So, with few new malls being built in the United States, chains like the parents of Hecht's and Macy's must either grow through mergers or face a slow death. Just three months ago, the struggling department store Sears Roebuck & Co. merged with Kmart Corp. in an effort to expand outside the nation's malls.
"This industry has to consolidate," Morgan Stanley retail analyst Greg Fowlkes said. "There is no doubt in my mind that the trend will continue."
Federated operates Bloomingdales, such as this one in New York. The Federated chain has a total of 459 stores nationwide.
(Frank Franklin Ii -- AP)
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The fate of the Hecht's division, the Washington region's dominant department store company with 21 stores in the area, and its 5,000 local employees remains unclear. Retail analysts expect Federated to cut administrative positions across May's divisions to reduce costs. "You wouldn't need two buyers to deal with Ralph Lauren," said David E. Griffith, an analyst at Tradition Asiel Securities, Inc.
The merger could prove complicated in the Washington region, where Federated are to inherit at least five malls where it already competes with May stores. In the Fair Oaks Mall in Fairfax, for example, Federated would own three anchors: a Macy's, Hecht's and Lord & Taylor.
Federated, which struggled throughout the late 1980s after becoming the target of a debt-financed takeover, has emerged a retail powerhouse over the past five years.
Lundgren, the company's silver-haired, nattily dressed chief executive, is widely credited with the chain's success. Since his appointment in 2003, he has expanded the chain's move into high fashion and introduced customer-friendly store touches like self-service scanners and prominent signs to speed up shopping.
May has struggled to keep pace, however, falling behind Federated in developing in-house apparel brands and sprucing up its stores.
"May focused on profit, and Federated focused on fashion. And Federated won," said Bill Dreher, retail analyst at Deutsche Bank Securities Inc.
For 2004, Federated's same store sales, a crucial measure of a retailer's health, grew 2.6 percent, compared with a 2.4 percent drop at May. "Lundgren has made some very good decisions," Fowlkes said.
Analysts predict Federated will replace May's private-label clothing lines, sold under names such as Ideology and IE, with those from Federated. Cincinnati-based Federated's private labels, INC and Charter Club, have become best sellers and respected names in fashion.
Dreher said the $10.4 billion prices suggests May was a willing seller. He said over the next three years, the merger will generate $400 million to $500 million in cost savings for the two companies through the elimination of overlapping departments, such as marketing and distribution .
Federated has made no secret of its desire to operate a national department store chain under the Macy's name, arguing the brand, captured in films like "Miracle on 34th Street" and promoted in events like the annual Macy's Thanksgiving Day Parade, is more prestigious than those of its regional department store chains.
On March 6, in an effort to jumpstart that process, the company will convert five of its divisions -- originally Rich's, Lazarus, Goldsmith's, Burdines and Bon Marche -- into Macy's. Retail analysts believe Federated will convert most, if not all, of May's regional chains into Macy's.
Though a name change at Hecht's could prove jolting to consumers, Federated has avoided alienating customers who are used to the old names by introducing the shift slowly at its regional divisions, said Neil Z. Stern, a senior partner at McMillan Doolittle, a retail consulting firm. The company co-branded its chains with the Macy's name for several years -- creating Lazarus-Macy's, for example -- before announcing a complete switch.
"They are not foolish enough to come in and say 'tomorrow the Hecht's name comes down and the Macy's name goes up,' " he said.
White reported from New York, and Barbaro reported from Washington.
