Macy's Business Lessons From <I>Miracle</I>

CINCINNATI ( TheStreet) -- Just about everything you need to know about holiday business can be learned by watching Miracle on 34th Street.

The 1947 film, about a white-bearded man who believes himself to be Santa Claus and a little New York outfit called Macy's ( M) that hires him to be just that and then forces him to defend his assertion in court mere days before Christmas, hides a bagful of lessons behind its grainy footage and questionable plot devices.

For Macy's, whose online sales jumped 16.5% in November even as same-store sales declined 6.1% for the month and 3.6% for last quarter, they're lessons that hit especially close to home.

As Macy's continues its "Believe" campaign in a retail environment that's changed quite a bit in 62 years, here are some business bastions from Miracle on 34th Street worth believing in. (The store declined to comment for this article.)

1. Customer service: When Kris Kringle sent customers to other stores for items Macy's didn't have, it resulted in huge returns on 34th Street, but seemed a bit of a stretch anywhere beyond the silver screen. However, Amazon ( AMZN) was ranked No. 1 by J.D. Power and Associates for customer service this year partially for doing just that.

If you go searching for a shearling boot that's only available at L.L. Bean or skull rain boots that are only for sale at The Gap, Amazon will not only tell you how much the item costs, but will provide a link to that item on the other company's Web site. That is why the Luxury Marketing Council noted earlier this year that many high-end retailers like Coach ( COH) and Burberry have cut back on advertising this season and poured their resources into customer service.

As for Macy's, its My Macy's program has begun regionalizing customer service by stocking based on local needs and preferences. Holding back from eliminating local brands like Marshall Fields and Jordan Marsh may have been a better way to do this, but a regional program is a reindeer-sized step in the right direction.

2. Human relations: There were two big problems with the Macy's HR department during Miracle on 34th Street: It allowed a fall-down-drunken Santa aboard its flagship float in the Macy's Thanksgiving Day Parade and it didn't know its store Santa was previously institutionalized, which led to an awkward series of tests and a violent confrontation with the company's counselor.

With placement firm Challenger, Gray and Christmas reporting more than 375,000 seasonal jobs added in October and November alone, screening out the bad Santas is a must. Staffing firm Spherion ( SFN) says that while 93% of companies use some form of screening, only 79% do background checks, 50% do drug tests and only 34% perform behavioral assessments.

Considering these are the people companies are putting in direct contact with their customers' children, they may want to be more thorough in finding out who's naughty and who's nice. That is why SantaForHire.com, a California-based placement firm for professional store and mall Santas, notifies its Santas of a mandatory background check amid application inquiries about belly padding and beard bleach.

3. Marketing: The in-store Santa and the Thanksgiving parade may seem like old standards now, but in 1947 they were the equivalent of Black Friday door-busters or online-only holiday deals. Characters in the film go to great pains to rail against this line of thinking --"there's a lot of bad 'isms' floatin' around this woild, but the woist is commoicialism," Albert the Brooklyn janitor laments -- but Kris Kringle himself was Macy's nuclear option in its war against long-closed Gimbel's.

Modern equivalents like Wal-Mart ( WMT) and Target ( TGT) realize this all too well, which is why their online war for holiday book and DVD sales began just as most consumers were putting their shorts and swimsuits into storage.

While Macy's hangs on to the old-school gimmickry, it would behoove it and its traditional department store colleagues like JCPenney ( JCP) to make a bit more of an online effort. With ComScore ( SCOR) reporting that online spending for the first 36 days of the November-December holiday shopping season hit 16 billion, the ho-ho-ho's Macy's is hearing aren't from Santa, but from competitors watching Macy's neglect its slowly growing Web presence.

4. The legal department: Kids are making their wish lists, parents are deciding where to spend their ample discretionary income and it's just after the war when no one has any money and debt accounts for almost 110% of gross domestic product -- what better time to put Santa on trial?

That this happens in Miracle on 34th Street despite R.H. Macy's disapproval turns the incident into an executive nightmare -- litigation nobody wants at the time companies least want it. Given the number of legal pitfalls inherent in the holiday season -- boozy holiday parties, end-of-year bonuses, office gifts -- a good legal department can keep a company's seasonal windfall from becoming a lump of coal. Ask both the Metropolitan Transit Authority and the folks in New York's City Hall if either felt like big winners during the 2005 strike that shut down city transportation just days before Christmas.

Perhaps it's no surprise that AT&T ( T) and Verizon ( VZ) decided to table their legal wrangling over the latter's "There's a Map for That" wireless coverage commercials a few days ago.

-- Reported by Jason Notte in Boston.
Jason Notte is a reporter for TheStreet.com. His writing has appeared in The New York Times, The Huffington Post, Esquire.com, Time Out New York, The Boston Herald, The Boston Phoenix, Metro newspaper and the Colorado Springs Independent.