NEW YORK — As Federated Department Stores works on the integration of May Co. following the $17 billion merger, the impact on vendors is mixed, according to factoring sources whose clients are suppliers to the companies.

Factors, who handle a vendor’s accounts receivables for a fee, said as Federated continues to close stores and convert large numbers of stores to the Macy’s banner, some vendors are finding that the bigger company means bigger business while others are seeing their business dry up.

“You have a mixed bag. The vendors who supplied Federated Department Stores and not May Co. probably had a very good opportunity to expand their business within the merged organization. Some vendors who were strictly May suppliers, not Federated suppliers, might be somewhat vulnerable to the loss of business,” said David Bram, executive vice president and chief customer credit officer, CIT Commercial Services.

For vendors with strong ties to the merged company, the consolidation and restructuring can be “a boon rather than a sharp stick in the eye,” said Stanley Officina, president of Ultimate Financial Solutions LLC.

For many vendors, however, the consolidation could have a negative affect. Vendor sales will suffer if stores are closed, said Tom DiMaio, senior vice president and regional manager, Hana Financial.

“Additionally, this newer and bigger retail powerhouse is going to yield even more powerful market position and will be able to dictate even more favorable terms with respect to price. Our manufacturer has now lost sales and margins,” he said.

As Federated continues to integrate May Co., it has also embarked on a strategy of building up its exclusive merchandise offerings. Private label or proprietary brands could prove to be the fulcrum for many vendor relationships with Federated.

“To the extent that a vendor had a buyer who was displaced in the merger, it’s created some challenges. Otherwise, we haven’t seen any real negative impact for most of our clients. The bigger concern right now relates to vendors who are selling to retailers who are either already doing direct import programs or expanding them, which can lead to a decrease in business for existing suppliers,” said Kevin Sullivan, executive vice president, Western region manager, Wells Fargo Century.

This story first appeared in the June 12, 2006 issue of WWD. Subscribe Today.

At Federated’s annual meeting in May, Terry Lundgren, chairman, president and chief executive officer, announced a ready-to-wear collaboration with designer Elie Tahari to release a line of sportswear called T Tahari in 122 Macy’s stores this September. The company also recently extended its proprietary moderate sportswear line into home textiles.

“If you are your own brand, like some of the designer brands, [Federated is] really trying to eat into that category and replace it with their own brands,” said Michael Stanley, executive vice president of Rosenthal & Rosenthal Inc.

Getting a spot on the retailer’s roster of private label suppliers offers opportunities for companies who have the supply side structure to handle the business, he said, but the company’s matrix is difficult to get onto. The challenges are that branded vendors sitting on the wrong side of the equation could be eliminated to make room for the private label products.

“They’ve established this matrix that makes it a lot more difficult to be active with them or to do business with them as a whole,” Stanley said.

Companies that aren’t in a position to step into the role of private label or exclusive brand provider could find themselves in a precarious position, particularly for smaller fringe suppliers. “One thing for a small business to always be concerned about is doing too much business with one company. With consolidation on that level [of the Federated and May merger] it becomes difficult,” said Gary Wassner, president and principal, Hilldun Factors.

Prior to the Federated-May merger, vendors did business with a few different corporate chains that each had its own corporate structure, buyers, decisions and policies. With the consolidation of all those into one organization, companies become more vulnerable across the board, Wassner said.

“Now, if a particular buyer doesn’t like your product, think about the vast amount of retail space that you’re not going to be in,” Wassner added.

Suppliers that have a strong network of specialty stores to sell to are in a stronger position, Wassner said. It’s advice he’s been giving clients forever, even before the consolidation of Federated and May.

Finding a niche is another way to successfully move beyond the potential negative impact of the merger. To some extent small niche brands can be impervious to a merger because they fill a need, Stanley said.

“The designer market is a relationship business. You’re selling a high-priced product and it shouldn’t be easily replaceable by somebody next door to you. It should be unique enough that it can endure,” Wassner said.

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