Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, January 4, 1994 TAG: 9401040299
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
SOURCE: Associated Press
DATELINE: NEW YORK LENGTH: Long
Yet even in an era of specialty stores, discount chains, interactive TV shopping and catalogs, department stores aren't dying. People still enjoy going to the likes of Macy's, Bloomingdale's and Dillard's.
That's why Federated Department Stores Inc. wants to merge with R.H. Macy & Co. Inc.
Federated said Sunday it would buy for $449.3 million half the claim held by Prudential Insurance Co. of America in Macy's bankruptcy reorganization. And it took an option to buy the rest.
Federated Chairman Allen Questrom said his company, which will be Macy's biggest creditor and stands to get an ownership stake, was interested in owning all of Macy.
At first glance, Federated's goal seems curious. Department stores such as Macy and Federated's Bloomingdale's, Lazarus, Rich's and Burdine's chains have lost business over the past decade to discounters and specialty stores. That has raised questions about the life span of the department store industry.
But people familiar with the history of department stores saw positive signs in Federated's action. "I think it again proves that department stores are not dead," said Walter Loeb, a prominent retailing analyst and consultant.
Loeb said that while apparel sales have been poor lately, consumers see department stores as important fashion sources. This Christmas, department stores also reported strong sales of furniture, decorative items and appliances.
Macy and Federated combined would create the nation's largest department store company with 330 stores, surpassing May Department Stores Co., which owns 312 stores among chains including Hecht's, Lord & Taylor, Filene's and Foley's.
"What we're going to see in the balance of this decade is a lot of swapping between department store companies, selling off one parcel to another player to expand to top-quality malls," said Thomas J. Tashjian, an analyst with First Manhattan Co.
"What one doesn't want to do with department stores is add more department stores. It's just adding pieces to the pie."
Tashjian predicted department stores would go through moves akin to the consolidation in the discount-warehouse side of retailing, where Kmart Corp. closed or sold its PACE stores chain.
Warehouses - no-frills high-volume stores that sell products out of the box - were forced to reconfigure because there were too many bunched too tightly.
Some department store consolidation already has occurred, partly through the bankruptcy court process - between Macy and Federated, which emerged from Chapter 11 two years ago, more than 50 stores have been closed. May, which restructured several divisions to cut costs over the past two years, closed 29 stores.
If Federated were to buy Macy, there might well be further consolidations because of antitrust concerns that one company would own stores that compete with each other.
For example, a combined Federated-Macy would own four chains in the New York-New Jersey area - Macy, Bloomingdale's, Abraham & Straus and Stern's. Its Rich's stores in Georgia also would overlap with Macy. Some of these stores might have to be sold.
Still, it's far from certain that Federated will end up owning Macy. Federated itself noted that its purchase of the company depends on the outcome of Macy's bankruptcy case, which turns two years old this month. There may well be other potential Macy buyers.
Even if Federated never buys Macy, as a creditor it's in a position ensure that Macy doesn't get a competitive edge through its reorganization. "This is an attempt to own some of the pre-emptive voting rights and block any action by Macy that would be unfavorable to Federated," Loeb said.
Questrom met Monday with Macy Chairman Myron E. Ullman III. Ullman said later that Federated's purchase of the Prudential claim would not alter the reorganization process.
"We're talking with all levels of creditors," including secured and unsecured claimants, he said in a telephone interview.
Federated Department Stores rose 2 to 22 3/4 on the New York Stock Exchange on the news of the purchase.
\ Federated Department Stores Inc.:\
With $7 billion in annual sales, ranked as the 8th largest U.S retailer.
Operates 219 stores in 26 states under the names Bloomingdale's, Abraham & Straus, The Bon Marche, Burdines, Goldsmith's, Jordan Marsh, Lazarus, Rich's and Stern's.
Based in Cincinnati.
\ R.H. MACY CO. INC.:\
The 9th largest retail chain, reporting $6.3 billion in sales for fiscal 1993.
Operates 111 Macy's and Bullock's department store branches, as well as I. Magnin, Aeropostale and Charter Club specialty stores.
Based in New York.
Source: The companies and International Council of Shopping Centers
by CNB