Wednesday, September 20, 2006

Federated Throws New Weight Around

New York Post

NEW YORK -- Pressure is mounting on companies that manufacture goods sold in Federated Department Stores to change the way they do business to better accommodate the giant retailer.

Manufacturers are being asked to shorten lead times, increase the frequency of shipments and make their products more fashionable, sources said.

Federated's acquisition of the May Department Stores Company created the country's largest department store chain and the only one with a national footprint under the Macy's name.

Much the way Wal-Mart used its size to wring concessions from suppliers, Federated is exercising its newfound clout to encourage manufacturers to change how they source, make and ship goods to its more than 850 stores.

"Federated is now in a position to dictate to a greater extent, and I don't expect them to hold back," said one source, who requested anonymity.

In a series of meetings with suppliers over the past two days, Federated executives, including Chief Executive Terry Lundgren and Vice Chairman Janet Grove, laid out a plan that included more exclusive offerings and faster shipments of fashion items from once a month to twice a month.

"The typical consumer shops our stores once a week, and we need to show them something new and different," Grove said, according to someone who attended the meeting.

Grove was not immediately available for comment.

The strategy carries increased risk for both Federated, which could become too dependent on the vagaries of fashion, and its suppliers, who are being asked to restructure their businesses at a time of growing uncertainty for apparel manufacturers.

"It's a noble goal," said one executive. "But how easily can we adapt?"

With the bulk of apparel, shoes and handbags manufactured in Asia, lead times from conception to delivery can run as long as nine months, a timeframe Federated would like to whittle down to three.

One way to speed production is by stationing key executives in Asia, where they can approve samples as soon as they are made, instead of flying samples to New York and back. The shorter lead times and more frequent shipments help to increase inventory turns - the amount of time it takes a retailer to sell through inventory - which, in turn, boost sales.

Federated is using a program called 20/20 to help it quickly identify the best- and worst-selling merchandise.

The system allows Federated to quickly reorder the 20 percent of items that are selling the best and clear out the 20 percent that are selling worst by marking them down.

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