Consolidation Fever: Which Store Logos Could Vanish Next?

With earnings reports trickling in this month, rumors of retail consolidation have resurfaced. The latest: a merger of Federated and May Co.

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NEW YORK — How to compete with Wal-Mart and Target.

That is the modern retail conundrum that stores from Macy’s to Gap have to deal with. No wonder that, with earnings reports trickling in this month and the stock market sinking to new lows, retail consolidation is in the air once again.

The goal is one of scale. While once considered giants, $15 billion retailers are no longer kings of the block at a time when Wal-Mart has sales almost 15 times that and even Kmart is almost three times bigger. Economies in purchasing, staff, back office and logistics are now the holy grails retailers chase as they cope with flat or barely-rising comp-store sales.

So the latest rumblings come as no surprise: Federated Department Stores and May Department Stores could still be considering a merger at some point, after failed talks last year, although no deal is imminent. Meanwhile, something could crack at Sears, Roebuck & Co., which is widely described as "a house of cards," but which is rolling out its Lands’ End brand this spring into more Sears stores. The future of an independent Sears’ is all about execution of a renewed store presentation.

In addition, Target Corp. may be rethinking its position on the Marshall Field’s and Mervyn’s divisions, though Target has long denied those chains are up for sale. According to one insider, "May has been pursuing Marshall Field’s for years." Field’s is dominant in Chicago, Detroit and Minneapolis, where neither May Co. nor Federated have much of a presence. Target also operates Mervyn’s in California, another possible disposition and a chain due to come under increasing pressure from the invasion into that market by Kohl’s. Target Corp. could use the money to further fuel the Target chain.

There also has been talk about Metro, Tesco or Carrefour, the big European retailers, coming to the U.S. To be truly global, they have to, and the price for entry could be right for them now — especially if any of them wanted to make a run at the bankrupt Kmart and take on the challenge of carving out a niche for the long-struggling retailer. But such moves could be delayed if there is a war against Iraq, or by the increasing tensions in other parts of the world.
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