Will Marshall Field’s be changing its name?
For the second time in less than a year, the Chicago-born department store chain could get a new owner. And this time the prospective buyer is a company with a track record of phasing out the names of the regional retailers it buys.
On Thursday, Federated Department Stores Inc. was reportedly in talks to buy the struggling May Department Stores Co., which in July purchased Field’s from Target Corp.
The discussions between May and Federated are at an early stage and there’s no guarantee a deal will be finalized, according to a report from the Wall Street Journal, citing unidentified sources.
Still, May’s stock surged 9.2 percent Thursday on news of the talks. The deal, which would create a $30 billion retailer with about 1,000 department stores, comes only two months after Sears, Roebuck and Co. and Kmart Holding Corp. announced plans to merge into a $55 billion company.
Speculation about Federated’s interest in May, whose chains also include Lord & Taylor and Filene’s, was renewed after the resignation last Friday of Eugene Kahn, May’s chairman and chief executive officer.
Kahn presided over a four-year drop in profits and a decline in sales in three of the past four years. He also was widely second-guessed for the high price–$3.2 billion–he paid for Field’s, outbidding Federated in the process.
A purchase of May would help plug geographic holes for Federated. Federated, for example, has only four stores in Illinois, while Marshall Field’s alone has 17. Marshall Field’s also has a strong presence in Michigan, a state where Federated has no stores.
Monday, during an interview at a National Retail Federation conference in New York, Federated Chief Executive Terry Lundgren said he has long wanted to open a store in suburban Detroit. But it’s important for retailers to have a critical mass of stores in a market, he said.
“It’s hard to have big marketing support when you’ve got one store in a market,” he said.
In the short run, an acquisition of May would be “great” for Federated, said Howard Davidowitz, chairman of New York retail consulting firm Davidowitz & Associates.
Besides plugging geographic holes, cost-cutting will be achieved through layoffs and the clout that a bigger retailer carries with suppliers, he said.
But, long term, Federated is making a mistake if it buys May, Davidowitz said.
“If, 100 years ago, you were the best buggy-whip maker, but all the other buggy-whip makers had gone out of business, would you buy another buggy-whip maker?” Davidowitz said. “If I were Federated and I had money, I’d not buy a department store. I’d buy a growth business. I’d go off-mall. As more shopping goes off the mall, Federated, long-term, is going to be on the mall. I don’t think that’s a good place to be.”
Retail observers believe that a Federated-May combination would result in a number of stores being put up for sale because of geographic overlap, antitrust concerns or poor locations.
In the Chicago area, May and Federated have overlapping stores at Old Orchard Mall and Oakbrook Center. They also have a total of five stores in Chicago, including two Marshall Field’s, a Lord & Taylor, a Bloomingdale’s department store and Bloomingdale’s home furnishings outlet.
Overall, Federated has four stores across Illinois, but May has 102, including bridal stores.
“For years, there has been talk about a marriage between Federated and May, an event that we believe could result in significant cost savings, strong leverage from their vendor base, and becoming the dominant market-share player in the department store industry,” Merrill Lynch said in a note to clients Thursday. “The bigger issue is if the Federal Trade Commission would allow a transaction of this size to occur given the overlap between the two retailers.”
A Citigroup Smith Barney report said there are about 100 malls across the country with both a Federated and May store. “A number of these locations are some of the top producing malls,” including Oakbrook Center, he said.
Marimichael Skubel, a Kirkland & Ellis antitrust partner who used to work for the FTC, said it’s hard to define department stores as a market because there are so many competing retailers.
“Ultimately, what the government looks at is whether prices are likely to go up or fewer sales are run,” she said.
The potential deal caught Walter Loeb of Loeb Associates Inc. by surprise.
In an interview Wednesday at the National Retail Federation conference, Loeb said that Kahn was likely pressured out at May due to “a lack of momentum of the company, exacerbated by the acquisition of Marshall Field’s.”
Waiting for Federated’s Lundgren to address the conference Wednesday, Loeb was asked whether Federated might be interested in buying May. He didn’t think so “at the present time” because Federated is so focused on improving its home furnishings business.
Indeed, in his presentation, Lundgren said the two numbers he looks at most regularly are overall sales and results from the home furnishings business.
Federated has a history of folding its smaller regional chains into its two flagship brands: Bloomingdale’s and Macy’s. On March 6, Federated will convert five of its nameplate stores–originally Rich’s, Lazarus, Goldsmith’s, Burdines and Bon Marche–to Macy’s.
In his speech Wednesday, Lundgren backed up his decision to convert the names to Macy’s while conceding that some shoppers waxed on about nostalgic ideals–such as having tea with a grandmother at a store where the name is being dropped.
Seventy-percent of the shoppers said it doesn’t matter that the names are being dropped, while 10 percent said they’d shop more often at a Macy’s. Another 10 percent weren’t sure while 5 percent said it was a great idea.
Only 5 percent thought it was a terrible idea, he said.
“They’ve accepted the fact that the name is changing to Macy’s,” Lundgren said.
Retail observers differ on whether the Field’s name is in jeopardy.
“There would be no more Marshall Field’s” if Federated buys May, Davidowitz said.
A former Marshall Field’s executive thinks the name is safe.
“They’ve not changed Bloomingdale’s,” former Field’s president Dan Skoda said. “They may take other parts of May and turn them into Macy’s. But I think they’d think twice about changing the name of Field’s.”
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%% Shopping for a deal?
On Thursday, Federated Department Stores Inc. reportedly was in preliminary talks to buy May Department Stores Co.
FEDERATED MAY
Headquarters Cincinnati St. Louis
Employees 111,000 110,000
Leadership Terry J. Lundgren John L. Dunham
2004 sales* $15.26 billion $13.34 billion
2004 income* $693 million $434 million
Stores – More than 450 – More than 500
in 34 states, Puerto department stores
Rico and Guam in 36 states
– Includes – Includes Marshall
Bloomingdale’s and Field’s, Lord & Taylor,
Macy’s chain Foley’s, Famous-Barr
and David’s Bridal
Illinois stores 4 102
Sources: Federated, May, Hoover
*2004 figures are estimates
Chicago Tribune
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