Now, after Macy Inc.'s same-store sales dropped 1.3 percent in 2007 from the previous year, CEO Terry Lundgren is changing course. He is ditching the nationwide cookie-cutter approach in favor of tailoring merchandise at the world's largest department-store chain by sales to local tastes.

Locations in markets such as Salt Lake City, Seattle, Minneapolis, Chicago and Portland will be among the first to get a makeover.

''What the consumer wants in the Galleria of St. Louis is different from what the consumer wants in State Street Chicago, or what the consumer wants in Portland, Oregon,'' Lundgren says. He wants 15 percent of the merchandise in stores to reflect local preferences.

Over the next several months, Macy's on State Street will begin stocking more brightly colored clothes and men's all-white suits that store manager Linda Piepho noticed were favored by her store's urban clientele. In cosmetics, she's also planning to add greater variety of makeup shades to attract trendier shoppers, while adding larger 3.4-oz. bottles of perfume to go after the thriftier ones.

The localization strategy, called ''My Macy's,'' is a dramatic reversal for Macy's and Lundgren, who set out to end the decades-long slide of department-store retailers by creating a huge national chain that had more clout with vendors and stronger marketing, with fewer expensive local TV and print ads and more national ones. After purchasing rival May Department Stores in 2005 for $11.5 billion, Lundgren dropped 11 venerable names to create a cohesive national identity of more than 800 stores under the Macy's nameplate.

In some ways the plan worked - Macy's was able to woo lifestyle maven Martha Stewart to create a line of products exclusively for the chain because of its immense reach - but pressures on Lundgren are growing as the economic slowdown worsens. In his annual shareholder letter, sent last week, he said 2007 results were ''softer than we had originally anticipated'' due to a weaker economy but added that Macy's ''outperformed most of its primary competitors in the crucial fourth quarter.'' Last year, Lundgren received $1.49 million in salary as part of his $8.67 million in total compensation, but no bonus because Macy's didn't meet the bonus plan's performance thresholds.

The company's $9 billion debt rose by about $1.2 billion in 2007 - partly because it borrowed heavily to finance $3.3 billion in share repurchases. Last week, Fitch Ratings downgraded the credit rating of Macy's Inc. to a notch above junk status, noting that the reorganization at Macy's follows previous investments in its stores acquired from May Co. and merchandising that hasn't resulted in meaningful sales growth.

In going local, Macy's is adopting an approach that big chains such as Best Buy Co. and Ross Stores Inc. have come to view as imperative today. Retail giants like Wal-Mart Stores Inc. and Gap Inc. once prospered by opening identical stores around the country, but consumers are demanding more individualized selections. With almost everything now available on the Internet, retailers need to give shoppers a reason to make the trip.

Best Buy began customizing the format, selection and service at its 600 U.S. stores four years ago, rather than pushing a uniform mix of merchandise. The electronics chain, which has since grown to 935 U.S. stores, began by identifying four customer types, such as upscale suburban mom or urban trendsetter. Best Buy then determined store by store which customers were most important. Ross, a discount-apparel chain, intends to begin tailoring 15 percent of the merchandise categories in each of its more than 900 stores, starting this fall.

Department stores such as Macy's also face increasing competition from fast-fashion retailers, such as Swedish clothier Hennes & Mauritz AB, known as H&M, and Inditex SA's Zara in the U.S., which track precisely what is selling in each store, down to the size, and stock them accordingly.

Still, Lundgren's plan calls for customizing inventory over the next year at only about a third of the chain's 813 Macy's stores - including all the former Marshall Field's and many other former May Co. stores.

Most department stores, of course, have always localized a bit - shipping spring merchandise earlier to stores in the South, for example. But the overhaul Lundgren is planning will be much more far-reaching. A single Macy's store, depending on its size, stocks 1.5 million to 4 million different items, meaning hundreds of thousands of items in each store will be affected when the new inventory begins going on display as soon as this summer.

The idea is ''to allow us to listen to what the customer says about a local product in a local store,'' says Lundgren, once the CEO of Neiman Marcus Group Inc. Management behind the scenes will also be revamped to have 13 executives oversee the merchandise assortments at 10 stores each, instead of 7 executives overseeing assortments in up to 23 stores.

One risk for Macy's is that store managers may misread cues about local sales patterns or make poor decisions about how to display and market merchandise, says Sherif Mityas, partner at consulting firm A.T. Kearney.

And some say Lundgren erred, alienating loyal customers he may never be able to get back, by getting rid of the local names in the first place. ''What you have now is a Macy's whose brand doesn't mean much to people in Pittsburgh, or on State Street in Chicago,'' says Craig Johnson, president of Customer Growth Partners, a New Canaan, Conn., retail-consulting firm.

Retailers take it to the people

A look at how chains' localization strategies have evolved:

1984:

Inditex, parent of the Zara apparel chain, starts work on a system that quickly gets popular items from designers to stores.

1995:

Tesco uses data from its rewards program to customize stores and marketing offers.

2000:

Wal-Mart launches 'Store of the Community' program to meet the diverse needs of individual neighborhoods

2004:

Best Buy adapts stores to focus on the local customer segments most important to them.

2008:

Macy's introduces 'My Macy's,' giving local executives leeway to tailor merchandise to the locale.

Source: WSJ research; Bain & Co.