Federated 'reinvents' stores, borrowing basics from mass - Federated Department Stores

DSN Retailing Today, Oct 28, 2002 by Mike Troy

CINCINNATI -- A shaky economy and fewer selling days between Thanksgiving and Christmas have retailers on high alert this year, and none more so than department store operators that traditionally depend on the fourth quarter for a disproportionate percentage of their annual sales and profits.

In addition to those concerns, Federated Department Stores is facing an important test of how customers will react to significant merchandising changes at 42 of its 460 stores. The changes are part of Federated's "reinvent the department store" strategy that involves everything from improved fitting rooms, directional signage and the addition of shopping carts to redesigned juniors, young men's and children's departments. The changes are expected to be complete by mid-November in 34 existing stores and eight new units, allowing Federated to gauge their effectiveness and determine whether they should be expanded to additional stores next year.

"This initial rollout of our most successful reinvent strategies represents the fastest and most comprehensive introduction of new store initiatives in Federated's history and it is an important milestone on our path of continuous improvement," said chairman and ceo James Zimmerman.

The reinvent strategy has been a work in progress since the late '90s, when Federated began tinkering with changes throughout the chain of stores that includes such well-known names as Macy's, Bloomingdale's, The Bon Marche, Burdines, Goldsmith's Lazarus and Rich's. Last fall, it incorporated many of the experimental concepts into a 240,000-square-foot prototype Lazarus store in Columbus, Ohio. The changes that will be evident in 42 stores next month, while not as sweeping as those found at the Lazarus in Columbus, will be extensive.

For example, the young men's and juniors departments will have a high energy "club-like" design and presentation, with music pumping from a quality sound system and upscale vending machines The fitting rooms will be more comfortable, with lounges that have fiat-screen televisions and sofas. There also will be shopping carts with child seats, mesh storage areas and hooks for merchandise or a purse. Directional signage also will be added.

If the changes prove effective and can be added to a significant number of stores next year, it could help Federated regain market share and restore same store sales growth. Federated is the nation's largest department store chain with annual sales last year of $15.6 billion, however, it has seen its business trends deteriorate during the past 18 months. Same store sales declined 2.9% during the first six months of this year after a 5.3% decline last year.

More recent, Federated revised downward its growth expectation for the second half of the year. The company previously expected third quarter comps in the 1% to 3% range, but lowered that figure to a 2% to 2.5% decline. For the fourth quarter, prior expectations of a 1% to 3% increase were reduced to a fiat to 2% decline. Accordingly, profit estimates for both quarters also were lowered.

"We are disappointed in having to revise sales and earnings downward," Zimmerman said, "but even though it is difficult to forecast with a high degree of certainty in such times, we believe these revised forecasts more accurately reflect the difficult economic and international climate we are facing."