VENDORS FEAR LEVIATHAN’S CLOUT
NEW YORK — It isn’t so much a matter of losing business as it is a question of losing bargaining power.
That’s one concern of vendors about the effects a merger between R.H. Macy & Co. and Federated Department Stores will have on them.
At the same time, SA expressed a lot of respect for the professionalism of the Federated team, particularly chairman Allen I. Questrom, citing the Ohio company’s successful emergence from Chapter 11 and voicing confidence that Macy’s will only benefit by the merger announced Thursday.
Many manufacturers said they feel their business with the retailers will remain about the same, but some of them were troubled by the behemoth they see emerging.
They said the buying power generated by a merged company would put more burdens on them and would diminish their bargaining clout.
“They’ll be telling us what they want and what we can and can’t do,” said one maker.
“There will be fewer people to sell to, and that’s not good for anybody’s business, especially if you’re not on Federated’s [buying] program,” said Howard Bloom, president of Chetta B, a dress firm. “It will cut down on competition. The more clout they have, the more they will ask for. There will be more demands for bar codes, pre-ticketing merchandise, requirements from the distribution centers. In all, it will be more difficult.
“It’s disheartening, because I’ve seen a lot of names disappear from retailing over the past few years,” Bloom continued. “I’m sure there will be more consolidation and merging of divisions with this deal — they’re paying too much money not to.”
“I would have liked Federated to have been healthier for a longer period of time before they assimilated Macy’s,” said Victor Coopersmith, chief executive officer of Andrea Jovine. “After the merger, I think Federated will become a smaller, tighter operation, thinner and better expensed.
“I think that the merger is obviously going to provoke Federated to close a significant number of stores. This obviously leads to fewer number of doors to sell to,” Coopersmith said. “Right now, retailers do about 70 percent of their business in 40 to 50 of their locations. I think the retail community is accessing this, and we will see significant store closings over the next 12 to 18 months.
“The answer to some of the problems in retail is not in new stores, but in closing businesses and reducing costs. Consumer spending has not grown fast enough to accommodate the glut in retail expansion.
“There’s too much product in the marketplace,” he noted.
Arie Kopelman, president of Chanel Inc., said the main issue with the merger involves “how all the pieces will be restructured and positioned. A lot of decisions have to be made.”
He noted that the obvious positive note was the stabilization of Macy’s.
“Finally, the uncertainty is over,” he said. “This finally settles the issue. And from the point of view of Federated, it gives them further opportunity to sharpen their focus on a store-by-store basis.”
“It was inevitable,” said Josh Lipman, president of Cuddlecoat, which makes the licensed Christian Dior coat line. “You can’t argue against the merger from a financial point of view, but unfortunately it’s just one further consolidation, and one less entity to deal with.”
Lipman, whose company sells Macy’s and Bloomingdale’s, said he felt the merged company would shut some stores, calling A&S the “weak player” in the Northeast. However, he said this could result in a “reinvigorated Bullock’s,” because of Federated chairman Questrom’s history at the chain.
Executives praised the skills of the Federated team and generally said they felt Macy’s was in good hands.
“We are very confident in the management of both Federated and Macy’s,” said Paul Marciano, president of Guess. “We’re particularly pleased about Federated, because we’ve known them since the early days when we were starting out in California. Having their presence at Macy’s on the West Coast will also be very beneficial.”
Ron Frasch, president of Escada USA, said that while at first he was sceptical about the merger, he has been won over by the presence of Questrom. “We’re not talking about Robert Campeau here,” said Frasch. “Allen is a winner. The big challenge is that they don’t become bureaucratic at the merchant level, and that they will maintain their responsiveness to the market. Questrom, [Michael] Gould [of Bloomingdale’s], [Terry] Lundgren of Federated [Merchandising] — they’re all great merchants.”
“On one hand, I hate to see the number of competitors in the department store distribution shrink,” said Lawrence Aiken, president of Sanofi BeautÄ Inc., which markets the Oscar de la Renta and Yves Saint Laurent fragrances, among others.
“On the other hand, Federated has proven its ability to emerge quickly from bankruptcy and become a very sound and successful retailer,” Aiken continued. “That being said, this merger should end up with the Macy’s units being very strong and competitive.”
Guy Peyrelongue, president and chief executive of Cosmair, the U.S. licensee of L’OrÄal, Lancome and Ralph Lauren Fragrances, said a merger would have positive results for both parties.
“It’s a very brilliant move by Allen Questrom,” Peyrelongue said. “By going to a merger instead of an acquisition, he’s building an organization instead of incurring more debt. This should be a dynamic new organization of stores, and having a strong organization is what we are in favor of. It’s going to be very positive for the department store industry.”
Peyrelongue said the beauty industry would not be dramatically affected.
“We may see some minor readjustments in the near future, but in the long term, things will only be better,” he said.
Denise Seegal, president of DNKY, said it was difficult to evaluate what impact a merger would have on business until the details were set, but noted there could be positive results for the makers as well as the stores.
“We have a strong relationship with both companies, and I think we will continue to do so,” she said. “A merger would give the stores more buying power, but it can also help the manufacturer. If you’re doing well in one chain, a [streamlined buying office] can help you duplicate retail successes at other chains.”
Tom Murry, president of Tahari Ltd., also said his firm has strong relationships with both organizations and would not feel much impact from a merger.
“These are both fine organizations, but in general, I hate to see the continuation of these mega-mergers because stores tend to lose their individuality,” he said. “Any time there is this type of centralization, you lose a little of that.”
He added that the consumer probably would end up paying more, because there would be fewer sales promotions as competition shrinks.
Murry said the merger could help vendors who sell one company, but not the other. A manufacturer with a good track record at Macy’s, for example, might now be able to gain entry into Federated.
David Mercer, a partner in Expo Dresses, said a merger was probably something Macy’s had to do, but believed it should not change business dramatically.
“It’s healthy,” he said. “Federated has really good management behind it. They turned the whole company around, brought it out of bankruptcy, and I can’t think of another company that can better do that for Macy’s.”
“Federated is a highly professional and successful organization and if anyone call pull this off, they can,” said Ted Goldsmith, chairman of Bromley Corp., which makes the licensed Anne Klein, J.G. Hook and Evan-Picone coat collections. “They made a tremendous recovery from their own bankruptcy.”
One fear in the marketplace is that stores might look too much alike. But executives said the merchants at the individual stores would still need to tailor their assortments to their regions. Bud Konheim, president of Nicole Miller Ltd., said he was not worried about the new organization being too big.
“What you’re going to have is a really strong financial entity,” he said. “If they position themselves to be the most creative force they can be, they’ll do just fine. “They already were elephants. Now it’s just a bigger elephant.”