Zimmerman, James M.

(1944-)
Federated Department Stores, Inc.

Overview

James Zimmerman is the chairman and chief executive officer (CEO) of Federated Department Stores, Inc., an Ohio–based company that owns such well–known up-scale department stores as Macy's and Bloomingdale's. Zimmerman, who had been with the company since 1965, took over leadership of the company in May 1997.

Personal Life

James M. Zimmerman was born in 1944. He graduated from Rice University in Houston, Texas, with a Bachelor of Arts degree in liberal arts in 1966.

Zimmerman ranked 143rd on Forbes' "800 Best Paid CEOs" for the year of 2001, up from his 197th place rank in 2000. Among the rankings of the retail industry, Zimmerman placed fifteenth in 2000, with a base salary, not including bonuses, of $1.25 million, and he moved up to seventh place within the retail industry in 2001. Zimmerman, who has been a member of the Board of Directors since 1988, serves on the Executive and Finance Committees. He also serves on the Board of Directors for Goodyear Tire & Rubber, Chubb Corporation, Convergys Corporation, and H. J. Heinz Company.

Career Details

Zimmerman began his four–decade–long career with Federated Department Stores when he joined Federated–owned Foley's Department store in Houston, Texas, in 1965. Zimmerman rose through the ranks of Federated's management. Eventually, he was appointed president of Rich's Department Store in Atlanta, Georgia, which is also owned by Federated. In 1984 he added the position of chairman to his job title. In 1988 Zimmerman became president and chief operations officer of parent company Federated, which was at the time saddled under a heavy debt load. In 1990 Federated applied for bankruptcy restructuring, and by 1992 the company had reorganized to include under its umbrella 220 department stores in 26 states with annual sales of $7 billion. In December 1994 FDS acquired R. H. Macy & Company, making it the largest department store retail in the United States.

In May 1997 Zimmerman was appointed chairman and chief executive officer, replacing Allen Questrom, who resigned after having served in those positions since 1990; Terry J. Lundgren replaced Zimmerman as president of the company. By the end of 2001, Federated was operating 460 stores in 34 states, along with Guam and Puerto Rico. Federated–owned stores include Bloomingdale's, The Bon Marche, Burdines, Goldsmith's, Lazarus, Macy's, and Rich's. Federated also operates mail–order and electronic businesses for Bloomingdale's By Mail, bloomingdales.com, and macys.com. In 1999 Federated acquired the Fingerhut Companies, Inc., a direct–marketing and electronic commerce business. Federated appears on Fortune's list of the 100 largest corporations in the United States.

Federated came into existence in the early 1990s, when a group of retailers decided to band together under one corporation. Its flagship businesses have long been Bloomingdale's and Macy's, with Macy's celebrating its 75th Macy's Thanksgiving Day Parade in 2001. The corporation hit a major stumbling block in 1988—the same year that Zimmerman arrived at corporate headquarters—when Canadian real estate developer Robert Campeau acquired the company in a leveraged buyout in a poorly executed deal that saddled the company with an incredible debt load equal to 98 percent of its total capital. Two years later, Federated was forced to file for bankruptcy. In 1990 Questrom, previously a Federated executive, was called back to the company to help Zimmerman and chief financial officer Ronald W. Tysoe restructure and reorganize some $8 billion of debt.

Over the next six years, the executive team methodically brought Federated back from the brink. They focused on consolidating divisions, centralizing administrative functions, and greatly increasing the technology necessary to handle the management of the large volume of inventory and distribution. Cost–cutting measures were put in place, and the savings produced were used to renovate stores and lower prices of goods. Then, in 1994, Federated purchased Macy's, a high–end department retailer with 123 stores. Analysts declared the acquisition to be a brilliant move. The purchase positioned Federated as the largest retailer in the United States. Macy's provided a profitable addition to the Federated family, and it appeared Federated was moving in the right direction again.

Chronology: James M. Zimmerman

1944: Born.

1965: Began career with Federated Department Stores, Inc. at Foley's store in Houston, Texas.

1984: Appointed chairman of Rich's Department Store in Atlanta, Georgia.

1988: Named president and chief operations officer of Federated.

1990: Federated filed for bankruptcy.

1994: Federated acquired Macy's Department Stores.

1997: Appointed chairman and chief executive officer of Federated.

1999: Purchased Fingerhut, the nation's second largest catalog–based retailer.

2001: Ranked 143rd on Forbes' list of 800 highest–paid executives.

However, the financial outlook took a significant hit just eight months after the acquisition of Macy's. In a highly criticized move, Questrom organized the purchase of Broadway, an 82–store chain of department stores based in California. With Broadway just days away from filing for bankruptcy, Questrom doled out a whopping $1.6 billion for the chain, which was widely considered to be in run–down shape. The $1.6 billion purchase price reflected a cost of $8 a share, whereas shares were trading at $2 on Wall Street. The purchase also increased the company's long–term debt to $5.5 billion, equal to 60 percent of total capital. Commenting on the Broadway acquisition, Chris Ohlinger, president of Service Industry Research Systems, which studies the retail industry, told Fortune, "Either Federated is trying to corner the market on submediocre retailers, or they've adopted the high–risk, Evel Knievel style of retail expansion." Largely due to the close proximity of time between the purchase of Macy's and Broadway, the combined cost of which totaled $5.7 billion, Federated posted a loss of $63 million on sales of $13 billion in the twelve months ending October 31, 1996.

By 1996, 52 of the Broadway stores had been converted to Macy's stores, six became Bloomingdale's stores, and the others were closed or sold. Questrom's far–reaching plans did not mix well with the coming economic recession. The following year, he resigned as CEO and was replaced by Zimmerman, who stepped into a difficult situation. Soon Broadway was not Zimmerman's only concern; in 1998 Federated was forced to pay $10.6 million to settle complaints that it had wrongly collected debts from credit card holders who were bankrupt. His purchase in 1999 of Fingerhut, a direct distributor with catalog and Internet sales, was another challenge to be dealt with. Fingerhut, the second largest catalog retailer behind J. C. Penney, was losing money, and Zimmerman was forced to restructure and downsize operations. Plans were announced in late 2000 that Federated would eliminate approximately 550 employees from Fingerhut's payroll, with expected savings of $40 million annually.

In February 2001 Federated decided to close its 19 New Jersey–and New York–based Stern stores, announcing that most locations would be converted to a Macy's or a Bloomingdale's; five stores would remain closed. Zimmerman has also had to address the problems related to Federated's Web presence. At the end of November 2001, Zimmerman announced that Federated would close its Bloomingdale's e–commerce Web site. The site was instead revamped to provide marketing support for Bloomingdale's retail stores and Bloomingdale's By Mail catalog. Macy's e–commerce Web site was also scaled back; its section of merchandise—especially clothing—was reduced, but increases were made to bridal, home, gifts, and jewelry, which have proven to be the most successful categories. In conjunction with the changes in the Web site, Federated also discontinued the distribution of a Macy's catalog, which has served primarily as a marketing vehicle for the e–commerce business. In a statement released by the Associated Press, Zimmerman noted, "In the current economic climate, it is important that we use our available resources in the most productive way possible." The changes eliminated 100 jobs. Analysts have speculated that Federated may have previously overcommitted to the Internet, noting that fashion items are tough to sell because the customer can't try on items to check for fit. The return rate for clothing can reach 40 percent.

Federated's outlook for the future is mixed. Assessing financial performance in fiscal year 2000, which ended January 2001, Federated's Web site states, "[T]he year 2000 was challenging and disappointing. While the department store segment performed acceptably versus our expectations—and very well compared to the retail sector as a whole—it was not enough to justify being satisfied with our overall results." Federated posted a net loss of $184 million for the 53 weeks of fiscal year 2000. Despite the tough economic conditions brought on by a recession in 2001, Federated also had some bright spots: In July 2001 it paid $200 million for Liberty House, Hawaii's largest retailer with approximately 20 stores.

Also most of the loss posted in 2000 can be attributed to one–time costs associated with the downsizing of Fingerhut and the closing of Stern's; sales actually increased in 2000 by 3.9 percent to $18.4 billion, and the company managed to post a profit in the third quarter of 2001. In 2001 Federated earned praise for holding strong in a weak economy. According to Reuters Business Report, "Investors ... applauded [Federated's] ability to keep inventories down in the difficult economic environment, thus limiting exposure to margin pressure from heavy mark-downs." Bill Dreher, a retail analyst for Robertson Stephens, told Reuters, "They have effectively cleared merchandise without giving away the store."

Social and Economic Impact

Zimmerman has his work ahead of him. Department stores have been losing ground to discount and specialty stores since the beginning of the 1990s. At the end of the 1980s, department stores accounted for 60 percent of all department and discount sales combined; by 2001, discount stores commanded 75 percent of the market. As discount stores, such as Target and Wal–Mart, began to dot the landscape and draw business from all social classes, not just the lower economic end, department stores made shifts in their inventory. They moved away from the areas where they were least able to compete: electronics, books, furniture, and toys. In place of these items, stores stocked an increasing amount of clothing, sales of which have not grown as fast as the rest of the economy. Also many discount stores offer conveniences that department stores do not, including food sections, vision centers, pharmacies, photo shops, and banking centers. Department stores such as Federated also faced stiff competition from specialty stores, such as The Gap, Abercrombie & Fitch, Circuit City, and Bed, Bath, & Beyond, that can offer a wider selection usually at lower prices.

Federated plans to face the future with new innovations and services that set it apart from its competitors. One of the first steps will be to redesign floor layouts, so the stores are more easily navigated and draw attention to certain items. Checkout will be centralized and while standing in line to pay, shoppers will be entertained with FedTV, a closed–circuit station featuring news and store promotions. Federated has already built a prototype for how the future stores may look: a Federated–owned Lazarus store in Columbus, Ohio, features a supervised children's play area, where children can be dropped off so adults can shop more easily. The store also provides mammogram screens in conjunction with a local cancer hospital.

The economic recession that dug in after the terrorist attacks on the World Trade Center and the Pentagon on September 11, 2001, has made consumers more conservative with their money. Analysts now debate whether the shift to discount stores is a temporary situation brought on by consumer insecurity or if it will result in a permanent change in the landscape of the retail industry. According to the Boston Globe, the jury is still out on the future of the big retailers, but there is reason to believe they will be around for some time to come: "[D]on't count out department stores just yet," remarked Chris Reidy and Kathy McCabe of the Boston Globe. "Federated [has] adapted to the more competitive landscape. By keeping inventories lean and costs low, a department–store chain can remain profitable...." That is exactly what Zimmerman is banking on.

Sources of Information

Contact at: Federated Department Stores, Inc.
7 W. 7th St.
Cincinnati, OH 45202
Business Phone: (513) 579–7000
URL: http://www.federated-fds.com

Bibliography

Driver, Anna. "Federated Profit Down, But Shares Rise." Reuters Business Report, 14 November 2001.

"Executive Business Briefing." United Press International, 15 August 2001.

"Federated Department Stores, Inc." Hoover's Online, 2001. Available at http://www.hoovers.com.

"Federated History." Federated Department Stores, Inc., 2001. Available at http://www.federated'fds.com.

"Federated Reworks Internet Businesses." AP Online, 29 November 2001.

"Federated Tops Wall Street Forecast." AP Online, 14 November 2001.

Grant, Linda. "The Broadway Deal Will Haunt Questrom: He's Making Big Bets With Other People's Money." Fortune, 5 February 1996.

Hobson, Katherine. "Miracle on 34th Street." U.S. News & World Report, 26 November 2001.

"James Zimmerman." Forbes Online, 2001. Available at http://www.forbes.com.

Reidy, Chris, and Kathy McCabe. "Discount Retailers Slowly Stealing Shoppers Away From Department Stores." Boston Globe, 4 December 2001.

Summers, Monica. "Discount Stores and Off–Price Retailers on Thursday Posted Solid October Sales as Consumers, Overwhelmed by Job Cuts and a Looming Recession, Steered Away From Department Stores." Reuters, 8 November 2001.

Who's Who in America: 1997. New Providence, NJ: Marquis Who's Who, 1996.

Who's Who in Finance and Industry: 1996–1997. New Providence, NJ: Marquis Who's Who, 1995.