success at Bloomingdale’s
Although much of the spotlight related to the May Company
integration has focused on Macy’s, it’s also important to
stress the outstanding performance and strategic progress
at Bloomingdale’s, the nation’s only nationwide, full-line,
upscale department store.
Bloomingdale’s was among Federated’s best performing
divisions in 2005 and continues to be recognized for its
originality, innovation and fashion leadership. This brand’s
allure was demonstrated in 2005 when Bloomingdale’s
completed and unveiled The New View, a major remodel
of the third floor at its 59th Street flagship in New York City.
Bloomingdale’s will be growing again in 2006 and 2007
with the conversion of four former May Company locations
in Southern California, Boston and suburban Washington,
D.C., as well as the opening of a spectacular new West Coast
flagship store in San Francisco.
An Exciting Road Ahead
We remain extremely optimistic and excited about the road
ahead for our company as we capitalize on the opportunities
in Macy’s and Bloomingdale’s as national brands. While
2006 will be a year of integration and transition, we expect
significant improvement in 2007. Our goal is to accelerate
same-store sales to at least 3 percent per year, and to
improve EBITDA and cash flow. By the 2008-2009 period,
we expect to reach an EBITDA rate of 14-15 percent, our
historical peak levels of profitability, adjusted for the impact
of the sale of credit portfolios.
We have no delusions that everything will go perfectly
in the next year or two. Bringing together Federated and
May Company is a very complex process involving large and
multi-dimensional businesses. But we have a solid plan to
handle what comes, as well as an experienced and motivated
management team and organization that understands we
have a once-in-a-lifetime opportunity to create something
truly special on the American retailing scene.
Thank you for your support in this process and for believing
in Federated as we re-shape our future.
NATIONWIDE BRANDS. REGIONAL DECISIONS. CUSTOMERS FIRST.