Federated-May merger and competition
The merger between the two dominant US middle-class department store chains (May and Federated) has consequences not just for the consumer, but perhaps even greater ones for the makers of apparel. Those firms now face fewer stores and shelves and buyers, more competition from store brands (something the May group has been expanding), and a big buyer who can dictate prices and conditions more effectively. This especially true since the two companies also represented the elimination of over a dozen potential alternative buyers from the market, as regional stores sold out.
And as our principle states, oligopsonies create oligopolies, and vice versa. Fewer buyers of wholesale apparel means there will soon be accelerated consolidation in clothing industry.
That's not just my opinion, but that of a recent Wall Street Journal article ("Combined Federated-May Could Stress Apparel Makers", 3/1/2005). As they put it: "While some industry observers expect the merger to trigger a fresh round of consolidation among retailers, it could also accelerate consolidation among apparel suppliers, as they strive to get bigger to better face off against their giant customers." Examples given of this trend given in the article are: Van Heusen's purchase of Calvin Klein in 2002, VF's purchase of sportswear maker Nautica in 2003, and Kellwood's acquisition of Phat Fashions in 2005. Another trend has been clothing companies buying into retail boutique chains. Jones Apparel recently bought the upscale Barney's chain, and Liz Clairborne bought European clothing chain Mexx.
The merger of the two department chains might work or it might not. But for the clothing companies that serve them, already suffering from slow growth, survival may mean mergers and acquisitions.
10:39:34 PM 
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