December 28, 2001, 12:00 AM

An early frost hits Bloomie`s web strategy

No sooner had Federated Department Stores bragged "Putting more categories online underlines our efforts to bring the best of Bloomingdale’s online" than it announced it wouldn’t be bringing the best of Bloomingdale’s—or anything else from Bloomingdale’s—online.

It seemed that no sooner had Federated Department Stores bragged “Putting more categories online underlines our efforts to bring the best of Bloomingdale’s online” than it announced that it wouldn’t be bringing the best of Bloomingdale’s-or anything else from Bloomingdale’s-online.

Only five months after a major re-design and re-launch of Bloomingdales.com and Macys.com, Federated announced in December that it will pull the plug on Bloomie’s online. As of February, Bloomingdales.com will be only a billboard supporting the Bloomingdale’s store brand. Macys.com will continue to be an e-commerce site, but Federated will scale it back to best sellers.

“In the current economic climate, it is important that we use our available resources in the most productive way possible,” Jeffrey Sherman, chairman of New York-based Federated Direct, said in a statement released with the announcement. “We are looking forward to building on the successes of Macys.com while more aggressively pursuing Internet marketing opportunities for Bloomingdale’s.”

Hitting break-even

Federated says the cutbacks will reduce the expected loss from the two web operations as well as capital expenditures, keeping them on track to break even in 2003.

Bloomingdales.com will continue to offer online services such as electronic order forms for Bloomingdale’s catalogs and it will continue its partnership with WeddingChannel.com for bridal registry services. Meanwhile, Macy’s.com will drop such product categories as petites, large sizes, career and swimwear, while expanding selections in its more successful online categories: bridal, home, gifts and jewelry.

Federated is taking some hits for its new strategy. Boston-based Forrester Research Inc., for one, thinks Federated is making a wrong move. Analyst James Crawford says Federated is being “shortsighted” for implementing a decision “that cripples the retailer’s efforts to benefit from channel integration.”

Crawford argues that the online arm of a multi-channel retailer can bring in store sales if it presents information correctly. That means more than brand information and store locators, he argues. “Deep product information and visibility into which stores have the product in stock” is paramount, he says. Furthermore, Crawford notes that Federated may be missing out on future online apparel sales. Forrester estimates that online apparel sales will hit $20 billion in 2006 and will represent 10% of all apparel sales.

But others say Federated’s move away from e-commerce sales recognizes that large department stores can’t sell everything online as easily as specialty catalogers can. While specialty catalogers such as Lands’ End and Coldwater Creek have succeeded selling apparel online, larger stores such as Federated, Target Corp. and Kmart Corp.’s BlueLight.com have pulled apparel because it’s so hard to manage. “Catalog companies know how to sell apparel in two dimensions and they know how to handle supply chain and fulfillment issues,” says Duif Calvin, vice president of retail global practice at New York-based Scient Inc.

Present pain

Furthermore, the move recognizes the current retail environment for department stores, Calvin says. “Federated’s move represents their present pain rather than their best future strategy,” Calvin says. “They recognize there is still a demand from their customers for multi-channel transactions but they’re going to take the time to evaluate how best to merchandise their sites.”

Attention to online merchandising and developing an efficient way to handle supply chain and fulfillment issues for the web will help larger retailers rein in their online costs. “No matter how you look at it, a large multi-channel retailer is not going to have more than a few percentage points of sales coming from the online channel, as opposed to specialty retailers who get 15% or more of sales online,” says Calvin. “Federated can’t afford to have its energy distracted because its core value proposition has been its outstanding fashion sense and selling a wide variety of products. That is difficult to translate onto the web.”

Federated also is closing shop on the Macy’s catalog operation in an effort to cut costs, the company said. Federated had combined catalog and online operations for both Macy’s and Bloomingdale’s within the last 18 months, creating the Macy’s Direct and Bloomingdale’s Direct division under the Federated Direct umbrella. Federated is eliminating about 100 jobs in such areas as technical support, programming, merchandising and administrative as part of the reorganization.

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