Blog: Leonie BarrieMerger mania

Leonie Barrie | 3 March 2005

The merger of Federated Department Stores Inc and May Department Stores Co is good news for shoppers, but could well spell trouble for some apparel suppliers analysts are saying. The long-anticipated $11 billion deal will create the US’s fourth-largest retailer with nearly 1,000 stores and $30 billion in annual sales – giving the combined entity considerable clout and squeezing power when it comes to negotiating with its vendors. Store closures tied to the merger could also hurt volume. Some of the most exposed, and high profile names include Liz Claiborne Inc, which generates around 25 per cent of its annual revenue from the two department stores, and Jones Apparel Group for which Federated and May account for roughly one-quarter of revenue.

However, the promised mix of more unique brands, less clutter and cost savings from buying in greater bulk should lead to better deals for customers – which could, in turn, have knock-on benefits for suppliers. Federated chairman and chief executive Terry Lundgren says nationally known vendors will continue to be important to the new business. “Customers have clearly said what they like about our shopping experience is they like our brands. The merger will give us an opportunity to work closely with our brand partners and continue to grow our business with them.”

On the private-label side, Lundgren says Federated and May will hold a "style-out," pitting Federated's private-label brands against those of May. Here, though, Federated and May mainly use their own merchandising teams and Hong Kong buying offices.


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