Federated Department Stores Inc. announced a series of strategic decisions to build its nationwide brands and reduce costs, which includes converting the Robinsons-May store in San Diego’s Fashion Valley into a Bloomingdale’s after closing and remodeling the store in 2006.
As part of the restructuring, Federated will be eliminating 6,200 jobs beginning in 2006.
Federated Department Stores (NYSE: FD) said these moves will help stimulate long-term growth in sales while taking full advantage of integration opportunities created through the merger of Federated and The May Department Stores Co., which was completed on Aug. 30.
Federated Department Stores also will be converting a number of other department stores all over the country, including Foley’s, Meier & Frank, Marshall Fields, Filenes, Kaufman’s, Hecht’s and others, into Macy’s or Bloomingdale’s stores.
"To better serve our customers in this highly competitive retailing environment, we must concentrate on our best national brands and reduce costs so we can deliver outstanding value to shoppers," said Terry J. Lundgren, Federated's chairman, president and chief executive officer. "We believe that continuing to build Macy's and Bloomingdale's aggressively across America will accelerate our comp store sales performance and increase profitability, thereby driving shareholder value.”
All stores, offices and operations will remain in place through the 2005 holiday selling season. The company reiterated its pledge that there will be no work force reductions or job eliminations as a result of the merger prior to March 1, 2006. After the merger, however, some jobs at division headquarters may be lost.
The Robinsons-May/Meier & Frank central office division in Los Angeles will be consolidated. The consolidation of other central offices, including Filenes's/Kaufmann's division in Boston, Foley's division in Houston and Hecht's/Strawbridge's division in Arlington, Va., will affect approximately 4,500 divisional headquarters employees. As many affected divisional headquarters employees as possible will be offered positions elsewhere in the company.
In St. Louis, Federated will begin phasing out operations at the May Company corporate headquarters and May Merchandising Corp. offices on March 1, 2006, with most positions eliminated by the end of 2006. Some limited functions may remain for as much as 36 months. Together, these two organizations currently employ approximately 1,700 workers. Some corporate positions in regional offices are expected to remain in St. Louis.
All May Company corporate employees who remain with the company until March 1, 2006, and are thereafter separated involuntarily will receive severance packages and outplacement assistance. As many current May Company corporate and merchandising organization employees as possible will be offered the opportunity to fill new positions being created across the country.
All decisions announced Tuesday are consistent with Federated's previously reported estimates to realize approximately $175 million in cost synergies in 2006 and $450 million in annual cost synergies in 2007 and beyond. Expenses associated with corporate and division consolidations and nameplate changes are included in the previously announced estimate of approximately $1 billion in one-time costs spread over three years beginning in 2005.
"By announcing these decisions now, we can begin more specific planning for the future,” Lundgren said. “This includes discussing potential career opportunities within Federated for May Company employees and ensuring new merchandise assortments are in place as soon as possible in stores acquired from May. We will begin buying and planning Macy's assortments this October so goods are in-store during the third quarter of 2006."
The only other southern California store affected by this change is the Robinsons-May in South Coast Plaza in Costa Mesa, according to Federated.
This is part of Federated’s larger plan to expand the Bloomingdale’s name. In addition to changing the Robinson’s and May Stores in southern California, Federated will turn a Filenes at the Chestnut Hill Mall in Newton, Mass. into a Bloomingdale’s, and a Hecht’s Store currently under construction in Chevy Chase, Md., will open as a Bloomingdale’s.
"We believe all four of these locations represent excellent opportunities to extend and expand the Bloomingdale's brand, which is synonymous with contemporary fashion, newness and a broad assortment of upscale merchandise," Lundgren said. "We will be intensifying Bloomingdale's presence in Boston, Washington, D.C., and southern California."
Beginning Feb. 1, 2006, about 850 Macy's stores including May Company locations will be converted to the Macy's nameplate in 2006 and -- excluding stores announced for divestiture -- will operate through seven geographic divisions, each responsible for store management and operations, soft goods merchandise buying and planning, human resources, finance, marketing, visual merchandising and other functions in its region.
The New York-based Macy's Home Store division will retain responsibility for home-related merchandising and marketing in all Macy's stores, including -- beginning in 2007 -- those to be operated by the newly created Macy's Midwest and Macy's North divisions.
Store counts are subject to change, pending ongoing review of locations and business needs. "We believe strongly that Macy's will enjoy a unique competitive advantage as a national brand with regional decision-making and insight so that variances in customer preferences can best be translated into distinctive fashion and affordable luxury in each store," Lundgren said. "This allows us to stay close to the customers and meet their lifestyle needs in every community we serve."
As of Feb. 1, 2006, there will be seven Macy’s divisions in different regions across the country. Macy's West, based in San Francisco, which will grow to encompass 44 Robinsons-May stores in California, Nevada and Arizona, and 17 Foley's stores in Colorado, New Mexico and Texas. In total, Macy's West will operate approximately 187 stores in six states.
Macy's East will be based in New York; Macy’s Florida will be based in Miami; Macy’s Midwest in St. Louis; and Macy’s North in Minneapolis. The Northwest office will be based in Seattle, and Macy’s South will be based in Atlanta.
All Marshall Field's stores will convert to the Macy's nameplate in fall 2006. This includes 62 locations in Michigan, Illinois, Minnesota, Wisconsin, North Dakota, Indiana, Ohio and South Dakota that will continue to be operated by the Minneapolis-based division that will become known as Macy's North.
"We have great respect for the legacy and traditions of Marshall Field's, and we carefully researched customer preferences and studied alternatives before making this decision to incorporate Marshall Field's into the nationwide Macy's brand," Lundgren said. "While the store's name will change, much of what customers love will stay the same, including Marshall Field's traditions and its outstanding record of community and charitable giving. As part of this name change process, we will do everything we can to honor the Marshall Field's heritage, particularly in its Chicago birthplace."
In Boston, Filenes’ downtown store, located in the same building as the Filenes'/Kaufmann's headquarters, will be divested in 2006. This brings to 76 the total number of duplicative store locations to be divested in 2006 as a result of the merger of Federated and May Company. The nearby Macy's store in downtown Boston will remain in place.
Federated intends to study the Lord & Taylor division during the remainder of 2005 and make a decision about its future by the end of the current fiscal year.
Federated also plans to divest the Bridal Group division it acquired from May Company. Credit Suisse First Boston and Banc of America Securities LLC will be advising Federated in exploring the various strategic options for this business.
The Bridal Group, based in Philadelphia, includes 245 David's Bridal, 454 After Hours Formalwear and 11 Priscilla of Boston stores in 47 states and Puerto Rico.
"While The Bridal Group is a very successful, profitable business with significant growth opportunities, its specialty store model does not fit with Federated's strategy of focusing on department stores and building the Macy's and Bloomingdale's brands," Lundgren said. "We expect to thoroughly evaluate strategic alternatives and expect to complete a sale of this business sometime in 2006."
At least two May Company private brands -- Karen Scott and John Ashford -- will be integrated into MMG and offered in all Macy's stores beginning in fall 2006. Other May Company private labels and brands will be discontinued over time.
Federated Department Stores’ stock was up 65 cents to $66.35 a share in morning trading.
Federated plans store closures in San Diego County (Jul. 28, 2005)