The Dutchess of York, the former Sarah Ferguson, wasn’t going home empty-handed from the posh Bloomingdale’s store on Lexington Avenue.
Dozens of dresses and suits were carried into the wood-paneled “At Her Service” salon last month for Fergie’s inspection and, in most cases, rejection. No one seemed to mind, however.
British royalty have been shopping at Bloomingdale’s since 1976-and Fergie is, after all, a dutchess-so that alone could explain all the special attention. Her many purchases, too, could easily justify the service.
But at Bloomingdale’s, the salespeople pride themselves on giving caring treatment to any customer willing to spend the time to be waited on the “old-fashioned way.” They’ve been doing so for years, and at no extra charge.
Bloomie’s officials fear, however, that that’s all about to change.
Such trademark service, they say, could fall by the wayside if the store is caught up in a bankruptcy battle being waged by four industry giants, including its parent company, Federated Department Stores Inc. “We’re having to think about how we’d survive as an independent,” explained one Bloomie’s executive.
The court fight doesn’t even involve Bloomie’s-it’s about crosstown rival R.H. Macy & Co.-but like so many other issues in this quickly changing industry, the resolution of one matter can dramatically affect the outcome of another, or of many others.
The industry is undergoing radical changes, not the least of which is the shrinking of its numbers. Today, there are more than 500 chains. By the decade’s end, that number is expected to drop below 200, as family-run chains merge with larger competitors.
“Over time we will see fewer, larger and better department store chains,” said Richard Nelson Jr., retail analyst with Chicago-based Duff & Phelps. “The days that we’ve seen three or four department stores as anchors in the regional malls are numbered.”
In an industry in which discount king Wal-Mart Stores Inc. sells more merchandise than all the nation’s department stores combined, many analysts say such a consolidation is long overdue.
So wrenching will be the changes over the next few years, shoppers will need a scorecard to keep track of who owns what. And those consolidations won’t be without victims.
Bloomingdale’s, for example, fears that parent Federated will win the battle to acquire Macy’s and, in so doing, create an antitrust situation that will force it to get rid of Bloomie’s.
As they consolidate, the giants also are planning to replace the tired, old stores they now own-as well as those that they acquire-with new, brightly lighted models. No longer will shoppers have to strain to see whether a suit is navy blue or black.
A good example is the prototype store of Lord & Taylor at Old Orchard Shopping Center in Skokie, the upscale division of the St. Louis-based May Department Stores Co., another of the chains vying for a piece of Macy’s.
The Lord & Taylor store, which opened in November and is now the new standard for the industry, replaced the one that May acquired from Saks Fifth Avenue. Its design, say May officials, will be incorporated into the industry’s first significant construction program in more than a decade. In all, May expects to open 100 new stores over the next five years.
None of that, however, holds any more significance for the industry than what is about to happen to Macy’s, the nation’s No. 3 department store chain.
Macy’s, with more than 200 stores nationwide, filed for Chapter 11 bankruptcy protection more than two years ago. One of the earliest casualties was the closing of the I. Magnin stores in Chicago. Its only remaining Chicago-area store is a Macy’s Close Out unit at Gurnee Mills.
While Macy’s executives struggled unsuccessfully to develop a reorganization plan, its competitors were circling.
In December, the Cincinnati-based Federated Department Stores struck. Federated, the nation’s second largest chain, announced it had bought half the $832 million secured debt owed to the Prudential Insurance Co. by Macy’s. Suddenly, Macy’s was in play.
It’s the sort of maneuver that the former owners of Milwaukee-based P.A. Bergner & Co., now known as Carson Pirie Scott & Co., discovered last year can result in a lightning-like takeover. Bergner was taken over by New York vulture funds that purchased the department store chain’s bank debt.
Just as the vulture funds dictated how Bergner’s would emerge from bankruptcy, Federated Chairman Allan Questrom is hoping he can garner enough support from other Macy’s creditors to force a consolidation with his chain.
Waiting to pick up any leftover pieces is May Department stores, the nation’s largest chain; and Little Rock, Ark.-based Dillard Department Stores, the nation’s fourth largest.
Many observers expect Macy’s West Coast operation to be split between Federated, May and Dillard. Macy’s would emerge from bankruptcy with only its East Coast stores.
“Some people say there will be a very limited number of national chains by the turn of the century,” said Jay Scansaroli, managing partner of Arthur Andersen & Co. retail consulting group. “Clearly the regional players will find it more difficult to compete.”
Just as the Macy’s bankruptcy is expected to give consolidation a big shove, a smaller bankruptcy case will keep the ball rolling.
In another Manhattan courtroom, a bankruptcy judge is expected to establish a schedule that eventually will result in the sale of Washington, D.C.-based Woodward & Lothrop Department Stores and Philadelphia-based John Wanamaker Department Stores.
May Department stores is expected to be a factor in this bankruptcy, too. Experts say May is likely to acquire Wanamaker’s in Philadelphia, while J.C. Penney Co. could be the eventual winner of Woodie’s in Washington.
Farther up the coast, May reportedly is negotiating to purchase Albert Steiger Co., a 10-store chain based in Springfield, Mass.
In Pittsburgh, Dillard is eyeing Joseph Horn Co., a 10-store operation. It also is reportedly looking at acquiring the Los Angeles-based Carter Hawley Hale chain, which emerged from bankruptcy last year.
Costs are just too high for small chains like McRae’s, Wanamaker’s or Horn’s to survive, said Thomas Gould, chairman and chief executive officer of the 53-store Des Moines, Iowa-based Younkers Inc. He said the number of chains have to fall, to as few as 200 by the turn of the century.
Gould is sitting on a pile of cash raised last year in a secondary stock offering that he plans to use to fund future acquisitions in areas adjacent to the Iowa, Nebraska, Wisconsin and Illinois markets in which he’s already located.
“The dominoes of the situation are falling and have been falling since the 1960s,” said Sidney N. Doolittle, a retail consultant and partner in Chicago-based McMillan/Doolittle. “I would see from now until the turn of the century department stores will continue to go through reorganization . . . and in the process find some kind of convenient partnership with another chain.”
But for department stores, it will be nothing new. Theirs is a litany of mergers, some of which began soon after they were founded in the 1850s, as was the case with Marshall Field’s.
In 1969, in the first wave of big-city store mergers, Dayton’s in Minneapolis merged with Hudson’s in Detroit, creating the forerunner of Dayton Hudson Corp.
The merger mania was reignited in the mid-1980s when Toronto-based Campeau Corp. bought Cincinnati-based Allied Stores Inc. and two years later merged that operation with Federated. It was a merger that lasted only two years before landing in 1990 in bankruptcy court.
Nearly four years ago Chicago-based Marshall Field’s merged with Dayton Hudson.
Curiously, the Federated proposal to merge with Macy’s is almost a replay of the effort six years ago when Macy’s attempted to block Campeau’s bid for Federated. Macy’s lost the bidding war to Campeau but received the I. Magnin and Bullock’s department store divisions as a consolation prize.
Now viewed as a booby prize rather than a consolation prize, the $1.1 billion price Macy’s paid for those two chains is largely blamed for forcing Macy’s into bankruptcy protection.
Economics drove the first mergers and economics are again in the driver’s seat.
A department store chain has certain fixed costs-advertising, buying, administration. Costs per store are reduced as the number of stores being served are increased.
One of the biggest places where money is saved is combining the employee-heavy buying operations of department stores.
About 75 to 80 percent of the merchandise in any department store is the same no matter where you shop.
Some chains such as Federated, which operates a buying office in New York for all of its stores, permit subsidiaries like Bloomingdale’s to maintain a buying office to obtain the special merchandise that makes that store different from the others.
Others eliminate the individuality of the chains they gobble up, change the names and create look-alike stores carrying the same merchandise.
It’s a formula Dillard’s has followed. As a result, it’s viewed on Wall Street as the most efficient department store operator.
Despite the consolidations over the past 20 years, department stores, under pressure from mass merchandisers like Wal-Mart and Kmart Corp. and from speciality stores, still have seen their market share fall to less than 12 percent in 1992 from 17 percent a decade earlier.
The chains quickly found that cutting prices wasn’t necessarily the solution to their woes. As the 1990s unfolded the chains discovered they also had to offer value and service, something many had slashed to cut costs.
To dramatically increase revenues, chains again are faced with building new stores-a formidable expenditure-to grow or with acquiring competitors, a far cheaper way of increasing revenue.
“A lot of companies have increased their sales by acquisition,” said Nelson.
“They’re all on an acquisition prowl to see where they can put in their own merchandise and systems and gain better economies of scale by leveraging corporate headquarters over more stores,” said Nelson.
Some consolidations have allowed stores like Bloomingdale’s to preserve the individuality that sets them apart from their competitors. Most have not.
Perhaps Bloomie’s will be able to sidestep the maelstrom caused by a Macy’s breakup.
If it does, it will be able to maintain the personal shopping salon for customers like Fergie, who that day spent nearly $1,800 on DKNY brand apparel.
