With Federated Department Stores' purchase of May Department Stores Co., Filene's may well follow other regional names into retail history.

10:07 AM EST on Tuesday, March 1, 2005

BY PAUL GRIMALDI
Journal Staff Writer

Mall shoppers are in for some changes, as the companies that own Macy's and Filene's yesterday announced a $17-billion merger between the nation's top two department store chains.

Federated Department Stores' proposed purchase of rival May Department Stores Co., and the previously announced combination of Sears, Roebuck and Co. and Kmart Holding Corp., are expected to stir up the store mix at malls and shopping centers here and across the country.

The Federated-May merger could mean New Englanders will say farewell to Filene's, the iconic department store founded in 1881 in Boston that gave birth to basement sales and bridal-gown blowouts.

But yesterday's announcement also could herald the expansion of other chains into the region -- including Federated rivals such as Kohl's Corp. or Saks, said retail industry observers.

"You look at what Federated has done with Macy's," said Paul Morgan, a retail real-estate analyst at Friedman, Billings, Ramsey & Co. Inc. "They would try to gradually phase out the [Filene's] name."

Filene's would follow other regional names into retail history.

"Filene's is a landmark, as were Jordan Marsh, Lechmere and others, as well as a lot of banks," said Jon Hurst, president of the Retailers Association of Massachusetts. "Times change."

A Federated-May merger would create a company that would control nearly 40 stores in Massachusetts and four in Rhode Island, including the Macy's, Bloomingdales, Filene's and Lord & Taylor chains.

Nationwide, the merged company would have 1,000 stores and $30 billion in annual sales. The new company would have stores in 49 states, the District of Columbia, Puerto Rico and Guam. It would also take control of the David's Bridal, After Hours Formalwear and Priscilla of Boston stores now operated by May.

But not all the department stores would remain open.

Federated executives said yesterday in a conference call with analysts that they expect to close some stores, though they declined to specify how many or which ones.

"We are obviously looking at store overlap . . . and we would expect there will be some disposition," said Karen Hoguet, Federated's chief financial officer. "It is my expectation that there will definitely be store changes, in terms of names, to both Bloomingdale and Macy's."

Journal photo / Gretchen Ertl

The Filene's store in Warwick Mall, like those across New England, could be renamed Macy's next year if Macy's parent acquires Filene's parent. There's already a Macy's in Warwick Mall, and it's not clear whether both would remain open if the deal goes through.

Cincinnati-based Federated said that it plans no division consolidations or store name changes before 2006. But it ultimately will convert most of May's regional department stores to the Macy's nameplate, as it is now doing with its own regional chains including Lazarus, Rich's and Burdines.

The combined chain would occupy more than one anchor spot -- in some cases three -- in more than 90 malls across the country.

In Southeastern New England, Federated would operate the following department stores:

Providence Place mall: Filene's and Lord & Taylor

Warwick Mall: Filene's and Macy's

Emerald Square mall: Filene's

Swansea Mall: Macy's

Dartmouth Mall: Filene's

Silver City Galleria: Filene's

Morgan, the analyst, said Warwick Mall was among the malls that could lose an anchor.

"I wouldn't call [Warwick Mall] weak so much as I would call it more vulnerable," Morgan said.

Aram Garabedian, Warwick Mall's co-managing partner, said it's too early to tell what would happen at Warwick Mall, where Filene's and Macy's now hold down two of the three anchor spots. .

"You don't know how this thing is going to play out," Garabedian said. "My best scenario is that Macy's and Filene's continue at that location. I know we have two happy stores."

It's possible, Morgan said, that Federated could bring a Bloomingdale's into Rhode Island, most likely at Providence Place, where the Lord & Taylor outlet is already slated to close and the store mix is a bit more upscale.

"It's less obvious who would jump at a middle-market property like Warwick," he said.

One possibility is for Federated to convert one of its Warwick stores into a home-furnishings department, as St. Louis-based May is doing at Emerald Square mall in North Attleboro. May expanded the Filene's store into a former Lord & Taylor outlet there.

Emerald Square owner Simon Property Group Inc., of Indianapolis, sees potential vacancies at its malls as opportunities to bring in new retailers, said Les Morris, a Simon spokesman. Simon operates 27 malls with at least one May or one Federated store.

"The overlap occurs in high-quality assets in strong markets," Morris said. "We're confident . . . that we can replace them with high-quality stores."

Real-estate analyst Morgan noted that mall owners are frequently breaking out of the anchor-store box.

"They've been taking apart the anchor store and bringing in new types of stores, like a Barnes & Noble, or movie theaters," he said.

Whatever changes Federated has in store for its enlarged company, New Englanders are unlikely to notice them soon. Federated executives said the stores would continue on with their sales plans for this year and that the closings and name changes would begin next year.

Cuts in support operations such as accounting, marketing and other corporate functions would begin this year.