By  on September 21, 1994

NEW YORK -- In an announcement that had been widely expected, Federated Department Stores said Tuesday it will merge its Abraham & Straus and Macy's East divisions and has put Harold D. Kahn at the helm of the combined operation.

The consolidation is expected to occur late this year or early 1995 depending on the consummation of the Federated/Macy's merger.

It will create a $4.3 billion chain -- Federated's largest -- with department stores in 16 states from Maine to Florida. The new division will be run at Macy's Herald Square offices and will result in another round of massive layoffs, this time at the A&S central office in downtown Brooklyn, where there are about 350 employees including 90 buyers.

The consolidation of Macy's and A&S will be a huge project, eased somewhat by the fact that both divisions use the same SABRE merchandise information system.

Beginning in fiscal 1996, Federated expects to realize expense savings of over $50 million annually from the consolidation of the two divisions, excluding one-time costs. These savings represent a significant portion of the $71 million total savings expected to result from the Federated/Macy's merger in fiscal 1995, and of the $122 million annual expense savings expected from the merger, beginning in fiscal 1996.

Kahn, chairman and chief executive officer of A&S, is considered shrewd, street smart and one of the top merchants in the industry. He will hold the same titles at the new division. Kahn joined A&S last February after serving as president of Montgomery Ward, and has been jumpstarting the two-year-old consolidation of Jordan Marsh into A&S.

In his new post, Kahn becomes the fourth highest ranking official at Federated, behind Allen I. Questrom, chairman and ceo, James Zimmerman, president, and Terry Lundgren, head of Federated Merchandising.

In an interview, he said his first priority is to put together a new team by mid-November so spring planning won't be delayed. Some key appointments have already been made. David Suliteanu, 41, will be president and director of stores for the consolidated Macy's East, a post he's held at Macy's East since August 1993. Leonard Marcus, president of A&S, will become president of Stern's, a post that's currently vacant.Burnett W. Donoho, 55, will be vice chairman and chief operating officer of the consolidated division, a position he's held at Macy's East.

After the organization is formed, Kahn, who reportedly has been visiting Macy's stores in anticipation of his appointment, said he will try to blend the best of Macy's and A&S, by focusing on opportunities "on a door-by-door basis."

He also said the division will continue to intensify core resources, Federated's strategy since it emerged from bankruptcy in February 1992.

"The question is how, in the key doors of A&S, do you add the excitement of Macy's Cellar?" Kahn said Tuesday. "In some A&S doors, we'll go broader and higher," meaning some new and higher priced items from Macy's assortments will make their way into A&S stores, but not necessarily all of them. Likewise, A&S assortments, which are strongest in moderate sportswear, could be concentrated in some Macy's units.

"The important thing is that decisions have to be made based on each location," Kahn said.

Tuesday's announcement confirmed WWD reports about Kahn heading up a combined division, and renewed speculation about Federated putting the Macy nameplate on many of the stores it is acquiring through the merger. This could achieve greater advertising and marketing efficiencies. Retail experts cited the possibility of developing a national television advertising campaign for Macy's, and also the possibility of transforming other Federated divisions, such as Lazarus and The Bon, into Macy's.

Federated officials, however, said no decision has been made on whether to rename A&S or other divisions Macy's.

Decisions on store closings must also be made in malls where both Macy's and A&S operate. Typically, smaller volume stores would be closed.

"Any decisions on future store realignments have not been made yet," Kahn said.

He said A&S has been running ahead of its sales and profit plans for the year through August, even with a slow spring.

"We identified a lot of opportunities by vendors and classification, and made appropriate investments on a door-by-door basis. We realigned space and invested in capital and marketing to support merchandising opportunities. There's been considerable improvement in home goods, domestics, housewares and furniture, moderate sportswear, petites, juniors and children's. In addition, the men's collections and classification business has been particularly strong."Better sportswear and accessories have been tough, he said.

"A&S is know for more of a value image and strong moderate sportswear. Macy's has the Cellar, housewares that is dominant and very, very strong cosmetics."

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