Federated-May No. 1?
Move likely to create top furniture retailer
By Carole Sloan -- Furniture Today, March 6, 2005
New York — Federated Department Stores' pending acquisition of rival May Co. is likely to create the largest U.S. furniture and bedding retailer.
Eventually, it's also likely to raise the furniture fashion profile and price points at May stores, which, with the exception of Marshall Field's, are more promotional in approach than the Federated brands, industry observers believe.
May acquired Marshall Field's last July. In furniture and bedding, the combined Federated, May and Marshall Field's sales in 2003 came to an estimated $1.534 billion, topping the estimated $1.375 billion of current No. 1 retailer Wal-Mart for that year.
And furniture, bedding and rugs will play an important role as the department store companies combine.
Federated is in the process of combining the home products buying for all its stores except Bloomingdale's under an organization called the Macy's Home Store. While Federated hasn't detailed any potential changes in buying for May stores, the acquired stores eventually could be brought into the Macy's Home Store fold.
It's expected that some stores may close, especially in markets where Federated and May are in the same mall or nearby malls.
At a press conference here to announce the pending merger, Terry Lundgren, Federated's chairman, president and CEO, was asked if the company would consider converting some stores that close into home goods or furniture stores — which Federated has done in some markets.
"I like the freestanding home store concept, but I like the furniture model better," Lundgren said. Customers "have proven they will drive longer for big- ticket items like furniture and rugs," he said.
Nobody was predicting specific closings or merchandising changes yet, however.
The two companies' boards have approved a merger, with Federated buying May for $35.50 per share or $11 billion in total equity value, and assuming May debt of about $6 billion. But approval of shareholders and regulators is still required, and the deal isn't expected to close until later this year.
Integration of merchandise isn't expected before 2006, Lundgren said. After the merger, May Co.'s St. Louis offices likely would move to Federated's Cincinnati and New York headquarters.
Lundgren said Federated will continue to pursue four strategic priorities: differentiation and editing of assortments, simplification of pricing, reinvention of stores to make shopping easier for customers, and "top of class" national marketing.
Some furniture manufacturers last week were hopeful about the pending merger.
"I see Federated now as much better positioned to validate their business model," said Bob Maricich, president of Century. "They will be able to do things on a larger scale, with central assortments and more proprietary product."
Universal's executive vice president, Randy Chrisley, said, "We do a very good job with Federated and are excited about the extended opportunity with these new stores."
Henredon President Steve McKee summed up the view of many: "There's a lot we don't know yet. We have to wait and see."
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