Hilfiger exclusive, FAO partnership star at Macy’s

CINCINNATI —Differentiation and exclusivity speak volumes at Macy’s Inc. A full spectrum of brands had already made a home under the retailer’s red star. The recent holiday campaigns can vouch for the assortment, as does the strategic alliance agreement with Tommy Hilfiger and a partnership with FAO Schwarz at Macy’s on State Street in Chicago.

The strategy behind these ventures focuses on creating a unique destination that is built on quality and cachet that continues to be bolstered via its growing brand portfolio, especially in the apparel sector. As of fall 2008, both Tommy Hilfiger and Macy’s announced a strategic alliance that will result in department store exclusivity for Tommy Hilfiger men’s and women’s sports wear lines in every division and on Macys.com . Congruently, the retailer plans to further develop and renovate Tommy Hilfiger shops in high-volume stores, as well as highlight the brand in future marketing campaigns.

Macy’s exclusivity strategy is clear as it brings Tommy Hilfiger on board. As a sole outlet for certain brands, the company can provide its customers with an inimitable experience that focuses on a distinct selection instead of a wide assortment of no-name brands—separating itself from the rest of the pack. “Exclusive branding allows you to have a leg up on the competition; it keeps the customer engaged,” said Marshal Cohen, chief industry analyst with The NPD Group. “It keeps the existing customer in the store [and] creates brand and store loyalty.”

Consequently, the partnership creates value retention for the Tommy Hilfiger brand, as long as customers respond. “If they continued as they were, the value of the brand would have been diluted,” explained Cohen. “It was rumored that Wal-Mart was trying to get an exclusive with them. Now, Tommy Hilfiger can take a step back and ensure that, at least, there is a future.”

The recent alliance is a taste of what’s to come in Macy’s expansion. “We have been pursuing agreements with a number of vendors who are supplying and will supply merchandise to our store,” said Jim Sluzewski, a spokesman for Macy’s Inc. “This is consistent with our strategy to have as much differentiated and exclusive merchandise in our store.”

Since the retailer also has control over pricing and promotions, it is going to ensure that the Tommy Hilfiger brand fits seamlessly with its image. “This is a necessity for Tommy Hilfiger and an advantageous relationship for Macy’s,” said Cohen. “It goes beyond convenience.”

On the toy front, Macy’s North has initiated a deal with luxury toy retailer FAO Schwarz, just in time for the holiday season. The win-win partnership allows the Macy’s on State Street in Chicago to create an expert toy department, while FAO Schwarz attains a presence on familiar territory. After a five-year absence, the toy retailer is making a comeback to the Windy City.

“Macy’s is the right partner from a demographic perspective,” said Ed Schmults, ceo of FAO Schwarz. “Being expensive might be good for apparel and jewelry, but it’s not good for the competitive world of toys. We can be at attractive price points and Macy’s helps us communicate that.” The 5,200-square-foot ‘store within a store’ adjacent to the kids’ department will lure customers with an abundance of specialty toys and stuffed animals like small teddy bears and behemoth dragons.

Nov. 1 catapulted the venture when Macy’s unveiled FAO Schwarz holiday windows. The contract between the two companies will extend past the holiday season and into next year indefinitely. In fact, Schmults said that they’ve talked to other Macy’s stores as the merger aids in its year-round business—plus, it’s easier than setting up and entering into long-term lease. “We are trying to expand the relationship,” he added. “This is very much a pilot of how this affects our brands.”

The toy segment has never been a strong category for Macy’s, but with FAO Schwarz, the retailer gains a powerful advantage, especially since downtown Chicago is void of large toy retailers. With the holiday season at customers’ feet, opening a toy store within a department store creates convenience and potential revenue increase.

Unsurprisingly, the holiday debut is bound to set a precedent for toy shopping all year long, in turn, strengthening brand perception for FAO Schwarz and cementing Macy’s as a one-of-a-kind convenient department store.