By  on February 9, 2005

NEW YORK — Factors, companies that take responsibility for a firm’s receivables for a fee, are skeptical about any benefits to their vendor clients in the event Federated Department Stores and May Department Store Co. agree to merge into a retailing behemoth.

Thomas Pizzo, president and chief executive officer of Wells Fargo Century, said a potential merger would cause some suppliers to see an immediate rise in their sales concentration levels, which are sales to their top two or three retailers.

For Pizzo, a Federated-May deal would have similarities to the union of Kmart Holding Corp. and Sears, Roebuck & Co., which is expected to close mid-March.

There’s been heightened speculation about a Federated-May merger since the abrupt resignation of May chief executive officer Gene Kahn last month. And as May searches for a replacement, informal talks between the two firms have taken place, according to sources close to the companies. Neither company would comment.

“Personally, I’d rather see less concentration than more,” Pizzo said. “It’s true, there are less credit issues to deal with, but there are bigger risks.”

David Milberg, president of Milberg Factors Inc., said retail mergers work in the retailers’ favor as they increase their power and capitalize on greater economies of scale. “Concentration is never a good thing for the factors or the manufacturers,” he said.

That sentiment was echoed by Stanley Officina, president of Sterling Factors. “I don’t think it’s in the best interest of any industry to be tied up in one company, whether it be banking, retailing or steel production,” he said.

Officina said if the merger does happen, most of the country’s high-end department stores would be controlled by one company, creating an entity not unlike Wal-Mart, the world’s biggest retailer.

Milberg and Officina said vendors already face difficulties over issues such as chargebacks and margin allowances when dealing with large department stores, something both fear might worsen with a merged company.

“The whole department store sector is not as strong as it used to be, which is something you have to keep in mind,” Milberg said. “Department stores in general are known for being more difficult when it comes to chargebacks or asking manufacturers to guarantee a certain margin. I just think you have the potential for them to get worse.”

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