Federated to turn most May stores into Macy's

Federated Department Stores Inc. said yesterday it will convert most of May Department Stores Co.'s regional stores, which include Filene's, into Macy's stores as part of its proposed $11 billion merger to create a formidable national retailer.

The deal between Federated and May also could lead to nearly 100 store closings and thousands of layoffs, with much of the impact felt in the Northeast where the two chains have the most overlap, retail analysts say.

Federated, which owns Macy's and Bloomingdale's, and May, which owns Filene's and Lord & Taylor, operate 70 department stores in New England. The chains' brands go head to head at eight Massachusetts locations, including Boston's Downtown Crossing.

''They'll pare the flock," said Ben Starr, a broker at Atlantic Retail Properties in Boston, which handles retail space in strip malls. ''They'll close the weaker ones."

Executives at Cincinnati-based Federated and St. Louis-based May did not provide details about the closings and layoffs, but Federated said yesterday that most of May's regional department stores -- 491 in all -- will ultimately be converted to Macy's. That includes 40 Filene's in New England. Federated doesn't plan to change any names until next year, but if that happens, New England would lose a name that has been synonymous with shopping since William Filene, an immigrant from Germany, opened his first store in Boston in 1851.

''We have had considerable success in rebranding our own regional stores as Macy's so obviously we anticipate continuing this strategy to some extent with our new stores," Federated chairman and chief executive Terry J. Lundgren said in a statement yesterday.

By phasing out regional department store names such as Filene's, Federated will be able to mount national marketing and advertising campaigns, said Madison Riley, a principal of Kurt Salmon Associates, a retail and consumer consulting firm.

''They'll be able to market the Macy's name nationwide, and it will give Federated more bargaining power to advertise on national TV," Riley said. Newspapers could lose out if Federated shifts more of its marketing dollars to TV. In 2003, advertising from department stores accounted for about $5 billion, or 11 percent, of total advertising revenues for US daily newspapers, according to the Newspaper Association of America.

Federated's proposed acquisition of rival May comes as mass-market department stores struggle to survive. The Macy's and Filene's of the world are losing market share to discounters Wal-Mart Stores Inc. and Target Corp. at the low end and upscale retailers Neiman Marcus and Coach at the high end. Already, Sears, Roebuck & Co. and Kmart Corp. said they have agreed to merge to become the third-largest US retailer behind Wal-Mart and Home Depot Inc.

Though the Federated-May transaction would create a retail behemoth with about 950 department stores, $30 billion in annual sales and 243,000 employees, the new company would still be smaller than Wal-Mart, which last year posted $285.2 billion in sales, and Target, which rung up $46.8 billion in sales.

''There is no industry more competitive than retail," said Jon Hurst, president of the Retailers Association of Massachusetts, a trade association that represents many of the state's mom-and-pop stores. ''Consumers have thousands of options. They can buy at brick-and-mortar stores, buy from a catalog, or go on the Internet."

The marriage of Macy's and Filene's will give the chains more buying clout with vendors and increase efficiencies. Federated said it expects to save $450 million in ''cost synergies by 2007," resulting from the consolidation of central functions and division integrations.

Shares of Federated fell 34 cents yesterday to close at $56.45 on the New York Stock Exchange, while shares of May fell 84 cents to $34.51.

The deal is expected to close in several months, contingent on regulatory review and shareholder approval. A spokeswoman for Massachusetts Attorney General Thomas F. Reilly said Reilly's office is reviewing the proposed transaction. (Filene's Basement, part of a different company, is not involved in the deal.)

Nationwide, there is little overlap of Federated and May stores. May stores, including the Marshall Field's chain, beef up Federated's presence in the Midwest and will bring Federated into 15 new states. Federated currently operates stores in 34 states.

But there is overlap between the two companies in the Northeast, said Jeff Stinson, an analyst with FTN Midwest Research.And when there is overlap, the chains are likely to close underperforming stores and sell or lease the real estate to another retailer. Analysts expect Federated to shutter between 75 and 100 stores.

''In the Boston area, you're dealing with some of the highest concentration of overlap," said Stinson. ''The majority of overlapping stores are likely to be closed and sold to a third party."

Target, Nordstrom, or JCPenney -- chains that have shown interest in expanding in the Northeast -- could move into the vacated spaces, said Bill Dreher, a senior retail analyst with Deutsche Bank Securities Inc.

The closings, coupled with consolidation of administration of operations, will lead to significant layoffs. ''At least a couple of thousand people could lose their jobs, maybe more," said Bob Gottlieb, president of Sceptre Marketing Group, a Maynard firm whose clients include retailers.

While Federated said the proposed merger is good for consumers because it will allow it to offer better merchandise at more competitive prices, some are wary.

''It's not as much fun shopping in one place," said Sandy Pimentel, a 62-year-old retired consultant who was shopping yesterday at Boston's Downtown Crossing. ''You'd be less apt to come shopping to a place where you don't have choice."

Chris Reidy can be reached at reidy@globe.com. Thomas C. Palmer Jr. of the Globe staff and Globe correspondent Courtney Gross contributed to this report.