By and  on September 21, 2005

NEW YORK — Federated is wasting no time digesting May.

Converting Marshall Field's to Macy's in fall 2006 is at the top of the list. Other moves the retailer revealed Tuesday include selling off the May's bridal group of over 700 specialty stores, cutting 6,200 jobs by eliminating May corporate and divisional headquarters and determining the fate of Lord & Taylor by the end of the fiscal year in late January.

It's widely expected that Lord & Taylor, obtained through the acquisition with May Department Stores Inc., will also be sold off. While trading up over the last four years and exhibiting a more focused assortment, L&T hasn't performed up to expectations. Shedding L&T would enable Federated Department Stores Inc. to further concentrate on its ongoing rollout of Macy's and Bloomingdale's into national retail brands.

Federated also disclosed that four May sites will become Bloomingdale's, though Bloomingdale's is expected to pick up a few additional locations via the $17 billion deal, which was completed Aug. 30. The Field's integration will result in Macy's being virtually national, with 850 stores and a particularly strong presence on both coasts.

May's private labels will be discontinued, except for two, Karen Scott and John Ashford. They will be sold at Macy's beginning next fall.

More significantly, Federated will roll its private labels, notably INC, Alfani and Charter Club, into Field's stores around the same time they become Macy's units. Federated's private label program is much stronger than May's, representing 18 percent of the total inventory; May's was closer to 10 percent.

As a result of the consolidation, Federated expects to realize approximately $175 million in cost synergies in 2006 and $450 million in annual cost synergies in 2007 and beyond. Expenses associated with corporate and division consolidations and nameplate changes are included in the previously announced estimate of approximately $1 billion in one-time costs spread over three years beginning in 2005.

The toughest decision was perhaps the one to drop the Field's nameplate, since it means the famed Marshall Field's flagship on Chicago's State Street — considered the most architecturally grand flagship in the country, with its soaring atrium and generous spacing — will become a Macy's. The decision is not too much of a surprise, however, since many observers had predicted that Federated would use the May acquisition to establish a major footprint for Macy's in Chicago. The Midwest has been a major hole in the map for the Macy's chain.Federated's vice chairman Janet Grove said during an interview, "We will be treating State Street as one of our premier headquarter doors. State Street is going to become the Macy's Midwestern flagship.

"We have spent a lot of time working on this, even though it is soon after the merger," said Grove. "We continue to work with the May organization to learn as much as we can, out of respect for its people. We want to get decisions out there, so they can plan and we can plan. In 2006, we will be introducing the new national Macy's. The Macy's brand will really become a national brand in '06. The earlier the planning, the better off we are."

Grove also said Federated is talking with all of May's senior management group "to learn more about them." Some will be hired by Federated.

She said Federated was open to the possibility of doing a hyphenated Macy's-Marshall Field's logo, but based on the research felt consumers were more concerned about products, customer service and the overall shopping experience.

"You have to understand we have huge respect for the Marshall Field name and all of the Marshall Field traditions," Grove said. "In the long run, we felt we could serve Marshall Field's customers best by offering them the Macy's nationwide brand and at the same time leaving the regional office in Minnesota."

Federated said it will also maintain a Macy's Midwest regional operation in St. Louis.

"We really believe we have to respond to regional differences," Grove stressed. "We are very much into understanding lifestyle by door."

She also said Field's doors will be receiving many of the elements of Federated's "reinvent" strategy, which includes new fitting rooms, way-finding signs and price checking, and would be implementing such services as the Macy's national gift and bridal registry.

She said transforming Field's to Macy's does not necessarily entail any trading up or down of the merchandise, since the two chains are more similar than dissimilar. "In examining the two stores, the average [price] of each unit of retail is very similar in most families of businesses."Macy's, she added, has been trading up. "I think that the Marshall Field's assortment will fit very well. There is a lot of the same merchandise."

Regarding the massive layering of Macy's private label onto the Field's assortment, Grove said, "It will make a big difference in the merchandise content."

On the darker side, Federated will begin phasing out May's corporate headquarters and its May Merchandising unit in St. Louis on March 1, with most positions eliminated by the end of the year. About 1,700 staffers there are affected.

Starting in February, Federated will phase out the central offices of divisions, including Filene's/Kaufmann's in Boston, Foley's in Houston, Hecht's/Strawbridge's in Arlington, Va., and Robinsons-May/Meier & Frank in Los Angeles. About another 4,500 employees will be affected, though many will be offered positions elsewhere in the company, Federated said.

Federated also announced that the Filene's flagship in downtown Boston, located in the same building as the Filene's/Kaufmann's headquarters, will be divested in 2006. This brings to 76 the total number of duplicative store locations to be divested next year as a result of the merger. Macy's in downtown Boston will remain.

But the greatest uncertainty revolves around whether Chicago shoppers will take to the Macy's name. There is significant devotion to Marshall Field's and its traditions at its State Street flagship. Most of the other Field's stores, however, swim in the sea of merchandise sameness that plagues retailing, particularly the department store sector, so opposition to the change might not be felt too far beyond the Chicago area. Field's operates 62 stores concentrated in the Chicago, Detroit and Minneapolis metro areas, though there are also branches in Wisconsin, North Dakota, Indiana, Ohio and South Dakota.

Chicago officials tried to ease concerns and look at the plus sides. Responding to a question about Field's, Chicago Mayor Richard M. Daley said Tuesday at a press conference for public schools, "I wasn't thrilled about the name change at first, but the fact is Macy's is bringing a lot of positive things to the city. They will be investing dollars into the store and trying to make it more of a destination. It's important that none of the workers will lose their jobs. They're hoping to bring back some of the Frango mint workers. These things make it worthwhile for Chicago.""This is a great decision," said Allen Questrom, a former chairman and chief executive officer of J.C. Penney and before that, Barneys New York and Federated. Questrom orchestrated Federated's takeover of the former R.H. Macy & Co. in 1994, which rescued Macy's from bankruptcy, and had the original vision to catapult Macy's into a national chain.

"After two weeks, it doesn't matter what the name on the door is," Questrom said. "What matters is what's inside the store." He recalled that when Abraham & Straus in Brooklyn was converted to Macy's, as part of the strategy to take Macy's national, there was no loss in business, even though some local shoppers initially complained about the name change.

According to retail analyst Walter Loeb, "Marshall Field's has lost much of its panache and identity anyway and I think the customer will accept it as Macy's. I am glad Federated decided to make the change sooner rather than later."

Ed Nakfoor, a retail consultant based in Birmingham, Mich., outside Detroit, said, "I think the folks here will be pretty upbeat about the change. When Hudson's became Marshall Field's, that stung people. Some still call the stores Hudson's, so they have never really had an affection for Field's. In older northern cities, people tend to cherish tradition and want to hold onto their names, so you may see people in Chicago crying in the streets. Stores like Marshall Field's and John Wanamaker in Philadelphia really defined the cities and were arbiters of taste. It hurts to lose them, but I definitely think this is a good fit for this region."

Not everybody agrees converting Field's is such a good idea. "I'm sad about the trend," toward retail consolidations, said Bud Konheim, president and ceo of Nicole Miller. "People are talking today about brand loyalty and recognition. Marshall Field's is that. Marshall Field's at one time stood for the highest quality department store in the U.S. To see it disappear is homogenizing the landscape. I don't think it builds interest or character to have the United States dominated by three stores.

"I'm not against becoming big," Konheim added. "But we're trying to stimulate customer excitement. Taking diversity out of the mix dulls the scene. If it's going to be just a couple of names and the names signify that they all carry the same stuff," the customer isn't going to react favorably, he said."In this town, Marshall Field isn't a store, it's a monument," said Anthony Jones, president, School of the Art Institute of Chicago. "It's a sad thing. People will see it as a loss. When Dayton Hudson owned Field's, they respected the tradition. This has been so much of people's cradle-to-grave experience."

Jones said Field's championed young designers and was prepared to take a little more of a risk than typical department stores. It was where many of the best-dressed women in town learned about couture, quality and the way things are made.

"I wonder what happens to people who are interested in very high-quality couture," Jones said. "They will be going to Oak Street," also in Chicago, where there's a concentration of high-end boutiques. He said that Field's offered a view of many collections under the same roof, and knowledgeable salespeople with years of experience.

"Meeting people under the Field's clock is a legend in Chicago. It's part of the DNA."

On Tuesday, Federated tried to ease concerns, and convince Field's loyalists that Macy's will maintain its traditions and provide more merchandising interest. Said Federated's chairman, ceo and president Terry Lundgren, in a statement, "While the store's name will change, much of what customers love will stay the same, including Marshall Field's traditions and its outstanding record of community and charitable giving. As part of this name change process, we will do everything we can to honor the Marshall Field's heritage, particularly in its Chicago birthplace."

Federated officials gave other assurances about maintaining Field's traditions and its regional flavor, noting the Minneapolis-based regional office of Field's will continue to do the buying and will be known as Macy's North. Macy's seven other regional offices each handle store management and operations, soft goods merchandise buying and planning, human resources, finance, marketing, visual merchandising and other functions. The New York-based Macy's Home division continues to handle home merchandising and marketing in all Macy's stores.

Lundgren also emphasized the financial benefits of the conversion, saying the move will improve comp-store gains, reduce costs and increase profitability and shareholder value. "To better serve our customers in this highly competitive retailing environment, we must concentrate on our best national brands and reduce costs so we can deliver outstanding value to shoppers," he said.Federated previously announced that all of the other May divisions will be converted to Macy's, with a handful becoming Bloomingdale's. Previously, Lundgren said five to 10 May locations could become Bloomingdale's.

Consultant Nakfoor suggested the Somerset Collection shopping center in Troy, Mich., which he consults for, could take a Bloomingdale's. It already houses Nordstrom, Saks Fifth Avenue, Neiman Marcus and Field's. "This is a big market that doesn't have a Bloomingdale's." He also said that the Twelve Oaks mall in Novi, Mich., housing L&T, J.C. Penney, Sears and Field's, and eventually Nordstrom, could also take a Bloomingdale's.

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