Federated Department Stores Inc.'s acquisition of May Department Stores Co. will create a new national player that will be better able to build sales in today's competitive retail landscape, Federated chairman/president/CEO Terry J. Lundgren said yesterday.
The $11 billion deal is viewed more positively than Federated's disastrous buyout of Fingerhut Cos. Inc. for $1.7 billion in 1999.
“Fingerhut was always a wrong size, wrong fit for Federated,” said Donald R. Libey, managing director of Libey-Concordia, Philadelphia, advisers and investment bankers to the catalog industry. “Now they are making a clear choice to go for a luxury position rather than a discount position.”
The combined Federated-May entity will operate more than 950 stores and will have annual revenues of $30 billion, effectively doubling Federated's current size. Layoffs are expected once the deal is completed, but Lundgren said he didn't know how many.
“It's very important that we take a step like this so we can create a competitive model,” he said during a press conference yesterday.
Twenty-five years ago, there was very little off-the-mall business, he said, but today it represents hundreds of millions of dollars of competition. The national advantage Federated plans to mine could extend to direct marketing operations as well, according to Libey. This will give Federated an enormous competitive advantage against Nordstrom's, J.C. Penney and some of the mid-tier discounters such as Kohl's.
It would appear that May's brands could benefit from some help in direct sales. The Web sites for Lord & Taylor and Marshall Field's, for example, are informational alone, though the Marshall Field's site contains an announcement that a new site with e-commerce capabilities is under construction. Also, Marshall Field's exited the catalog business last year under former owner Target Corp.
Federated, on the other hand, has a strong DM reputation. In addition to Bloomingdale's expertise in catalogs, Macy's is a dedicated direct mailer of fliers and an experienced e-commerce practitioner. On Feb. 23, Macy's launched thisit.com, a Web site designed for fashion-savvy juniors.
Lands' End — for which there is some industry speculation that Sears, Roebuck & Co. wants to sell the brand — has become more valuable since the Federated-May deal was announced, Libey said.
“With this consolidation, whoever Lands' End winds up with, it will be the plum because Lands' End is already the national brand.” he said. “If you add to a Federated brand a Lands' End, you suddenly have a real powerhouse.”
The acquisition of St. Louis-based May brings with it stores in 15 states where Cincinnati-based Federated currently does not do business. Starting in 2006, Federated will start renaming many of those stores Macy's and, in some cases, Bloomingdale's.
“The name of Macy's is a fantastic national name,” said Lundgren, adding that this acquisition will allow the company to more fully leverage the brand's equity.
In addition to Lord & Taylor and Marshall Field's, May's owns Famous-Barr, Filene's, Foley's, Hecht's, Kaufmann's, Meier + Frank, Robinsons-May and Strawbridge's.
With national retail brands, Federated can justify the expense of national network TV advertising — something Wal-Mart, Target and J.C. Penney rely on heavily — and leverage its bridal, gift registry and customer loyalty programs on a national basis.
Last fall, Federated said it would rename its regional department stores to Macy's. That change is scheduled to go into effect March 6 as is a marketing and ad campaign to introduce the new Macy's nameplate that will include full-page ads in national and local newspapers, television advertising and direct mail to Macy's credit card customers.
Macy's also is launching a nationwide loyalty program called Star Rewards today. All active customers in all five Macy's divisions are being enrolled automatically in the new program.
Another gain expected from the acquisition is Federated's plan to extend its formula for reinventing the department store shopping experience to May's stores. This formula includes wider shopping aisles, locally determined merchandise assortments and an assortment that consists of about one-third merchandise that is exclusive or in limited distribution.
It will take until mid-2007 to implement all of the changes planned as a result of the acquisition, Lundgren said.
Chantal Todé covers catalog and retail news and BTB marketing for DM News and DM News.com. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters
