By Michael Barbaro
Washington Post Staff Writer
Monday, February 28, 2005; Page E01

First it was Garfinckel's, retailer to the city's rich and powerful, with cashmere sweaters on the shelves and crystal chandeliers dangling from the ceiling.

Bankrupt and closed in 1990.

Then it was Woodward & Lothrop, slightly less pricey but full of southern charm, with veteran employees who addressed shoppers as Mr. or Mrs.

Bankrupt and sold in 1995.

Hecht's, which had been acquired by the May Department Store Co. in 1959, survived for another decade as the last of the Washington area's homegrown department store brands. In the end, however, the chain's strategy of selling modestly priced fashions to middle-income shoppers may not be able to protect it from the national and international forces that have undermined the place of the traditional department store.

Hecht's struggling parent, May Department Store Co., yesterday agreed to be acquired by Federated Department Stores Inc., owner of Macy's and Bloomingdale's, sources said. The deal that could jeopardize the future of the 148-year-old Hecht's name and put hundreds of local jobs at risk, according to retail analysts.

While Hecht's may survive inside the combined company, the deal demonstrates the chain's failure, along with all of its corporate siblings within May, to find a niche at a time when its competitors were becoming steadily more precise at identifying and selling to specific groups of customers. As a result, once-loyal department store shoppers defected to specialty stores like Gap Inc., with more casual fashions; discounters such as Target Corp., with cheaper products; and high-end store's like Neiman Marcus Group, with stronger service.

Lois Huff, senior vice president at the consulting firm Retail Forward said chains like Hecht's "lack a role in the consumer's mind today. When you hear the name Target, you think something specific. When you hear the name Wal-Mart, you think something else very specific. But when you hear the names of these big department store chains, you just think, same-old."

Federated has not escaped these troubles altogether, but its marquee chains, Macy's and Bloomingdale's, have captured a sizable chunk of the fast-growing upscale apparel and home furnishings market.

Federated also has developed popular in-house brands and spruced up its stores with customer-friendly seating areas, self-service scanners and prominent direction signs, changes that May is still in the process of adopting.

Federated of Cincinnati and May of St. Louis each have about 500 stores, but Federated's increasing success became evident last year when its same-store sales growth, a crucial measure of a retailer's health, jumped 2.6 percent. May's dropped 2.4 percent. "May has been very slow to adapt," Morgan Stanley analyst Greg Fowlkes said.

Hecht's experience in the region helps explain, in part, how May became vulnerable to a takeover. It parallels the transformation of dozens of family-run businesses that were gobbled up by national department store chains and turned into what retail analysts say has become a homogenized, unexceptional shopping experience.

Hecht Co., which took its name from the chain's Bavarian-born founder, Samuel Hecht, opened a furniture store in Baltimore in 1857 and its first department store in 1885. It was an era when independent regional department stores blanketed the country -- Thalhimers in Richmond, Wanamaker in Philadelphia and G. Fox & Company in Hartford, Conn.

Each chain had a strong local identity and a business model that endured for decades. In Washington, for example, Woodies' downtown store offered personal shoppers and a full-service restaurant to lure high-income customers. Garfinckel's put its names on high-quality suits and coats, which became popular with its wealthy clientele. Hecht's, meanwhile, targeted blue-collar workers with a no-frills format and low-priced national brands.

Despite steady expansion in the region's suburbs, Hecht's operated in the shadows of Woodies and Garfinckel's until its sale in 1959 to May, one of a handful of companies that was beginning to buy out regional store chains and knit them into national networks. Though May's acquisitions, whether Hecht's in Washington or Kaufmann's in Pittsburgh, largely kept their separate identity and management, the expanded company was able to increase its marketing clout and reduce costs.

Over the next 30 years, bolstered by May's national buying power, Hecht's began to win coveted brand names, such as Ralph Lauren apparel and Estee Lauder cosmetics, that suppliers had routinely routed to Woodies and other higher-end competitors.

"We could not compete," said Roland Leimbach, who was vice president of visual merchandizing at Woodies until it closed in 1995. "When Hecht's wanted a delivery of the latest fashions on a certain day, they got it. We had to wait."

By 1990, Nordstrom Inc. and Macy's had entered the Washington market, creating a bruising competition for mall space and consumers. As a mid-priced chain with May's financial support, Hecht's easily withstood the threat. Woodies and Garfinckel's, already weakened by debt-financed buyouts, suffered substantial losses. Local specialty clothing stores such as Raleigh's, a haberdashery chain, also fell victim to the new competition.

May began to buy nearby competitors, including Thalhimers and Strawbridge & Clothier in Philadelphia, and merged them with Hecht's, solidifying its dominance in the region.

At the height of its success, however, Hecht's stores remained cluttered with moderately priced merchandise and its fashions remained middle of the road.

That approach, which had proven a strength in fending off high-end competitors, became a weakness in the mid-1990s as fast-growing discount chains began to steal Hecht's business.

Kohl's Corp. and Target carried standard Hecht's brands like Liz Claiborne apparel, sometimes at lower prices. Target signed exclusive deals with trendy clothing and home decor designers like Isaac Mizrahi and Michael Graves. Customers found these stores, which were built in strip centers with ample parking, more convenient than the mall-based department stores.

The Hecht's model "became a dinosaur" said Len Harris, a local retail broker.

Hecht's, like most department stores, searched for ways to reinvent itself. Under chief executive Frank J. Guzzetta, Hecht's tried to make the store easier to shop by reducing clutter. Cosmetics were moved from locked cases to open shelves. Efforts were made to boost the chain's image by carrying high-end designers Michael Kors, Marc Ecko and Emanuel Ungaro.

But even with the changes in place, Hecht's sales slumped. Revenue at the 21-store chain and its corporate sibling in the Philadelphia area, Strawbridge's, fell to $2.36 billion in 2003 from $2.46 billion in 2001, the most recent annual data available. The two companies are a single unit within May and report their finances together.

Hecht's troubles mirror those of its parent company. From 2001 to 2003, May's revenue dropped 4 percent to $13.3 billion and earnings declined 38 percent to $434 million. May's 2004 revenue jumped 8 percent to $14.4 billion and income rose 21 percent to $524 million, but same-store sales, which exclude new and closed stores, did not improve substantially.

Analysts believe those disappointing figures prompted May's board to sign off on the merger with the more successful Federated. The new management is expected to eventually convert Hecht's stores into Macy's, said Bill Dreher, a retail analyst at Deutsche Bank Securities Inc., a switch that would require upgrading store interiors and introducing higher-end fashions into the Washington market. Federated is in the process of switching over five regional chains to the Macy's nameplate.

Retail Forward's Huff said Federated recognizes that "you cannot sit in the middle of the market anymore. You have to pick a pole -- fashion or low price."

But it will be an uphill battle, analysts said. Consumers no longer look to department stores for up-to-date fashion. "Specialty stores are on top of that market now," said Fowlkes, of Morgan Stanley. Two decades ago, nearly 70 percent of all apparel sales occurred at a department store. Today that figure is just 40 percent, he said.

To succeed as a combined company, analysts said, chains like Hecht's must stop behaving like the century-old department stores they are and pursue a particular consumer -- rich, young, trendy or anything in between.

"Department stores are at a crucial crossroads," said Wendy D. Farina, a principal at Kurt Salmon Associates, a retail consulting firm. "To grow, they must target a specific market and drill down into it."