Federated Department Stores, Inc. announced the strategic integration of its Rich’s and Macy’s stores in metro Atlanta beginning in February, as well as plans to bring Bloomingdale’s to the Atlanta market in two major malls as early as fall of this year.
The consolidation of Rich’s and Macy’s store operations under a combined Rich’s-Macy’s nameplate will enable the company to concentrate its management resources and capital spending on one brand and key store locations in the important Atlanta market, according to James M. Zimmerman, Federated’s chairman and chief executive officer.
As part of the integration, Zimmerman said Federated plans to accelerate a rollout of many of its innovative “reinvent” initiatives, along with other major store remodeling and renovation projects in the Atlanta market. Reinvent innovations will include the introduction of automated price-check devices and shopping carriers, enhanced fitting room environments with waiting lounges and improved in-store signage in all stores, and the integration of plasma video screens throughout the store in selected locations.
Zimmerman said the company’s capital investment in the Atlanta market, including the Bloomingdale’s conversions, is expected to total more than $75 million in the next 12 months, all of which will be funded within Federated’s $650 million capital budget for 2003.
“Atlanta is an important and unique market for us – the only one with such an extensive concentration of both Rich’s and Macy’s stores competing head-to-head,” Zimmerman said. “By combining the strong regional expertise of Rich’s with the powerful Macy’s national brand, we will be giving Rich’s-Macy’s customers the best selection of fashion and value under one umbrella, while ensuring that we maintain community ties and preserve the special traditions of each.”
As part of this strategy, four Macy’s stores – in downtown Atlanta and at Cumberland, Southlake and Gwinnett Place – will close in early April. Two other Macy’s locations – in Perimeter Mall and Lenox Square -will be redesigned and reopened later this year as Bloomingdale’s; those stores will close temporarily in April for the conversion.
In addition, the Macy’s store in Town Center at Cobb will be closed, but one floor will be converted to a Rich’s-Macy’s furniture gallery that will reopen in the fall. The remainder of the Town Center Macy’s store, along with the four closed Macy’s locations, will be sold or leased for other retail use. No details on timing or possible tenants for those sites are available at this point.
A total of 28 stores will begin branding themselves as Rich’s-Macy’s, beginning February 2. These include the Macy’s store at Northlake, as well as Rich’s stores in Atlanta; Birmingham, AL; Athens, Augusta, Columbus, Macon and Savannah, GA; and Columbia and Greenville, SC.
Terry J. Lundgren, Federated’s president and chief operating officer, said customers of both Rich’s and Macy’s stores will find much to like in the consolidation.
“Combining Macy’s and Rich’s individual merchandising strengths with our exclusive private brands will create a formidable retail offering for our customers,” Lundgren said. “Rich’s-Macy’s customers also soon will have a common credit card, which gives them the ability to shop and make merchandise returns at a Macy’s store anywhere in the country. For a city with as many travelers, out-of-town visitors and transplanted residents as Atlanta has, we think this will be a tremendous advantage.”
Lundgren noted that Rich’s-Macy’s customers will have input into the future look of the stores, as well as what features and amenities they will encompass.
“Reinventing our stores – making them more convenient and easier to shop, ensuring that we have the right merchandise assortments and the right services to enhance the shopping experience – is a process that involves listening to our customers every step of the way,” Lundgren said. “So as we approach the integration of these two premier retail nameplates in Atlanta, we are going to be inviting our customers to tell us what they want in a Rich’s-Macy’s store, and we are going to be responsive to what they say.”
The consolidated Rich’s-Macy’s stores will operate under the direction of the current Rich’s/Lazarus/Goldsmith’s (RLG) division management, headquartered in Atlanta. “This is a natural evolution since RLG has been the incubator for our reinvent initiatives from the outset, starting with the first Lazarus prototype store at Easton in Columbus (Ohio) in 2001 and then with the Rich’s Town Center store in Atlanta in 2002,” Lundgren said. “As a result, RLG division management is proficient at managing the reinvent process and in helping us evaluate customer feedback, which is so important.”
Lundgren acknowledged that Federated has looked at Atlanta for some time as a prime market for Bloomingdale’s. “The Rich’s-Macy’s market consolidation gives us the opportunity to open two new Bloomingdale’s in Atlanta at the same time. This is exciting, and we think the impact of these openings will be tremendously positive both for the company and the Atlanta community,” Lundgren said.
The two new Bloomingdale’s stores at Lenox Square and Perimeter Mall will be the first in Georgia for the upscale, Manhattan-based division known for its unique merchandise, style and flair. The two Bloomingdale’s stores, with a combined total of more than a half-million square feet of gross retail space, are expected to hire approximately 500 employees prior to the reopening of these stores in the fall.
There are approximately 1,500 Macy’s store-level positions in the seven metro Atlanta stores that will close in early April. Affected Macy’s employees will receive severance and outplacement assistance, and will be given preference in filling any open positions within Rich’s-Macy’s, as well as in interviewing for positions with the two new Bloomingdale’s stores.
The combined Rich’s-Macy’s in metro Atlanta will employ approximately 5,500 people. An additional 25 positions will be added when the Town Center furniture gallery reopens later this year. Overall, the RLG division operates 77 stores and employs more than 16,500 people in Alabama, Georgia, South Carolina, Tennessee, Ohio, Kentucky, Indiana, Pennsylvania and West Virginia. Rich’s store and division employees will not be affected by today’s announced changes.
Elsewhere across the company, Federated announced it would be closing four additional stores (for a total of 11 stores nationally) as part of a normal year-end realignment of ongoing retail operations, while opening seven additional new stores nationally in 2003 (for a total of 12, including Atlanta.)
Non-Atlanta stores to be closed early this year are Lazarus stores at College Mall in Bloomington, IN, and Lafayette Square in Indianapolis, IN; a Goldsmith’s store at Raleigh Springs in Memphis, TN; and a Macy’s East store in South Brunswick, NJ.
From a financial standpoint, Federated will benefit from the Rich’s-Macy’s Atlanta store integration through improved return on investment and more effective future capital spending. The announced store closings are expected to reduce net sales by approximately $100 million, after the reopening of the Bloomingdale’s stores. The impact on operating income resulting from the consolidation and additional store closings is expected to be minimal before one-time costs once the Bloomingdale’s stores have opened this fall.
One-time costs are estimated at approximately $115 million. Of the total one-time costs, approximately $65 million is expected to be non-cash. These one-time costs will occur in fiscal 2002 and 2003. Approximately $70 million will be booked in the fourth quarter of the current fiscal year, which equates to 22 cents a share. Thus, assuming the $70 million as currently estimated, the guidance for EPS in the fourth quarter of 2002, including the store consolidations and closings, would be $1.73 to $1.83 a share, and $3.15 to $3.25 for the full fiscal year 2002.
