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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Department stores also are competing against specialty stores in the mall, which offer the same merchandise in a "friendly, more energetic environment," he said.

And they’re fighting a war of attrition. The sector will contract through the closure of stores, said Nussbaum, which leaves spaces in the malls to be filled by stronger competitors or category killers such as Best Buy or Barnes & Noble.

Retail consultant Walter Loeb doubted whether the largest two department store operators would get together soon. "There are too many overlapping properties," he said. "This is not something that either company would like to see happen and while Federated is certainly stronger at this point, I don’t expect it to happen at this point. I do see a future consolidation among department stores in the U.S., but smaller ones, not the big ones."

Midwest Research analyst Jeff Stinson said consolidation in the sector "makes a lot of sense. The challenge is finding the right valuations." Stock valuations of the department stores, he said, were not high enough to compel owners to sell.

But another type of consolidation is seen — more of the vertical one. Said Salomon Smith Barney broadline analyst Deborah Weinswig: "It makes sense for either Federated or May to acquire a strong brand with retail outlets," similar to the Sears’ purchase of Lands’ End last year. Penney’s, which bought the Bisou Bisou brand last year, has already said it’s close to announcing another brand acquisition.

Candace Corlett, a principal of WSL Strategic Retail, said consolidations are "terrific in terms of consolidating buying and efficiencies," and saving chains that could have disappeared. However, they also strip chains of personality, she said. "It comes back to painting everything with the same brush," she noted. "This is an era when shoppers have many retailers to choose from, including the Internet, and at no time has it ever been more important to have a personality that shines through."
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