THE NEW FEDERATED
SIZING IT ALL UP
NEW YORK — There’s faith and fear among suppliers.
Many are confident Federated Department Stores will be a well-run, efficient company after it merges with R.H. Macy, and are looking forward to Federated’s plan to build “partnerships.” That could bring steadier sales and make planning easier for many suppliers.
In the cosmetics world, executives believe the Federated-Macy’s combo could eventually become the top contender, challenging champion May Department Stores Co.
Other vendors in various categories, however, are worried that this new $14 billion retail giant could deflate their volumes through store consolidations, or simply knock them off the coveted list of core vendors. There’s a general rule on Seventh Avenue, vendors say, that as the number of retailers dwindles, so do the number of manufacturers.
“Every vendor shares a concern about the concentration of buying power,” said Ted Goldsmith, chairman of coat manufacturer Bromley Corp. “But we’ve become accustomed to these combinations of buying power. It’s not something that comes out of the blue, and we’ve been adjusting to them all along.”
“You never win with these consolidations, at least not in the short run,” said another vendor. “You always lose volume; they never seem to buy as much, but sometimes you make up for it in the long run.”
For Goldsmith, that’s the big question. Will the amount of business done with A&S and Macy’s change when the two chains unite?
“Some A&S business will be upgraded in terms of merchandise and price point, and as a better manufacturer, we like that,” said Goldsmith, whose firm makes coats for the J.G. Hook, Anne Klein and Anne Klein II labels.
Howard Bloom, president of Chetta B, said, “The bigger they are the more they demand. We’ve learned, sometimes the hard way, how to play ball and react to the different requirements of the major stores. It’s a different kind of ballgame than it used to be.”
“It’s really too soon to know whether the Macy’s/Federated combination will outperform the competition,” said Norty Sperling, president of Norton McNaughton, a moderate-price sportswear firm. “It is going to take them a while to assimilate, probably about two years.”
He added that his firm is on the “matrix” at Federated (a core vendor list of about 500 firms) and does not believe that will change. “For us, and for other key vendors at Federated, it will be an easy transition,” he said. “For others, whose business with the chains is not certain, they will have to work harder to get the buyers’ attention.”
Beauty executives say that while Federated/Macy’s could present a formidable challenge to May Co. and in the process leave Dillard Department Stores and other chains in the dust, it won’t happen overnight.
“It’s a long way from here to there,” said Robert Brady, president and chief executive officer of Parfums Givenchy Inc. “Given their relative size, the merger is going to be an arduous and time-consuming process,” Brady said, adding that Federated and Macy’s are coming from positions of weakness.
“Neither Macy’s nor Federated have maximized their cosmetics business,” Brady said. Macy’s has been “distracted” and robbed of its focus by prolonged bankruptcy, he added, and Federated has not fully realized its potential since coming out of bankruptcy in February 1992. “The emphasis has clearly been on cost-cutting,” he said.
But Federated has a big opportunity in California, said Linda LoRe, president and ceo of Giorgio Beverly Hills, headquartered in Santa Monica. “[Federated] has Bullock’s back, and California is wide open for a better, bridge, upscale department store with a designer twist.”
When a store distinguishes itself, LoRe said, there’s a ruboff benefit in the cosmetics department, which depends on store traffic and impulse purchasing.
David May, senior vice president of fragrance marketing at Lancaster Group worldwide, said the merged operation could be a powerful force that would distinguish itself with fashion flair, though he really admires the group buying approach of May Merchandising. “It’s a question of decision-making,” he said. “When you are dealing with a lot of small, individual units, you are doing something here and there. From a vendor point of view, when you are dealing with a May Co., you can focus on the big events and the big promotions that are cost-effective for your firm and impactful for the store.”
There’s also a question of access to all the May Co. divisions. Referring to Deborah Murtha, who is in charge of cosmetics and fragrances at May Merchandising, May said, “once you have her blessing, it’s the opening of the doors.”
Among apparel and accessory firms, however, there is a concern that bigness could lead to a deadening sameness among the stores.
“With such a monstrous machine, it’s going to be difficult not to be homogeneous. Sometimes they forgot who took them to the party,” said Russell Klein, president of hosiery firm Easton International Inc. “They got there by identifying their customers and giving them what they want.”
Tom Murry, president of Tahari, a bridge resource, said he thinks it’s possible for the merger to create more effective department stores, but “only if it allows the divisions to retain their individuality.
“If it’s one big huge store that’s all homogeneous, then no, but if there are regional differences, then it’s a possibility,” he said, noting he believes there is a recognition of this within Federated.
“I think Federated/Macy’s can really excel as a company if they utilize the expertise and talents of the merchants they have brought in and have the bankers stay behind the scenes,” said Elaine Gold, owner of the scarf firm Collection XIIX, which produces the Anne Klein and Ellen Tracy lines under license.
In terms of merchandising, Gold said, “Macy’s already covers an awful lot of ground, and they are as selective about buying moderate-priced merchandise as they are about designer goods.” She believes this will remain true after the merger.
Joel Pinsky, president of belt firm Omega, said Federated/Macy’s “has the potential to change the face of retailing as we know it today.”