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Federated/May a Stronger Force in Home

Carole Sloan -- Home Textiles Today, March 7, 2005

New York — With Federated's acquisition of May Department Stores that includes its 2004 purchase of Marshall Field's, department store home textiles retailing is poised to take an upward turn in fashion, price point and private brand merchandising.

Both Federated — under its new Macy's Home Store concept — and Marshall Field's approach their home textiles business from a higher style and price point level than May stores do, industry observers commented. And Field's stands out even more in the fashion, quality and price point derby with more emphasis on the major designer collections as well as specialty designer programs.

The combined home textiles sales for Federated Department Stores, May Department Stores and Marshall Field's will catapult the merged company into fifth place on Home Textiles Today's Retailing Giants rankings. With combined sales of $1.43 billion in 2003 — the most recent year for which break-out numbers are currently available — the combined group would rank between Bed Bath & Beyond at No. 4 and Linens 'n Things at No. 6.

At a press conference following the announcement last week, Terry Lundgren, Federated chairman, president and CEO, explained the company has four priority strategies: differentiation and editing of its assortments; simplification of pricing, reinventing the stores to make shopping easier for customers, and a “top of class” national marketing program.

Private brands, a Federated priority, will be a continuing effort and, “We will have a style out” among the programs, said Lundgren. “May the best merchandise win.”

Currently, private brands represent 17.4 percent of Federated's mix, compared with 13 percent of May's. For Federated, Lundgren emphasized, “The growth of private brands including Charter Club and Hotel in home outpaced market product growth.”

Lundgren also said that for Federated, “We expect to realize the benefits” of the home store change later this year. Responding to a question concerning a May and Federated store in the same mall, and converting one to a home store as the company has done before, he said, “I like the free-standing home store concept, but I like the (free-standing) furniture model better. Customers have proven they will drive longer for big ticket items like furniture and rugs.”

For executives on the home textiles supplier side, the merger almost was inevitable as the key step to changing the slide of the department store channel by creating critical mass to compete with the likes of Wal-Mart, Target and the new Sears/Kmart.

Said David Kahn, CEO of Croscill, “I think it's fantastic; consolidation was inevitable and Federated is on the right track.”

From another perspective, Frank Foley, CEO of CHF Inds., commented, “Federated has really taken the lead in identifying how to make home a more important statement in the marketplace. With this move, they round themselves out geographically, and their positioning in terms of differentiation will allow the department store channel to regain momentum in home.”

For Park Smith, CEO of Park B. Smith Ltd., “It makes nothing but sense; it was inevitable. The weak get weaker and Federated got stronger.”

Looking at the result from the consumers' perspective, Mark Grand, president of PKI, said, “The more options the customer has the better. I am concerned that there will be only one store in these markets for consumers.” As a supplier, he added, “Federated is a good customer, and we do very little with May. It's an opportunity for entrepreneurial enterprises to flourish.”

And for Dave Tracy, David Tracy Associates, “We have to look at this as a new beginning. The May stores will be better, but it will take time. Federated, more than ever, will need good suppliers. This move puts them up there in size and that's leverage. It can be tremendously exciting.”

Tracy added, “I'm hopeful they will restore Marshall Field's to its previous elegance.”

The merger will result in a national retailing giant with sales of $30 billion and will broaden Federated's reach to 49 states, up from 34, and to 64 of the country's top 65 markets. Federated also has stores in Guam and Puerto Rico, while May has stores in Washington, D.C. and Puerto Rico.

Federated currently operates more than 450 stores and converted all but the Bloomingdale's units to the Macy's name on March 6. Federated sales for 2004 were $15.6 billion. May sales of $14.4 billion for 2004 included 491 department stores under the names of 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 Stores as well as 699 bridal/formalwear specialty stores.

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