Why Macy’s departing Chairman thinks the chain has turned a corner

Macy’s was among the many retailers to report sales gains for the holiday season, stoking renewed hope the retail industry is finally learning to combat Amazon.com and finding its footing again.

The numbers, which put the department store chain on track to post its first quarter of comparable sales growth in three years, are the start of an awaited payoff to years of investment in Macy’s e-commerce firepower, says Macy’s departing executive chairman and former long-time CEO Terry Lundgren.

Macy’s recently said comparable sales, a measure the strips out newly closed stores, rose 1 % in November and December, a modest result compared to the torrid growth of overall retail sales. But at least it was an increase. As Lundgren sees it, Macy’s is now beginning to reap the benefit of moves such as closing dozens of weak stores, decentralizing buying decisions, ramping up integration of stores and e-commerce and using clout with vendors to get more exclusive items.

As CEO between 2003 and 2017, Lundgren oversaw a massive expansion of Macy’s through the acquisition early on of smaller chains and later, with its e-commerce push. The company emerged from the 2009 financial crisis more easily than most of its peers, helped by stronger digital firepower and the weakness of lower-end rivals like J.C. Penney and Sears. There were also moves such as acquiring the red-hot Bluemercury beauty chain. At the same time, Macy’s luster started to fade with customers and vendors alike, and everyone from Amazon to Ulta Beauty  to T.J. Maxx took market share, and the retailer found itself increasingly reliant on discounting and trying to combat store clutter.

Fortune sat down with Lundgren, who is leaving Macy’s altogether on January 31, 2018, and will dedicate more time to corporate boards, mentoring students and enjoying family and friends, on the sidelines at the recent National Retail Federation conference in New York. The questions and answered have been edit for clarity.

Is the good holiday season a sign that retailers are starting to fight back thanks to their stores and e-commerce strategy?

For the last few years, there has been a lot of work that’s been done and that’s leading to improved results like Macy’s and Bloomingdale’s. Other retailers had a wake-up call in the early 2015 and 2016 and responded. The progress you’re beginning to see here is the result of all of those initiatives that have taken place over the last few years. What’s changed gradually then aggressively in the last three years has been technology.

You say some of that improvement is thanks to closing weak stores. (Macy’s has closed 20 % of stores in the last three years.)

We perhaps have been more aggressive than rivals. We took the decision, recognizing supply and demand were out of whack. Frankly we were overstored and that adjustment needed to take place.

What has been the biggest change to hit retail in the last few years?

Price transparency. And that creates this requirement for all of us to offer unique reasons to shop with us beyond price. It is essential. Fortunately, Macy’s, being the largest customer and seller of most any brand we do business with, is in a position to have unique products created just provided for us. You have to create more reasons for consumers to come into our store- more food and beverage, more athletic ears, and in our case some off-price. (Note: Macy’s launched a T.J. Maxx-like concept in its own stores called Backstage.)

You take umbrage at the notion of a retail apocalypse- why are you confident Macy’s will be a survivor?

Macy’s will be around for a long, long time because we’ve been financially strong and responsible for many years. If we were teetering on the edge of financial strain every quarter, I couldn’t say that about Macy’s but I can because we have a very strong balance sheet. Three years of a very challenging business and we still have a strong balance sheet.

Any things you feel Macy’s saw earlier than its peers?

We made the early decision in 1997 to go online and make that a focus, so we were really ahead of competitors. (Today, Macy’s is the No. 6 online retailer in the U.S. with annual sales of about $5 billion, according to eMarketer.)

Anything you feel Macy’s could have done differently in recent years?

The closed stores were cashflow positive. Could we have reduced them even sooner, in hindsight? We could have been more aggressive, not by closing more stores but by closing them earlier so as to get a head start on bringing supply and demand back into balance.

Anway worries about bringing the Backstage discount concept into stores in terms of cannibalization?

That’s the absolutely right way to do it, to bring them into your stores. Use for example the third floor of a three-floor box (store) with of- price so you can capture that consumer who’s already shopping both.

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