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Macy's+Marshall: Better prices in store?
But will lower prices be enough to lure shoppers back into the ailing department stores?
January 20, 2005: 3:02 PM EST
By Parija Bhatnagar, CNN/Money Staff Writer

NEW YORK (CNN/Money) - What do you get when you take two big retail dinosaurs and morph them together? One really big dinosaur.

A published report Thursday speculated that Federated Department Stores, owner of Macy's and Bloomingdales, has its eye on acquiring rival May Department Stores, which operates both high-end Lord & Taylor stores and more mid-priced chains such as Foley's, Filene's, and Hecht's.

The business rationale of such a merger is obvious. Department stores are struggling to grow sales in a retail world dominated by Wal-Mart and the mall-based specialty stores.

But what's in it for the consumer?

Depends on whom you ask. Opinions among industry observers vary from "practically nothing" to "it [the merger] will be absolutely great for shoppers."

Marshal Cohen, chief retail analyst with market research firm NPD Group, thinks the deal could result in lower prices for the private label merchandise that's stocked at a Macy's or Lord & Taylor.

"The combination eliminates competition," said Cohen. "It will allow the new company to sharpen the pencil, offer better prices and goods and maybe even compete in the mass market channel."

He gave an example. "Consumers would go into a Macy's that used to be a May department store and buy kids jeans for $10 or towels for $6.

Prices may come down on some products because a combined Federated-May could pressure vendors for juicier deals on large volume orders.

"There is a high likelihood of lower prices," said Howard Davidowitz, president of Davidowitz & Associates "The department store segment is a supplier's worst nightmare. Department stores demand more allowances from vendors, they want to be able to return inventory if it doesn't sell well. A Federated-May merger could be an even worse scenario for the suppliers."

So maybe it's not great news for branded names like Tommy Hilfiger but consumers certainly have something to smile about.

"Within the retail industry Federated is known for catering to the classes and May to the masses. For the May customer, it's an opportunity to get more upscale merchandise that a Bloomingdales' customer is familiar with," Davidowitz said.

To the naysayers, this rumored deal is not about the shopper at all.

"Think about the consolidation that created both Federated and May. How did that help shoppers? said Candace Corlette, retail analyst and principal with retail consultancy WSL Strategic Retail.

"The great travesty of department stores is their lack of focus on shoppers, on making the buying experience fun and exciting," Corlette said. "Even with Macy's, it's only the company's flagship store in New York that has the 'wow' factor with fantastic window displays and a food court. How many other Macy's stores look that great?"

For Federated and May, this is clearly a financial opportunity more than anything else, she added.

If Federated acquires May, there's a high probability, industry watchers say, that some of the May-owned stores will be sold and a considerably number will be converted into a Macy's.

But given that every mainstream mall in the United States is already anchored by a Bloomingdales, Macy's or a Lord & Taylor, is there a need for more of the same especially when consumers continue to show their distaste for the channel?

Barbara Kahn, a marketing professor at the Wharton Business School, doesn't think so.

"There's a lot of redundancy in these stores. If the idea of this merger is to make these department stores more similar to each other, that won't add value to consumers," said Kahn. "Consumers want differentiation and variety in products. Price isn't their only consideration."  Top of page

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