The blockbuster acquisition of its biggest rival could give Federated Department Stores a platform to make a run at the affluent customers...

Share story

The blockbuster acquisition of its biggest rival could give Federated Department Stores a platform to make a run at the affluent customers all department stores covet, retail-marketing experts say.

And the deal, unveiled yesterday in New York, helps the company fortify itself against the growing incursion from discounters such as Wal-Mart.

That’s only part of the benefit Cincinnati-based Federated will get from its $17 billion purchase, including assumed debt, of May Department Stores.

Most Read Stories

Unlimited Digital Access. $1 for 4 weeks

Most of the money the two companies will save in the combination comes in the “back room,” in functions like purchasing, credit-card processing and real estate. That’s the part investors love.

But the ultimate success of the deal also hinges on selling the company to consumers as a relevant part of their shopping habits.

One possible strategy could be to try to appeal to higher-income consumers by elevating a store in its sterling roster of nameplates, said Wendy Liebmann, president of consultancy WSL Strategic Retail in New York.

The top candidates are probably May nameplate Marshall Field’s and Federated property Bloomingdale’s, she said.

Federated has concentrated its midtier stores, such as The Bon Marché, under the Macy’s name and said yesterday it will also bring many of May’s regional stores under that banner. That could include Oregon’s Meier & Frank chain, which has eight stores in that state.

“The new shoppers, and the new shoppers spending money, are really being driven in the prestige department stores,” Liebmann said. “That would be a consumer opportunity, if they saw that as another brand they could wrap around the market.”

In comments after announcing the deal yesterday, Federated Chief Executive Terry Lundgren hinted at that same strategy, saying he doesn’t want to compete with discount chains like Wal-Mart.

“I’m in the fashion business,” Lundgren said. “We sell affordable luxury.”

The combined company will boast the industry’s premier collection of nameplates, led by Bloomingdale’s, Macy’s and Marshall Field’s.

It’s in the best position of any department-store company to break through the competition with discount stores such as Target and Kohl’s on one end and prestige names including Saks Fifth Avenue and Nordstrom on the other, Liebmann said.

She acknowledged traditional department stores have been losing market share on both ends. And it’s hard to take advantage of the May acquisition in marketing the entire company, because consumers don’t identify with the name. They identify with the store name.

“From a consumer standpoint, the value of Federated Department Stores having two or three tiers of stores doesn’t really mean anything,” Liebmann said.

In a conference call with Wall Street investors, Lundgren said Federated already has a plan to market to more shoppers in all of its demographic groups.

“While it’s been talked [about] in some of the analysts’ reports that they have a lot of moderate stores, that’s true, but they also have a lot of fantastically higher-end stores, and we know that for a fact,” he said, referring to May.

The acquisition of May should make Federated’s plans to refine their segments even stronger, Liebmann said.

“This is really the first instance of a major redefining of the industry, where you basically have one major behemoth,” she said. “These people already have a plan in place. They’ve been executing it for the last two years.”