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NEW YORK — Consolidation fever has hit Atlanta, one of the most overstored markets in America, with Federated Department Stores Inc. planning to integrate its Rich’s division into the Macy’s division.
Federated said Thursday that beginning in February, it will rename its 28 Rich’s stores Rich’s-Macy’s, close seven Macy’s stores in the Atlanta area, converting two of them into Bloomingdale’s and a third to a furniture gallery.
This marks Bloomingdale’s entry into the Atlanta market, with the division moving into the region’s top malls — Lenox Square and Perimeter Mall — and taking a total of 500,000 square feet of gross retail space. Bloomingdale’s expects to have the stores open for business by next fall.
“This is a very overstored market,” said Terry Lundgren, president of Federated. “There has been more retail proliferation here than just about any other city in the country. The market needs to be rationalized.”
Lundgren also said it’s an opportunity to capitalize on the Macy’s name, among the most highly recognized department store brands, and roll out and advertise Federated’s “reinvent” strategy geared to make shopping easier. The strategy involves renovations, automated price-check devices and shopping carriers, enhanced fitting room environments with lounges and bigger, easier-to- read signs and directories.
The move raises speculation that Federated will one day completely phase out Rich’s, and possibly its other regional nameplates: the Miami-based Burdines and Seattle-based Bon Marche divisions, as well as the Lazarus and Goldsmith’s stores in the Midwest and South, which are operated by Rich’s. In Florida, Federated also operates Macy’s and Bloomingdale’s stores, while The Bon is the sole Federated business in the Northwest.
Over the years, Federated has converted Abraham & Straus, Bullock’s, Stern’s and Bamberger’s primarily to Macy’s, and in a handful of locations to Bloomingdale’s. Regional headquarters were eliminated along with the nameplates.
In the case of the $2.4 billion Rich’s, Federated officials gave assurances that the name won’t disappear and that the chain will continue to be run by the Rich’s team at Rich’s Atlanta headquarters. However, it’s possible that in the future, Federated will change its mind.
“If your strategy is to grow comp-store sales and consumer acceptance, simply eliminating jobs and regional operations hasn’t proven to be a successful strategy,” Lundgren said. “This is a consolidation of names, intended to blend the best of both Rich’s and Macy’s.”
“Rich’s is not going away,” said Sue Kronick, group president at Federated, during a press conference in Atlanta. “It will continue to be run by RLG,” meaning Rich’s/Lazarus/Goldsmith’s division. “Neither entity is winning or losing with this move. Rich’s-Macy’s is a new brand that will incorporate the best of both. Rich’s is known for hometown values and Macy’s has a national expertise.”
More specifically, Ron Klein, Rich’s ceo, said, “Macy’s is known for The Cellar, its housewares, and has more extensive departments in women’s shoes and jewelry areas than Rich’s,” he said. “Now those areas will expand in the combined stores.”
Rich’s brings well-developed tabletop and furniture categories to the new combined stores, added Kronick.
Federated had a disappointing Christmas season and has been squeezed by lower- and higher-priced competitors, particularly Kohl’s, which entered the Atlanta market about two years ago. In addition, Macy’s and Rich’s have been competing head-on, so it’s hoped that they begin to work together and build on their strengths, rather than fight each other. Last year, Rich’s performance ranked in the middle of the Federated pack. Burdines did the best, followed by The Bon, Bloomingdale’s, then Rich’s, while Macy’s trailed, though the performances were close.
James M. Zimmerman, Federated’s chairman and chief executive, said the capital investment in the Atlanta market, including the Bloomingdale’s conversions, is expected to total more than $75 million in the next 12 months. It will be funded within Federated’s $650 million capital budget for 2003.
“Atlanta is an important and unique market for us — the only one with such an extensive concentration of both Rich’s and Macy’s stores competing head-to-head,” Zimmerman said in a statement. “By combining the strong regional expertise of Rich’s with the powerful Macy’s national brand, we will be giving Rich’s-Macy’s customers the best selection of fashion and value under one umbrella, while ensuring that we maintain community ties and preserve the special traditions of each.”
The venerable Rich’s was founded in 1867. If the nameplate disappeared, people would be saddened, at least temporarily. “We’re being sensitive to that,” Lundgren said. “Change for people is a little uncomfortable. The real test is in terms of consumer response and we’ll understand that a year from now.”
In addition to Macy’s in the Lenox and Perimeter malls, Macy’s units are set to close in early April in downtown Atlanta and at Cumberland, Southlake and Gwinnett Place shopping centers. Macy’s downtown store on Peachtree Street will close. It was the only department store left in downtown Atlanta, and originally was a Davison’s, built in 1910.
Macy’s in Town Center at Cobb will close, but one floor will be converted to a Rich’s-Macy’s furniture gallery that will reopen in the fall. The other floor will be leased or sold for retail use.
Stores becoming Rich’s-Macy’s are the Macy’s at Northlake, as well as Rich’s in Atlanta; Birmingham, Ala.; Athens, Augusta, Columbus, Macon and Savannah, Ga., and Columbia and Greenville, S.C.
The two Bloomingdale’s stores are expected to hire about 500 employees, and the furniture gallery about 25, though 1,500 store-level positions will be lost through the Macy’s closings. Affected employees will be given preference in filling any open positions at Rich’s-Macy’s, as well as in interviewing at Bloomingdale’s.
Overall, the RLG division operates 77 stores and employs more than 16,500 people in Alabama, Georgia, South Carolina, Tennessee, Ohio, Kentucky, Indiana, Pennsylvania and West Virginia. Rich’s store and division employees will not be affected by the changes.
Outside the Atlanta market, Federated will close four other stores, for a total of 11 closings nationally this year. Those closings are Lazarus stores at College Mall in Bloomington, Ind., and Lafayette Square in Indianapolis, a Goldsmith’s at Raleigh Springs in Memphis, and Macy’s in South Brunswick, N.J. This will lead to a net reduction of approximately $100 million in revenues, after the opening of the two Bloomingdale’s. The impact on operating income resulting from the consolidation and store closings is expected to be minimal before one-time costs once the Bloomingdale’s stores open.
One-time costs for fiscal 2002 and 2003 are estimated at approximately $115 million, including $65 million that’s noncash. Approximately $70 million will be booked in the fourth quarter of the current fiscal year, which equates to 22 cents a share.
Federated gave fourth-quarter 2002 earnings guidance, taking into account the store consolidations and closings, of $1.73 to $1.83 a share, and $3.15 to $3.25 for the full fiscal year 2002.
The company also gave guidance for 2003, projecting same-store sales at negative 1.5 percent to flat, and diluted earnings per share of $3 to $3.20.
This will be a big year for Bloomingdale’s. In addition to the Atlanta debut, a store in SoHo will open this fall, as well as two Bloomingdale’s home stores, in Oakbrook, Ill., and downtown Chicago. A total of 12 Federated department and home stores are slated to open this year, including a Bon Marche department store in Redmond, Wash., and a furniture gallery in Tacoma, Wash; a Macy’s furniture gallery on Staten Island, and two Macy’s in Hawaii. Federated operates 460 stores in 34 states, Guam and Puerto Rico.
Madison Riley, a principal of Kurt Salmon Associates, said Federated might take a wait-and-see approach to determine which name resonates more with consumers. The combined name could look cumbersome on the storefronts.
However, Riley said, “For now, the dual name makes sense, but it calls for further consumer research. Although Rich’s has history in Atlanta, the city is full of people from elsewhere, and Macy’s, as a New York store, might mean more to consumers now.”
Riley said the move would consolidate stores that essentially draw the same customer. “Combining the two frees up real estate for Bloomingdale’s, which allows Federated to reach out for new customers,” he said. “It’s a sound, strategic step, that allows [Federated] department stores to leverage the retail model that is having difficulties now.”
“It’s about time they consolidated Rich’s and Macy’s, because they’ve been basically the same store for a long time,” said Brenda Gilpatrick, president of Gilpatrick Marketing Group, an Atlanta-based retail consulting firm. “Rich’s still has strength in its name, and it used to be known as the hometown store, with great service, but now it’s just like Macy’s. Bloomingdale’s will be a great addition to the local retail scene, competing with Neiman Marcus, Saks and Nordstrom,” she said. “It will give Lenox Square and Perimeter Mall a fabulous competitive edge.”