NEW YORK (CNN/Money) - Kmart is buying Sears, Federated is buying May Department Stores, and Dillard's is looking ripe for a bid, possibly at any moment.

The merger itch has already struck retail's big boys. Could the little players soon follow?

Already the industry is abuzz with speculation that the next wave of consolidation will happen between apparel vendors such as Liz Claiborne (Research), Ann Taylor (Research) Jones Apparel Group (Research) and Kellwood (Research).

Two factors are driving the speculation. One, retail is a mature industry and acquisitions are an obvious way of stimulating growth. Two, the Federated-May combo, if approved, increases the need for vendors to bulk up.

The combined entity of Federated and May would create the nation's largest department store chain with over 950 stores and $30 billion in sales, and would have significant negotiating leverage with its suppliers.

"The department store segment is a vendor's worst nightmare, said Howard Davidowitz, president of Davidowitz & Associates, a New York-based retail consultancy and investment banking firm. "A Federated-May merger would create an even worse scenario.

Effectively, Federated (Research) and May (Research) together could squeeze vendors for juicier deals on large volume orders.

So which companies might band together?

Marshal Cohen, chief retail analyst with market research firm NPD Group, is looking at Jones Apparel, Liz Claiborne and Ann Taylor.

"The way I see it, there are more jeans in stores today than consumers can buy in the next 10 years. It's not enough to simply buy each other, become bigger and ignore the merchandise," Cohen said. "These guys will have to intently focus on improving the product particularly if [the suppliers] retail market is becoming narrower."

According to Prudential analyst Lizabeth Dunn, Jones, Liz Claiborne, Tommy Hilfiger and Ralph Lauren are the four names with the most exposure to Federated-May.

In a recent note to clients, she estimated that about 26 percent of Jones sales are to those two retailers followed by 20 percent for Liz Claiborne, 17 percent for Tommy Hilfiger, 15 percent for Ralph Lauren and 10 percent for Kellwood.

"We believe major department stores have already gotten stronger over the past couple years and appear to be in better negotiating position [with suppliers] on markdown money," Dun wrote in the note.

Furthermore, she's concerned that the potential for store closings post-merger means that vendors will have fewer clients to sell to.

Bristol, Pa.-based Jones, which raked in $4.6 billion in sales last year, is already on a buying binge as it tries to diversify its business. The company latest target was upscale seller Barneys New York, which it picked up late last year. Jones' portfolio also includes Gloria Vanderbilt and the Nine West Group.

With $4.2 billion in total sales last year, New York-based Liz Claiborne acquired Dutch apparel maker Mexx in 2001 and the high-end casual brand Juicy Couture in 2003. And a recent report in trade publication Women's Wear Daily mentioned that Claiborne was reportedly in talks to acquire Ann Taylor Stores.

Ann Taylor, Liz Claiborne and Jone Apparel Group could not be reached for comment.

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