Shopping Spree
Federated buys rival May to create a mammoth of the mall
Federated plans to give May stores a younger, more exciting feel with wider aisles, less clutter, brighter and easier-to-read signs, more luxurious fitting rooms, and merchandise better suited to local shoppers. "What the department store must and will do is re-create itself to appeal to younger consumers by making the stores more exciting and by making shopping an adventure," says Kurt Barnard, president of Barnard's Retail Consulting Group. Federated has been doing this at Macy's and Bloomingdale's for years, which is why its same-store sales were up 2.6 percent last year. At May, a superb cost-cutter but weak merchandiser that has relied on markdowns as a business strategy, sales were down an equal amount. "At the end of the day, a department store has to be local and filled with what the shopper wants," says Cohen.
At Macy's, buyers use market research to profile their customers, then direct their shopping and merchandising to well-defined--if fictional--customer types such as traditional (J. Crew, not Jay-Z) and contemporary (iPod-toting trendsetter). "When [our] buyers go into the market, we really think about buying for the customer," says Lundgren.
The name change is part of the strategy to bring customers back. With the establishment of Macy's as a national name, Federated will be able to fully reach that coveted under-35-year-old shopper; the one with the home and the kids and the multiple needs that she would like to satisfy under one roof. And the one who gets most of her information from TV. As a regional chain, Macy's couldn't advertise on TV effectively, like national chains such as J.C. Penney and Wal-Mart. Now, "Federated is going to present itself far more attractively than it has in the past, and it will gradually wean its target customers from the discount store arena, and bring them back," says Barnard, noting that the $450 million to $500 million the new Federated will squeeze out of the operational side of the business could lead to lower prices and better merchandise. "It's nonsense to say the department store is a dinosaur," he adds.
Even if it were, Lundgren may be just the one to save it from extinction. Before he went into retail, he had other career aspirations: as a veterinarian.
BUILDING A RETAILING GIANT
Federated's purchase of May Department Stores will result in a national retail powerhouse. Here's how the new combination stacks up:
Merger cost: $11 billion in stock, plus assumption of $6 billion in debt
Sales: $30 billion
Stores: 950 department stores, 700 bridal and formalwear outlets
Footprint: Operates in 49 states
Employees: 243,000
Founded: May in St. Louis in 1910, Federated in Columbus, Ohio, in 1929
Name stores: Bloomingdale's and Macy's for Federated; Lord & Taylor, Filene's, and Marshall Field's for May
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