Another painful blow to urban shopping -- Will May Department Stores be gobbled up by Federated?

Today's Washington Post reports that "Merger Talks Between May, Federated Store Chains Pick Up" after they were off. This is likely to be extremely damaging to shopping centers because Federated has moved from the once traditional strategy of a portfolio of separately branded regional chains of retail department stores to creating a national brand based on the well known Macy's store. The article posits as many as 100 stores closing and the loss of regional brands like Hecht's (which has already incorporated Thalheimers [Richmond], Strawbridge and Clothier and Wanamaker [Philadelphia], and Miller and Rhoad's [Richmond] and probably others that I don't know about.

As the Post article says "Early next month, in a move designed to bolster that effort, the company will convert five of its divisions, originally Rich's [Atlanta and the south], Lazarus [Cleveland and the midwest], Goldsmith's [Indiana and the Midwest], Burdines [Florida] and Bon Marche [Seattle and west]" to Macy's. And remember that most of these store chains represent a number of previous mergers.

I wrote some about this on a thread on the www.retailwire.com website, where I posited that maybe department stores, dinosaurs in many settings, might remain strong and unique in urban settings. (Here's the discussion, but you'll have to register.) It was sparked by this www.bostonglobe.com article, "The Endangered Department Store."

One person summed up the situation very well:

The market is now dominated by three major competitors: Federated, May Company and Dillard's. The economics may have made sense, but the consolidation destroyed the opportunity to maintain localized and regional competitive differentiation. The remaining major competitors used economy of scale to reduce expense and centralize many management functions. Eventually, the new department store conglomerates began to experience the same problems that befell most national chain stores, namely the inability to truly understand the local markets.

I wrote:

From the perspective of retail industry consultants, who live every day with Schumpeter's "Creative Destruction," it probably doesn't matter to you if a department store goes belly up because there's always something new out there.

From the perspective of people who work in the field of urban and commercial district revitalization, where department stores are the primary anchor, driving people traffic to the commercial district, a source of spectacle and vitality, a major driver of pedestrian activity which helps contribute to safety and vibrancy in the commercial district, a large source of sales tax revenues in cities that have long lost out to the suburbs over retail, and often a source of retail social capital leadership among downtown merchants and business leaders...this is a big deal.
Birmingham Michigan survived, even thrived, in the face of the Detroit area's malling, because it had branches of Crowley's and Jacobson's, two Michigan-based regional department store chains that are now deceased.

Fortunately for Birmingtham, those companies lasted long enough for trends to catch up to what Birmingham had/has, but the loss of those department stores is changing the mix of stores and services significantly now; retail is being lost to restaurants and night time activities, etc. In short, Birmingham is a different place without department stores.

Downtown Washington is anchored by a Hecht's department store built in the early 1980s. Maybe May stinks at execution (from reading the posts here and articles elsewhere), but they don't at that store. It's not Macy's or Bloomingdale's in Manhattan, but it's a nice, interesting well-done, attractive place to shop, and I go there all the time. Without Hecht's downtown, it's hard to imagine anything else coming along in that long period from post-riot 1968 to the now exciting urban area post-1998.

Without a Crowley's, Kerns, or Hudson's (now Fields) in Downtown Detroit, is it any wonder that it is so difficult to jumpstart much in downtown Detroit (the Compuware Center, with a Borders and other retail, is starting things up again...)?

For those of us in the field of community revitalization, we need department stores, and we need them to thrive. Department stores can be our "competitive advantage" and our "unique selling proposition" if we can get them to be great, interesting, and exciting places to be. (I haven't been to Harrod's, to the new Selfridges or to the renovated State Street Field's store.) That's the challenge we have, to help our department stores be great, because the vitality of our traditional commercial districts depends on it.

And in response to another comment, suggesting I was calling for protection of extinct businesses:

I realized after writing that people might think that I was trying to defend not changing. No, you can't prop up something that doesn't work. I guess, and maybe I am just antediluvian, I think there is room for excitement in the department store. Maybe because I pretty much stick to traditional center cities, it's the case that I am out of touch. Or maybe, using the new downtown Field's model, or my experiences with Hecht's downtown DC store, Macy's in San Francisco, Nordstrom stores that have the piano, etc., the department store as a vital center of commerce is going to become an exclusively downtown-urban experience, and the suburbs are going to become increasingly big box focused, and this is merely another aspect of retail market segmentation into ever smaller segments.

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(This article discusses the impact of the Fields redesign of the downtown State Street store. And this is a snippet from a story about what they did--

CHICAGO-In a bid to battle the sea of sameness that has plagued the department store sector, Marshall Field's is transforming its famous flagship store here into a gallery of exclusive boutiques designed to wow shoppers with the unexpected. Propelling the metamorphosis are exclusive home shops by Thomas O'Brien, Designers Guild and Ebiza; more than 500 new vendors; European resources; and a fresh layer of contemporary brands that mark a departure from Field's more traditional offerings. Thirty percent of the merchandise in the 800,000-square-foot State Street store will be new by mid-September. And the home area, more than 25 percent of the store, will have undergone perhaps the most dramatic makeover, with 50 percent new merchandise, said Bruce Nelson, senior vice president and general merchandise manager of home, in an interview with HFN. Beyond assortment changes, the renovation, 40 percent complete, is designed to update the shopping.