By Terry Lundgren

(FORTUNE Magazine) – Rumors of the death of the department store, according to Terry Lundgren, have been greatly exaggerated. As CEO of 75-year-old Federated Department Stores (parent of Macy's and Bloomingdale's), he saw his stores ring up sales of $15.3 billion last year at its 458 locations. Federated is the biggest seller of brands like Ralph Lauren and Calvin Klein in the U.S., and operates the largest store in the country, the Macy's flagship in Manhattan. Not to mention another milestone: Federated stores will be the only place where you can buy Donald Trump's new fragrance come November. But while the stock is up more than 50% over the past two years, fall sales have been flat. As Lundgren gears up for the annual Macy's Thanksgiving Day parade and the all-important holiday shopping season, he talked to FORTUNE's Julie Schlosser about dinosaurs, keeping men occupied, and old designers that are new again.

You're changing all your regional stores like the old Burdines in Florida and Bon-Macy's out West to Macy's. Will you make changes inside the store too?

We've already begun. For example, wherever there was a niche in the corner, we'd squeeze in a fitting room. Customers complained they couldn't find them. Now we're making them much more obvious.

You've also installed cable TV for shoppers who are waiting?

Yeah. We have the Cartoon Network on for the kids outside the women's changing rooms. We have sports channels for men. Still, for a very large percentage of our business, the decision-maker is the woman. So we want to make sure we aren't doing anything to distract her. If that means entertaining her children or significant other while she is shopping, then we will do it. We actually put in Internet connections so that if your significant other wanted to sit down with a laptop, he could. But it wasn't a big hit.

In 1993 five of the top ten apparel retailers were department stores. This year only you and May Co. were. What is happening?

Consolidation. There are just fewer of us. I have a gift here in my office that shows all of the department stores that were in our portfolio over the years. Lazarus, Goldsmith's, Bon Marché, Abraham & Straus, Bullock's Wilshire--the list goes on. All those names have gone away, but those are all ours. May Co. has also bought a lot of brands.

What do you say to those who call the department stores a dying breed or the dinosaur of retailing?

I think I heard that when I was interviewing for jobs back in 1975. I've learned to nod and accept that it is a challenging business. But we are still standing strong.

You recently opened a smaller boutique Bloomingdale's in New York City's SoHo, with trendier merchandise. Could that go nationwide?

We could. We opened the store in SoHo because we have the two largest-volume department stores in America in New York City, but that working young person isn't going uptown to those stores to shop. The good news is that the new Bloomingdale's has drawn a lot of business and traffic to that neighborhood. The rents are even going up. We haven't made a decision, but this concept could work in Miami, Los Angeles, San Francisco, Chicago, and Boston --urban environments with enough of a population base of this young, affluent, more contemporary consumer.

Any new designers we should be watching?

A couple of them aren't new names but have new momentum. Take Vera Wang. She has branched out with a terrific offering in home furnishings--starting in china and crystal. She is doing very well. We think there is more to come from her. Also Michael Kors. He's been around for over 20 years at the high end, but now he's really making a mark at stores like ours.

What will be big for Christmas?

We think Britney's fragrance will be big. We have new "attitude pillows"--I call it the new beanbag. They are in bright colors and will be very, very hot. Also ponchos and corduroy.

How many Santas will you hire for Christmas?

There's only one. We only hire the original.