Monday, July 11, 2005

May Co.'s stores might be Macy's by Thanksgiving 2006

Macy's parade plans to march across May Department Stores Co. in time for Thanksgiving 2006.

Mary Jo Feldstein

Federated Department Stores Inc. of Cincinnati is moving forward with plans to convert the majority of May stores into Macy's, industry analysts and retail experts said. May's chains include Famous-Barr, Lord & Taylor and Marshall Field's.

Shareholders of both companies will vote Wednesday on the $17 billion union, which is expected to pass. May and Federated have yet to receive approval from the Federal Trade Commission, but the deal is still scheduled to close by the Christmas shopping season.

Already, Federated management has been meeting with May employees, researching May's markets and planning to put new fashions in its stores by fall 2006, Dana Cohen, an industry analyst with Banc of America Securities, wrote in a research note to investors after meeting with Federated's top management.

Even before the deal was announced in February, Federated's purchase of St. Louis-based May was viewed as a potential savior for department stores.

Federated used its "Reinvent Strategy" to revitalize its stores and converted its regional chains into Macy's. The goal was to establish Macy's as a national brand that represents quality and fashion.

Adding May's stores will expand the company's geographical reach and give it more power to negotiate with vendors and mall owners.

But creating a national brand also will require Federated, which also owns Bloomingdale's, to balance its desire to move upscale with its need to retain May's core shoppers, who have preferred more moderately priced clothing.

Federated soon will begin researching the types of merchandise May customers want and whether they would be willing to pay for higher-quality fashions, Cohen wrote. This market research will help Federated decide which regional chains to convert into Macy's and which stores to fill with more upscale merchandise, perhaps as Bloomingdale's.

Rachel Taylor, a paralegal who lives in St. Louis, said Famous-Barr is fine, but she likes the mystique of a Macy's store.

"Me, I'm like, 'Ooh, it's Macy's,'" Taylor said. "It's not like they have something the other stores don't; it's just the whole idea. It's like Bloomingdale's."

Most conversions to Macy's stores are likely to occur next year, Cohen wrote. Federated has not said which chains will move under the Macy's name, but most industry experts believe it will be the majority. Possible exceptions are Marshall Field's and Lord & Taylor.

"I think Marshall Field's and, to some extent, Lord & Taylor will stay," said William Cody, managing director of the Jay H. Baker Retailing Initiative at the Wharton School of Business at the University of Pennsylvania.

Marshall Field's is the oldest department store chain in the nation, and its name still carries cachet, particularly in its key markets, such as Chicago, he said.

Cody sees Lord & Taylor as the May chain with the most flexibility. Depending on location or size, Lord & Taylor stores could be sold off to other chains, such as Nordstrom, or converted into Macy's or Bloomingdale's, he said.

Merchandise inside the stores probably will change before the names on the outside, Cohen wrote.

In areas such as juniors, where assortments change quickly, some new merchandise could hit as soon as next spring. But the majority of the product changes will not occur until fall 2006, Cohen wrote.

She thinks the company will see the $175 million in savings it estimated for 2006 and $450 million the next year.

It's still unclear how the May deal will affect St. Louis. Federated has said there will be no layoffs before March, and it promised to keep a divisional headquarters here.

The city and state paid $50,000 to former interim St. Louis Schools superintendent William V. Roberti's consulting firm to negotiate with Federated on the city's behalf.

A spokesman for Federated said the company is meeting with city and state officials, but declined to comment further on those talks.

May has not been involved in those conversations, said Sharon Bateman, a spokeswoman for May.

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