The Great Shopping Spree
(See Cover)
Through the hordes of January sales shoppers in Macy's Manhattan store last week moved one of the toughest customers ever to confront a salesperson. As the board chairman of R. H. Macy & Co., Jack Isidor Straus is not only the biggest man in the world's biggest store but the chief executive of a 49-store chain that serves 110 million people a year. Yet Jack Straus, at 64, enjoys none of his duties so much as that of playing the indignant consumer. A man with the saucer eyes and eager fingers of a shopper ready to seize a bargain, he moves through Macy's like an avenging angel, fulfilling the dreams of every customer by raising Cain--and making his complaints stick.
"Just look at that customer." he snapped as he walked through children's ready-to-wear. "Not a soul around to wait on him. The salespeople think that with 150,000 customers a day, if they lose one it makes no difference." He grumped over the lack of service in the furniture department ("Looks like the Maine woods"), chewed out a salesman in the shirt department for not being quick enough. He had one word -- "awful" -- for some orange-colored vases on sale on the eighth floor, and viewed with disdain the incandescent ladies' stockings displayed on the main floor: "That's not my idea of what gals should put on their gams."
The store that Straus runs not only looms large in a nation that loves to buy; it has become part of the American scene. Macy's has inspired a movie (Miracle on 34th Street} and a Broadway musical (Here's Love). It has been the subject of an armful of books, of countless gags and cartoons, of many enduring legends. Its 40-year-old Thanksgiving Day parade -- a two-mile panoply of celebrities, bands, six-story-tall balloons and pneumatic majorettes --is yearly watched by a million New Yorkers and a TV audience of 60 million. For visitors to New York, its Herald Square store is as much of a tourist attraction as the Empire State Building.
No Tomorrow. More than anything else, Macy's is a marketplace that represents all the problems and potential of the nation's 2,000,000 retailers--and thus is both the prototype and the archetype of the U.S. retail store. In its aisles, and the aisles of all the other stores across the nation, the greatest shopping spree in history took place last year. The U.S. economy had its most prosperous twelve months ever, and the U.S. consumer, who continued spending as if there were no tomorrow, helped considerably to bring about the country's fourth straight year of economic expansion.
Business and Government, the two other dominating forces in the economy, were obviously and equally vital in sustaining prosperity. Along with the consumer, they created a nonvicious circle: spending created more production, production created wealth, wealth created more spending. Of the three forces, the consumer did just a little more than most people had expected of him and thus gave the economy a bigger boost than it otherwise would have enjoyed.
Healed Wounds. The most important economic happenings of 1964 were:
> A tax cut, the U.S.'s largest during a period of peacetime expansion, which not only put more spending money in the consumer's pockets but proved that such a cut can be a potent Government weapon in handling the swings of the economy.
> The absence of inflation, which many economists had feared might be one of the undesirable results of the tax-cut stimulus. The cost of living rose only 1.3% during the year, a fact that enabled the consumer to buy more for his money, prevented undue stockpiling and kept the U.S. competitive in world markets.
> The courting of the business community by President Johnson, which healed many of the wounds left from previous Democratic Administrations and proved anew that when Government and business act like the natural allies they are, the whole economy benefits. The President's attitude encouraged businessmen to increase their spending, and the businessman's confidence in turn increased consumer confidence in a rising economy.
> A percentage increase in consumer spending on goods over services for the first time since 1960, which slowed the trend toward a predominantly service economy. The 7.1% increase in goods v. 6.4% for services was a significant shift because spending for goods creates more jobs and material wealth than money spent for services.
The result of these events was an orderly, well-balanced expansion. Productivity rose faster than wages, and personal incomes rose much faster than prices. For the first time, consumer spending reached the $400 billion mark, personal income topped $500 billion, and the gross national product exceeded $600 billion, having risen during the year by $40 billion--half as much as the total gross national product of prospering France.
Corporate profits before taxes jumped to $58 billion, up $7 billion from 1963. A record 70 million Americans were at work, and unemployment, which hovered close to 6% a year ago, dipped below 5% for the first time since 1960. Most impressive of all, the nation's per capita income from wages, dividends and pensions jumped 6% to $2,264, a rise that meant that the average family of four had an income of about $9,000, or $536 more than it did twelve months ago.
The Big Decision. The steady upward march of prosperity is a result not only of the consumer's increased income, but a change in how and on what he spends it. Despite pockets of poverty in Appalachia and city slums, the U.S. has become the first society on earth in which people spend less for needs than for wants. The average urban family now spends only 48% of its after-tax income on the food, clothing and shelter that it needs; it has 52% left over to spend or not to spend, as it pleases, on expanding those basic necessities (to a bigger house, more eating out, an extra suit) or adopting more of life's amenities.
In addition to regular salaries, many American families also fatten their pocketbooks with second and even third incomes--and most of those are used as discretionary income. One-third of U.S. married women hold jobs, and many wage earners moonlight in order to build on an extra room or buy a new freezer. The consumer can make the economy rise by trading up from hamburger to steak, buying an air conditioner to replace the window fan or taking that long-planned trip to Europe. By the same token, he has the power to slow or reverse the economic advance by deciding to postpone his purchases. "The consumer is the key to our economy," says Macy's Jack Straus. "When the country has a recession, it suffers not so much from problems of production as from problems of consumption."
The consumer spends his extra income only when he is in a good mood--and his good mood in 1964 was one of the year's happiest events for the U.S. The consumer has been spending 93-c- of every dollar that he earns, and is unafraid about borrowing to spend even more. One reason for his continued buoyancy: he has lost almost all fear that a serious downturn will occur. In a nation in which half of the population is under 26, more spending than ever is being done by people who have grown up knowing only the good times of the long postwar upswing. They are unscarred by the 1929 depression and little inclined to worry about another one. In the latest University of Michigan survey of consumers, a remarkable 46% forecast that the U.S. would never again have a recession of even the mild 1960 variety. Says Economist George Katona, the chief pollster: "When we ask why not, we are most often told that 'they' have learned how to avoid a recession."
Big for Color. In its record-shattering sales of 8,000,000 cars in 1964, Detroit found that the average motorist, who had long been in the habit of buying a new car every four years, now buys one every three years--often the family's second or third car. Last year 5,000,000 Americans bought miniature or portable TV sets, mostly to supplement the big sets that they already had. It was also a big breakthrough year for the color TV industry, which added $500 million to the gross national product by marketing 1,400,000 sets, almost twice as many as the year before. Consumers responded with abandon to labor-saving devices: they bought 2,000,000 frostless refrigerators, 1,600,000 electric carving knives, hundreds of thousands of electric shoe polishers and self-cleaning ovens.
People stepped up their spending for better living (furniture sales were up 11%), for leisure (sporting goods up 5%) and culture (books up 8%). Close under the retailer's eye, dear to his heart and vital to his wallet was the fact that 75% of all department-store purchases were made by women. Indulging whimsy and impulse, they bought tens of millions of pairs of lacy, textured stockings (see MODERN LIVING) to wear in millions of fashionable high boots. They bought family pool tables, maternity stretch pants, gold-plated bathroom fixtures and electric sheet and mattress covers (for those who already have electric blankets).
Wine & Stiff Collars. A major beneficiary of all these rises was Macy's of Manhattan, the anchor and source of Macy's network of stores (many of them under different names, such as Lasalle & Koch of Toledo, Davison's of Atlanta). Macy's 21-story store in Herald Square, which takes up a city block and has 21 acres of selling space, is a display case for more than 400,000 items of merchandise, each one of which is kept in at least a week's supply.
The Macy's shopper can buy an iguana ($2.49), a painting by Joan Miro, a heart-shaped mattress, an old-fashioned stiff collar, a complete set of Tom Swift books, fresh Beluga caviar, and 900 Macy's private-label items, the last at prices 10% to 15% below national brands. Macy's has a shop that sells nothing but candles, another devoted solely to Oriental rugs, still others dealing only in antiques or plastic flowers. It also has its own prescription drugstore, hardware and auto-accessories shops, theater club, travel agent, and a jewelry store watched over by a plainclothes detective. In its wine shop, which has its own wine tasters, $28.35 magnums of 1955 Taittinger Blanc de Blancs champagne mingle with 99-c- California sherry.
Mythical War. Liberia's President Tubman completely furnished his executive mansion at Macy's. Tonga's Amazonian Queen Salote outfitted herself for Queen Elizabeth's coronation by purchasing six Macy's gowns (size: 24). Some of the most avid customers are the visiting materialists from Russia and its satellites, who enjoy picking at Macy's the fruits of capitalist enterprise. For those who cannot make the trip to Herald Square, Macy's has a personal shopping service. Among millions of routine assignments, it has dispatched six bottles of Coppertone to a sunburned Englishman in Libya and enough nylon material for the wife of a Kuwait sheik to make a tablecloth to accommodate 84 diners.
Image is a main preoccupation of the store's executives. Vastness, variety and verisimilitude are parts of the image. So is Macy's reputation as a hard competitor. The store continues to collect millions worth of free publicity from its largely mythical war against Gimbels ("Macy's Will Not Be Undersold!"), even though Gimbels has long since been supplanted as New York's second largest store by Brooklyn's Abraham & Straus (in which Jack Straus's family held a major interest until 1913). Macy's also works at burnishing its reputation as an avid civic booster, buying full-page newspaper ads that hymn the local theater, symphonies and sports teams. Its publicity-minded executives are adept at the techniques of both Madison Avenue and Broadway; for various promotions they have brought into the store a Venetian gondola, $75,000 worth of flowers and a menagerie.
Lackadaisical Lad. The Macy's image was cast by Jack Straus's forebears. Straus is descended from a line of German-Jewish traders who at the turn of the century paid $1,645,000 to buy Macy's, a thriving store that had been founded in 1858 by a onetime Yankee whaler named Rowland Hussey Macy. Straus's grandfather Isidor was a legendary merchant who started Macy's on its road to fame, later went down with the Titanic rather than get into a lifeboat while women and children were still aboard. Jack's father, Jesse Isidor, spread Macy's out from Newark to Toledo before he became Franklin Roosevelt's first Ambassador to France. Jack himself was practically born with a silver trowel in his hand; he used it at the age of two to lay the cornerstone of the present store. Ever since, he has seemed fated for his current job.
A lackadaisical lad who grew up on Manhattan's upper East Side, Straus joined Macy's training squad straight out of Harvard in 1921, moved up from corsets and handbags into the nonselling side, eventually becoming fourth assistant general manager. Then one day his father chided him: "Jack, if I take a pushcart and fill it full of management, I haven't got much to sell. If I fill it with merchandise, I have something to sell." Straus began all over again as a junior buyer, did so well on the way back up that he was made boss 25 years ago--a fact that makes him one of the longest-reigning corporate chiefs in the U.S.
The Brighter Breed. Straus has guided the store through a new era of change and crisis in retailing. The rise of discounters, the flight of customers to suburbia and the thickening traffic snarls have hurt all downtown stores, but they particularly challenged Macy's aging Herald Square store. The store was never the fanciest bazaar in Manhattan, and it has also become outmoded: less than 50% of its area can be devoted to selling space v. 75% in newer stores. Its sales, while huge, have barely changed in ten years. The store rings up a quarter of the Macy chain's total business, which last year amounted to $623.5 million. Profits of the chain are thin--$11.7 million after taxes--partly because the costs of operating in New York are high.
To combat such conditions, Macy's has reached far beyond Herald Square under Straus, who determined to take it to where the customers are. In the past ten years he has doubled the number of stores, and he plans in the next three to five years to raise the total from 49 to 60, expanding in California, Georgia, Missouri, New York and New Jersey. While most of the expansion has been in the high-growth, low-tax suburbs, Macy's has begun to build in government-subsidized urban redevelopment areas. But Straus vows: "I won't build anything without parking space." Last fall Macy's opened an $11 million store next to a highway in downtown New Haven, and next September it will move into the borough of Queens with a cylindrically shaped building that will be the ultimate drive-in: the customer will drive up one of two spiral ramps, peel off at any one of six parking levels, leave his car at the spot nearest the department he intends to visit. He will never have to walk more than 75 ft. from car to counter.
To mind his stores, Straus has brought along a breed of young merchants who are brighter and better-schooled than the intuitive amateurs of years past. Though he gives them plenty of freedom to exercise their talents, he constantly prods, needles and nags them. His aggressive concern for the consumer and his attention to the slightest details is both an inspiration and an irritant to insiders. After one recent exchange with Straus on the interoffice squawk box, David Yunich, the president of Macy's nine-store New York division, sighed: "Sometimes I'd like to confine the admiral to the sundeck."
The admiral has no intention of keeping his fingers off operations, although he occasionally murmurs something about leaving his $175,000-a-year post in five years or so. When and if that happens, a possible successor is the 40-year-old son of Straus and his wife Margaret, Kenneth Hollister Straus, now a vice president of the New York division. But Straus insists that "it depends on how well Kenny does whether he takes over the company." More likely to succeed is R. H. Macy's president, Wheelock Bingham, 57. In any event, Straus will have a considerable voice in the choice: he and his family have effective control of Macy's with about 7% of the stock, or some $15 million worth.
Dogs on the Roof. Straus is fond of saying that "Macy's operates like a family"--and the store is certainly an informal, self-contained community. Among its 11,000 full-time employees are 4,828 modestly paid ($84.84 a week) salespeople, including 1,400 who can interpret in 42 languages, and 150 telephone operators who write 1,000,000 orders a year. Macy's also has a private police force big enough to protect a city the size of Des Moines; it is captained by an ex-FBI agent, who presides over an array of secret photoelectric alarms and six Doberman pinschers, which emerge from their rooftop kennels to patrol the floors after dark.
Behind the scenes of the big store, Macy's constantly tests and measures its markets, its merchandise and its competition. The arbiters of its prices are its 36 comparison shoppers. They roam competing stores, spying out new styles, feeling the materials and comparing prices. Whenever they find that Macy's is being undersold, they order the store to lower its prices. Not even Straus can countermand their instructions. Neither can he contradict Macy's own Bureau of Standards, the arbiter of the store's conscience. In a backstairs laboratory that looks like a bathroom choked with chemistry sets, the bureau puts 7,500 products per year (including all of Macy's own brands) through tests of fire, water, high pressure and simulated wear. Recently the testers ordered Macy's advertising department not to call a raincoat "water-resistant" because it failed to withstand a heavy shower for 21 minutes, and not to call a plastic Christmas tree "fireproof," because it melted when exposed to flame.
Macy's men are also masters of all the subtle and not-so-subtle nuances of selling. They have discovered that goods sell fastest on the ends of counters or at stands in the middle of aisles, and fastest of all on the main floor; the store stocks only the hottest-selling impulse merchandise there, never its slow movers. Macy's also plays to the peculiar variances in consumer tastes in different parts of the U.S. Women's hats sell best in heavily Catholic neighborhoods (the women wear them to Mass). In New Haven, an Ivy League town, women go for tailored clothing. Power lawn mowers move fastest in Atlanta (where lawns are big), but not at all in San Francisco (where lawns are small); picnic tablecloths do not go in San Francisco, either--too windy. His-and-her shirts sell well only in Toledo, Kansas City and Atlanta; isometric bars for exercising sell well only in New York and San Francisco.
No Hicks. Like most modern merchants, Macy's is well aware that U.S. consumers are becoming more educated, sophisticated and selective. "There are no hicks any more," says Dave Yunich. The average purchase in the nation's department stores has risen during the past decade from $5.02 to $6.12, and the crucial consumer--the one who does most of the buying--now earns between $8,000 and $15,000 a year. Tastes have expanded along with incomes, to the extent that fashion has become a deciding factor even in the children's departments; colors and styles that catch on with adult shoppers quickly move into the children's market as well. Among Macy's current bestsellers are Spanish-styled cribs made of walnut and boys' slacks cut along Italian lines. The impact of foreign travel--2,800,000 Americans went abroad last year--is reflected in the fact that Macy's now sells more British goods than any store outside the Commonwealth.
Purchasing power is increasing most rapidly for two disparate groups: the oldsters and the youngsters. Thanks to the payoff from their pension plans, stock market investments and Social Security, older people have both the wherewithal to spend and the feeling of security that inspires spending. U.S. families headed by men 65 or older now have net assets averaging $30,718. They have become active, productive buyers of everything from retirement homes to baubles for the grandchildren, are purchasing expensive durable goods as if they had 50 years to live, and will undoubtedly step up their spending when the Medicare bill--which will probably be passed early this year--gives them a new measure of security. Young marrieds, too, believe that pensions and medical insurance will take care of the future, are living to the hilt now. At the same time, so many moonlighting students have taken part-time jobs that the average U.S. teen-ager earns $400 a year, and spends practically every penny of it.
To keep up with the trends, U.S. retailers have a new weapon: the computer. Macy's was the first U.S. department store to bill all of its charge accounts by computer, and next month it will add two faster, more versatile computers to take some of the guesswork out of merchandising. The new machines will speed daily reports to Straus and his aides, telling them which colors, sizes and styles are selling fast--and which aren't. By 1966, many of Macy's goods will be automatically reordered by computer. The machines eventually will do quite a bit more than that: within four days after a piece of merchandise goes on sale, they will be able to predict with 80% accuracy what its final sales will be.
Scary Headlines. The nation's economists, who are generally pretty good forecasters themselves, could use an even more accurate computer to tell the future of the economy as well as the fate of dresses. Their immediate problem is to figure out what is likely to happen to the U.S. economy in 1965 --and how to keep it riding high. The U.S. consumer may well believe that the economy will continue its swift ascent, but the economists are not so confident. They reckon that the older the expansion becomes the more it will be likely to show the arterial hardening of great age.
The economic thinkers seem to be in general agreement that a slowdown is on the way, but they differ about how sharp it will be. Some, like Chicago Economist John Langum, figure that "1965 is likely to be quite a troubled year, with surprises and a downturn in the second half." Others, notably FORTUNE, predict that the economy's annual growth will slow down from an average 5% over the past four years to 2 1/2 over the next 18 months. Last week Yale Economist Henry Wallich forecast a strong expansion in the first half of '65, a tapering off in the second half, and perhaps a marked slowdown thereafter.
That comes as close as anything to being the standard forecast. It has made for some scary headlines, but readers who get down to the finer print discover that it means nothing worse than a temporary leveling at the current high rates--"a change of pace, a year of consolidation," as Raymond Saulnier, chairman of President Eisenhower's Council of Economic Advisors, puts it. A vocal minority of experts, recalling that 1964 turned out to be a much better year than most businessmen had predicted, are more optimistic. Says American Bankers Association Executive Vice President Charls Walker: "It will be a strong 1965 all the way through."
Several important trends for 1965 seem clear. Housing starts will fail to increase for the second successive year. Unemployment may inch up because 4,000,000 youngsters will come into the labor force, 18% more than last year. On the positive side, capital spending will rise, though the gain is expected to be somewhat below this year's brisk 14%, from $39 billion to $45 billion. The automakers are expected to turn out 8,000,000 cars again, and the steelmakers to beat their 1964 record of 126 million tons by some 2%. Appliances will rise 4%, drugs 5%, furniture 6%, aluminum 10%. State and local spending will jump by $5 billion, topping federal spending for the first time since the 1940s.
Lifting Debate. While that adds up to a very respectable rate of gain, it is not great enough to please Washington's economists. They are determined to jack it up by making further use of their new fiscal tools, and much of what they have in mind is directed at the consumer. The consumer has already had all the help that he is going to get from last year's tax cut (corporate tax rates will go down another two points to 48% this year, but the withholding tax rate for individuals will stay at 14%). Some people, in fact, will be surprised to find on April 15 that the Government has not withheld enough from their paychecks to cover their total tax bill--and they will owe the Government some money. President Johnson plans to give the consumer more buying incentive with a midyear excise taxes cut of between $1.5 billion to $3 billion; this should stimulate spending for goods as varied as nail polish and mink coats. If the economy needs further help later, he hopes to push through some additional "temporary" cuts in income taxes.
The economists fairly well agree that U.S. business will need some further lift, but they are debating how and when to apply it. The argument: Should the additional stimulus come from higher Government spending, or lower consumer taxes--or both? One school of economists, led by M.I.T.'s Paul Samuelson, argues for greatly increased federal spending; another, conservative school insists that the budget should be cut and tax saving applied to reducing the deficit. Most Government economists call for a mix of spending and tax cutting, with the emphasis on the cuts. They expect business to spurt during 1965's first quarter, and they do not want to give it an artificial lift too soon. They point out that if President Johnson were to recommend federal spending much beyond $100 billion in the new budget that comes out this month, he would risk both overstimulating the nation's economy and losing his hard-won support from conservatives in the business community.
Steel Key. The policymakers will wait a few months before deciding how much more cutting or spending to do. What they are really waiting for is one key event: the steel labor talks. The Administration is worried about a steel strike or general price rise--or both--after the current contracts run out on May 1. Businessmen are also worried, have begun to build up a heavy stockpile well beyond normal supply. Such stockpiling will give the economy an unnatural lift early in the year, and an unnatural letdown afterward. The letdown will be worse if there is a strike; each one of the last three major steel strikes has led to a recession within a year.
An inflationary settlement could be almost as dangerous. Washington is convinced that an extravagant rise in steel wages, to be paid for by further rises in steel prices, would quickly spread inflationary fires throughout the economy. Last week the steel companies raised prices by $6 a ton on 5% of their products; the steel union immediately announced that the boosts should put manufacturers in a better position to kick up wages and benefits. President Johnson implored both sides to be "considerate" of the public.
If steel's deal turns out to be excessive, the Government will tighten up on spending, forgo more tax-cutting. But if the steel settlement turns out to be reasonable, the Government will be able to pump billions into the pocketbooks of U.S. consumers--probably by further tax cuts--without risking inflation. The Administration has a new flexibility in economic planning because the success of the '64 tax cut in spurring the economy without inflation has taken much of the burden off federal spending and monetary policy as the two main weapons the President must rely upon in coping with the business cycle. Says Donald Cook, President of American Electric Power and a close friend of Johnson's: "After the tax bill, there came a new economic thinking in the affairs of Government. This philosophy represents the best hope for continued good business in 1965 and 1966."
Emergency Power. The planners know that when all is said and done, the ultimate decisions about the future of the economy will be made by the U.S. consumer. And the men who know best what the consumer is likely to do are Jack Straus and the nation's other merchants. They generally forecast that an average U.S. family of four, which spent an average $8,320 last year, will spend about $8,650 this year. The brisk increase in consumer demand should go far toward bringing about what Washington foresees as a 6% gain in both corporate profits and the gross national product, to some $63.5 billion and $658 billion respectively.
Considering the emerging power of the consumer, even the short-term pessimists are long-term optimists. Chicago Economist Langum, for example, says that the '65 troubles he envisions will simply be a prelude to "a really terrific era" that the U.S. can expect later in the 1960s. Jack Straus knows the reason well: "Our economy keeps growing because our ability to consume is endless. The consumer goes on spending regardless of how many possessions he has. The luxuries of today are the necessities of tomorrow."
It is the promise of that tomorrow that has aroused envy and fascination around the world. Now the pull of the American system is attracting even the Communist world, which in 1964 moved with considerable candor to adopt many of the aspects of U.S. consumer capitalism. Nobody expects the success of this economic order to work worldwide wonders overnight. But in 1965 a considerable number of people will be watching the average U.S. consumer--the Macy's customer--for clues that will not only reveal the future course of the U.S. economy but may also have significance for the course of world politics.
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