Federated Department Stores' acquisition of The May Department Stores will give the company added national scope and reduce costs, but Federated will still face the challenges of department store retailing, which has been in decline for decades, according to Wharton faculty and retail analysts.
The $17 billion deal, announced last week and expected to close this fall, will create a national network of nearly 1,000 department stores -- many of them under the Macy's flagship brand -- with sales of $30 billion a year. As many as 100 stores, primarily in areas where Federated and May outlets overlap, are expected to close.
The latest merger is a continuation of years of department store consolidation, points out William Cody, managing director of the Jay H. Baker Retailing Initiative at Wharton. "Department stores are at the point where consolidation at this level is one of the only ways they will ever be a viable model going forward, particularly at the mid-market, which is the bread-and-butter of this deal," says Cody.
Federated has already converted a string of regional department stores -- including Burdines, Goldsmith's, Lazarus, Rich's and The Bon-Marche -- to Macy's stores. Federated also owns Bloomingdale's, which will continue to operate under that name. Headquartered in Cincinnati, Ohio, Federated operates 450 stores and has 111,000 employees. May, headquartered in St. Louis, Mo., has 132,000 employees in 46 states. The company has 491 department stores operating under the names Famous-Barr, Filene's, Foley's, Hecht's, Kaufmann's, Lord & Taylor, L.S. Ayres, Marshall Field's, Meier & Frank, Robinsons-May, Strawbridge's, and The Jones Store. May also operates 239 David's Bridal stores and 449 After Hours Formalwear stores.
The merger of the two largest department store chains will create the nation's fifth-largest broadlines retailer, behind Wal-Mart, the newly-combined Sears and Kmart, Target and Costco.
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