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February 28, 2005
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| This Macy's store in Florida used to be operated under the name of a regional chain, Burdines. The parent company, Federated, decided in 2003 to operate them all under the Macy's brand. Federated, which is buying May, the parent of Marshall Field's, is expected to do the same with May's stores. (Photo by Joe Raedle/Getty Images) |
St. Paul, Minn. — This handoff of Marshall Field's is likely to do what the last one did not -- put hundreds of Minnesotans out of work, and perhaps kill the Marshall Field's name.
Federated officials did not specifically state their plans. But in a conference call with financial analysts, it was clear from CEO Terry Lundgren that most chains owned by May will lose their independent identities.
"Just imagine the strength of our branding efforts, across almost twice the number of stores we operate today," Lundgren said. "We are so excited about the growth opportunities this provides for the Macy's brand."
Federated may do what it has done with other chains it acquired in recent years, hyphenating the name to "Marshall Field's-Macy's" for a time, before dropping "Marshall Field's" altogether. If the deal goes through, Marshall Field's stores could start to change names in 2006.
Sometime before that, hundreds of employees in Minneapolis will probably need to look for a new employer.
"There will be some dislocations," said Lundgren. "It's obviously too early to speculate on that. We'll do that and we'll get through it."
"We don't need to have two systems groups, two credit groups, two corporate offices, etc.," added Federated's chief financial officer, Karen Hoguet, "as well as division consolidations." It's those "division consolidations" that will likely hit here. When May bought Marshall Field's last year, it kept the division's management intact in downtown Minneapolis. Federated doesn't work that way.
Dave Brennan, a retail professor at the University of St. Thomas, says that's partly why Federated stores have about the same sales as May, but twice the profit.
"What Federated has been doing has been building up a centralized organization. May Companies has remained decentralized," Brennan says. "While that was initially good for the sale of Marshall Field's, long-term profitability works better having Federated as a more centralized, efficient organization."
In contrast to the workers at headquarters, most employees in Marshall Field's 62 stores probably have little to fear from the deal.
As a new owner, Federated might cast a critical eye on some locations that have struggled in recent years, including the Marshall Field's in downtown St. Paul. But Federated makes it clear they are looking to "fill holes" in their retail map.
Macy's and Bloomingdale's are mostly found on the coasts. May's many stores in the Midwest, including Marshall Field's, are a big part of what Federated wants.
In the skyway outside Marshall Field's headquarters in Minneapolis, shoppers and employees seemed well aware of the news.
"It's been a couple of weeks that the rumors have been flying," said one woman. "We knew it was going to happen, it was just a matter of when."
This woman, an art director, has worked at Marshall Field's for eight years. Employees have been asked not to speak to the media, and she chose not to give her name. She says employees have been told nothing specific, but are "thinking the worst." She says there is some relief the deal will not close until this fall, giving people many months to prepare.
"People are abuzz about it and probably a little bit glum, but there's not a lot of obvious upset going on. There's something of a resignation -- people just carry on and do the work," she said.
The evolution of Marshall Field's in recent years -- from Dayton's, to Marshall Field's, to a new owner last year, and now a new owner again -- means many shoppers are not deeply sentimental.
"I've always shopped at Dayton's and Marshall Field's my whole life, so I'll miss the familiarity of it," says Joan Rafferty, who was shopping on her lunch break. "But I like Macy's, too, so it'll probably be a good change. They offer a lot of the same products, and actually are pretty similar, I think."
In fact, of all the May Department Stores chains, shoppers at Marshall Field's are probably in for less of a shock. Federated officials singled out Marshall Field's as one May holding that already sells goods upscale enough to be on a par with many Macy's stores.
There will be changes, though, beyond perhaps losing the name and traditional green color scheme. Federated goes to great lengths to customize each individual store's offerings, and will apply its complex inventory models to all the stores it takes over.
Federated is also rolling out, companywide, its "reinvent initiative." It involves reworking the department store experience with central checkouts near the exits, Internet kiosks, ritzy fitting rooms, and shopping carts.
Shopper Nikki Melchiori likes Marshall Field's, and she has some pretty simple advice for the new owner -- just don't mess it up.
"I have visited the Macy's at the Mall of America. I'm not quite as impressed with that as with the Marshall Field's stores," says Melchiori. "My biggest concern would be that the quality stays there, and the level of service stays with Marshall Field's, if it does turn into Macy's."
Facing competition from Saks and Neimann Marcus at the high end of the retail spectrum, and Target and Wal-Mart at the other end, Federated officials are hoping they get things right, at Marshall Field's and all their new acquisitions.
The merger will create a company with 1,000 stores and $30 billion in annual sales.
Reaction among retail experts has been mixed.
"For consumers, this will create sharper price points and better fashions that will help bring back shoppers away from other full-price department stores and discounters," said Burt Flickinger III, managing director at Strategic Resources in New York.
Another analyst says shoppers will lose out because of the deal.
"Generally, it is bad for the industry, for the vendors and for the consumers," said Dan Hess, president and chief executive of Merchant Forecast, a New York-based independent research company.
"Consumers will get fewer options because there will be one point of view." He noted that it will be harder for some of the smaller suppliers to break into the merged entity's new vendor structure.
He added, "Department stores will no longer be looked at for innovation and newness.. Innovation will come from specialty stores."
The boards of both companies approved the deal Sunday. It is still subject to approval by regulators and shareholders.
Federated and May have discussed a possible merger on and off for a couple of years, but speculation heated up when May's chief executive and chairman Gene Kahn abruptly left in January. That cleared the way for Federated's Lundgren to lead the combined entity.
Kahn resigned seven months after helping May acquire Marshall Field's, along with five Mervyn locations, for $3.24 billion - a price many analysts panned as too steep by hundreds of millions of dollars. Federated had dropped out of bidding for Marshall Field's by then, saying the price was too high.
Federated's merger with May will extend Federated's 34-state retail operation into a total of 49 states, along with Guam, Puerto Rico and the District of Columbia. Alaska is the only state in which they don't have a store.
The merger is the latest consolidation to occur in the department store industry, particularly the mid-tier sector, which has been under pressure from all types of retailing and have steadily lost market share for more than a decade. Such moves reduce advertising and other costs while gaining bargaining power with suppliers. Just last November, Kmart Holding Corp. agreed to buy Sears, Roebuck & Co. for $11.5 billion.
Some analysts have suggested that uniting two of the nation's largest department store chains would create a more efficient operation better equipped to go up against discounters. Together, the companies also could wring savings out of their merged retail systems and buying clout, some analysts suggested.
Others questioned whether the two retailers would be a good fit, citing the belief that Federated may be more upscale and May always margin-oriented while lacking on the merchandising side.
(The Associated Press contributed to this report)
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