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Jennifer Marks

Mergers and Shakers

In what is expected to be a hot year for mergers and acquisitions across a spectrum of industries, it appears as though some key retailers will be in on the action.

Last week, The Wall Street Journal and other business publications revived the Federated-in-talks-to-buy-May-Co. story in the wake of May Chairman and CEO Gene Kahn's abrupt resignation. If it comes off — and this is a merger that's been rumored before without result — the deal would create a $30 billion retail company with more than 1,000 department stores.

A week earlier at Heimtextil, word had it that Target Corp. is closing in on the acquisition of Hudson's Bay Company — a story that was hot last fall before dropping from the news.

There was also talk in Germany about the Sears/Kmart merger, which should be finalized in a few months. Depending upon which Sears and/or Kmart vendor was doing the talking, the integration is either grinding along slowly, with no store-level developments expected until 2006, or it's moving at blistering speed, with the conversion of Kmart boxes into Sears Grand stores likely to begin by late summer.

Let's not forget Bed Bath & Beyond. It's cash-fat, debt-free and has already started down the acquisition trail with its 2003 purchases of Harmon drug stores and The Christmas Tree Shops. A betting person would wager the company will strike again this year. The question is whether Bed Bath will pluck another below-the-radar niche player or finally make an international move. Perhaps Hudson's Bay Company's 45 Home Outfitter Stores?

And while we're speculating, it's worth noting that JCPenney has some cash in its pocket from last summer's sale of the Eckerd drugstore chain. Might it go shopping?

Clearly, the idea here is that size matters. But it's also worth considering the backdrop against which these alleged mergers would be taking place.

The National Retail Federation has forecast that U.S. general merchandise sales will grow by just 3.5 percent this year — nearly half the growth in '04. The organization predicted consumers will be constrained by higher energy costs and slow wage growth and noted that past stimuli provided by tax cuts and very low interest rates will no longer be available to spur spending.

So if you can't grow organically, grow mechanically. The question is how well these retail behemoths would respond to shifting consumer trends. Some of them are none too nimble as it is, and one has to wonder if the enormous energy that would be required to align their disparate operations might not be more profitably spent developing innovative merchandise and merchandising concepts directed at their consumers.

However, product innovation is supposed to be a vendor's job, and perhaps that's the silver lining for home textiles suppliers under a scenario of broad retailer consolidation. The big boys may be so busy with operations that their retail-direct initiatives will slide to the back burner. One can hope.

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