Federated Department Stores to acquire May
The number #1 department store company in the US, Federated Department Stores, will acquire May in an $11 billion deal. Federated is the corporate parent of Macy's and Bloomingdale's, while May is the owner of May Co., Hecht's, Kaufmann's, Lord & Taylor, Marshall Field's, FIlene's, Foley's, .L. S. Ayres, Meier & Frank, The Jones Store, Robinsons-May, Strawbridge, and Famous-Barr. May also owns David's Bridal Store chain and the After Hours formal wear chain.
The new company will own over 1,000 department stores. It represents the gradual accumulation of the last twenty years of almost all major regional department stores chains, with a reach across the country.
The once mighty midrange department store sector is in trouble. Competition from discounters like Target, Kohl's, and Wal-Mart on one side, and higher-end chains like Nieman Marcus and Nordstrom on the other, has eaten away from sales, The merger of Sears and Kmart adds another large competitor. Federated has been fighting this trend by renaming some of its regional acquisitions (Burdine, Lazarus, Goldsmiths, Rich's) with the Macy's name to build its national brand. But the overall signs are bad.
A Wall Street Journal article ("Federated Agrees To Acquire May In $11 Billion Deal", 2/28/05), documents this decline. For example, women's apparel sales by department stores went from 75% of the market in 1982 to 35% today. Even more drastic declines have happened in non-apparel areas like furniture, home electronics, and home furnishings.
Some analysts think that the new company will have to close up to 100 stores, especially in malls where there is both a May's and Federated store. (My own local mall, for example, is anchored by a Macy's and a Strawbridge.) Those closings actually might be more a plus for many malls, since big department stores pay low rates because they claim to act as magnets.
The consolidation of the industry signals problems for many groups. The WSJ article notes one analyst saying
"Generally, it is bad for the industry, for the vendors and for the consumers…Consumers will get fewer options because there will be one point of view." He noted that it will be harder for some of the smaller suppliers to break into the merged entity's new vendor structure.
Of course, the chance is that having two faltering giants joining forces may be less than the sum of the parts. Another analyst is quoted as saying.
"These stores have been akin to the deer in the headlights with a car coming at them - the Wal-Marts, the Targets - and they froze. ,,,I think there has been a lack of imagination in these stores for a very long time.'" (San Diego Union Tribune, 2/28/2005)
