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Federated Ready to Roll Up Its Sleeves Dig Into May

Lundgren already taking stock of Federated's new prize

Cincinnati – Even before Federated and May shareholders voted in favor of merging earlier this month, Federated's chief executive had begun touring May's stores, meeting with its divisional merchants and researching consumer loyalty to May's regional nameplates — including the venerable Marshall Field's and Lord & Taylor chains.

Until a month prior to the July 13 vote, Federated executives had been prohibited under terms of the merger agreement from even entering May stores, according to Terry Lundgren, Federated chairman and CEO. But since the barriers came down, “I've got a great sense of urgency,” he said. “I want to get into these stores as quickly as we possibly can. I want to evaluate them on a store-by-store basis.”

Those evaluations will be critical as the companies' suppliers and employees await word on how many units will be shuttered following the third quarter merger transaction. Lundgren has not put a number on it, beyond saying closings will constitute “part of” an expected $450 million in post-merger savings.

The targets, he said following the shareholder vote, will be redundant and under-performing stores. The company expects to divest itself of about $4 billion in sales after the closings, Lundgren said.

Among those that remain, it's likely that the majority will be converted to the Macy's nameplate — as were all of Federated's regional stores (except Bloomingdale's) last year.

“There are some Bloomingdale's opportunities across the country — not many, but they're there,” Lundgren said.

In advance of nameplate conversions, Federated will begin rolling out elements of its “reinvent” initiative to May stores. Reinvent centers on presentation, with the merchandising approach shifting from classification to lifestyle.

The effort includes wider aisles, simplified signage, better fixtures, cross-merchandising and an updated lighting system. Federated's implementation of reinvent will have reached approximately 70 percent of its own store volume by this fall.

Consumer research is being conducted in Marshall Field's markets to test loyalty to the store name through thousands of interviews, mall intercepts, online, mail and phone.

While Lundgren praised Field's flagship State Street store in Chicago, he also noted that Federated's stores at Union Square San Francisco, Herald Square New York and Dadeland Miami do “much more” business than State Street.

Federated also hopes to identify and retain May's best people, he said.

“If we come out of this without any May people, we will have failed,” he said. “Just remember, just six years ago (May) was the rabbit everyone was chasing. May was leading” the department store sector.

By mid-July, Lundgren had already met with May's corporate merchandising staff in St. Louis and the Robinson/May group. A meeting with the Marshall Field's group was next on the agenda.

May Chairman, President and CEO John Dunham, speaking after his company's brief shareholder meeting in New York, said the combined company “will have the strength, presence, and economies of scale to succeed.”

The new company, he continued, will be able to improve assortments and merchandising, expand proprietary offerings and customer loyalty programs and launch a national bridal gift registry.

Federated has said it will consider — “ 'consider' was the word we used,” Lundgren emphasized — bringing two members of May onto its board following the merger.

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