Monday, February 28, 2005

That bumping sound you hear

That's the sound of dinosaurs mating. Or, specifically, Federated Department Stores and May Department Stores. Two dinosaurs, coming together in hopes of staving off extinction just a little bit longer.

I'm old enough to remember a day when the department store was still the "all that and a bag of chips" of retailing. Malls are still designed with them as anchor tenants. Department stores set the fashion trends and were destinations for your shopping day.

A few factors combined to effectively kill them off, though. First was the rise of the national-scale mass merchandiser. Regional mass merchandisers like Ames and Caldor have been around since the middle of the last century, but Walmart (and, to a lesser extent, Target) have become so big and powerful as to have diverted customers away. They killed the regionals, and then started overlapping the department stores, as well. Then, discount clothing stores like Kohl's and TJ Maxx picked off some of the high fashion market.

The other big nail has been the specialty retailer, especially in high-margin clothing. Specialty stores are typically laser-pointed at a particular demographic, and squeeze the life out of it. The Gap, Chico's, Abercrombie & Fitch, and more are all eating valuable customers that otherwise would be the property of department stores.

Faced with this, the department stores have been merging left and right and discounting aggressively. But their costs and real estate are generally a lot more than the box stores, which has clobbered the industry. The handwriting's been on the wall for a while.

I don't think this will affect my wife too much (she works in the cosmetic biz, handling accounts for both chains), but it will be interesting. Here in New England, Filene's is traditionally a much stronger brand name than Macy's - Macy's was the successor to the old Jordan Marsh chain (always the poor sister to Filene's). In our local mall, three of the four department store anchors are owned by either May or Federated (Filene's, Macy's, Lord & Taylor - only JC Penney is separate here), and most of the other area malls have them in competition. I suspect that a lot of Boston-area malls will have one or the other divested to a competitor.

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