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‘Kaufmann’s is gone,’ analyst predicts | TribLIVE.com
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‘Kaufmann’s is gone,’ analyst predicts

Rick Stouffer
| Tuesday, March 1, 2005 12:00 a.m

Pittsburgh’s last connection to the golden age of department store shopping, the home-grown Kaufmann’s, will go the way of other local shopping names Joseph Horne Co., Gimbel Brothers, Frank & Seder’s, and Rosenbaum’s, retail industry watchers believe.

Monday’s announcement that Federated Department Stores Inc., the Cincinnati-based parent of Macy’s, Lazarus and Bloomingdale’s, was acquiring May Department Stores of St. Louis for $17 billion in cash, stock and assumed debt will erase the Kaufmann’s moniker forever. Federated this coming Sunday will rename its moderately priced chains simply “Macy’s” and drop the dual-namebrand format (Lazarus-Macy’s here) currently used.

“This deal will have a huge impact on Pittsburgh,” said Audrey Guskey, marketing professor at Duquesne University. “This is a very traditional town, a very traditional shopper. First we had Horne’s, then Lazarus, then Lazarus-Macy’s and this coming Sunday, Macy’s. That hasn’t gone over well.”

“Kaufmann’s is gone,” said Jeff Stinson, a retail analyst in Cleveland with FTN Midwest Research who follows both May and Federated. “Everything in Federated except Bloomingdale’s or Lord & Taylor will become Macy’s.”

Federated Chief Executive Terry J. Lundgren will not let a major acquisition stand in the way of saving money. “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,” Lundgren said yesterday during a conference call on the merger. “Our branding efforts now will stretch across many more states.” Having the ability to advertise nationwide under one name rather than under regional names can save big marketing dollars.

“It’s a drag on the company to retain all these regional names,” said Lois Huff, senior vice president with retail consulting firm Retail Forward, Columbus, Ohio. “The single name gives you the benefit of scale. Macy’s is spending a great deal of money on image advertising, and they want to leverage that expense. Now, with double the stores, you can do that. Federated also is trying to develop its private brands, and now they will be able to do that over double the stores.”

With a total of more than 950 department stores located in every state but Alaska, and in 64 of the top 65 metropolitan areas with at least 1 million population, there are bound to be store closings, according to Federated. However, even if the Kaufmann’s name is retired, chances are most of the region’s stores will remain open.

One of the big reasons given for the acquisition was the geographic fit of the two chains. There is very little overlap of stores, and where one chain is strong, the other isn’t. Obviously, Kaufmann’s is king here, and at only three shopping centers — Monroeville and Ross Park malls and South Hills Village — do the chains have Kaufmann’s and Lazarus-Macy’s at the same locations.

Given that both Macy’s and Kaufmann’s are striving to sell to essentially the same mid- and upper-mid-priced customer, Federated admitted that some stores would be closed. “As we did in the past, we will listen to our customers … but there definitely will be store changes, not just May stores, but also Federated,” Lundgren said.

“We will go through their store list and close underperformers,” said Federated Chief Financial Officer, Karen M. Hoguet.

Shoppers at the Downtown Kaufmann’s yesterday said the Federated-May deal could cut down on shopper choice.

“My biggest concern is that as you get larger and larger, the fashion merchandise is like a fast-food restaurant, it’s all the same wherever you go,” said Davie Huddleston, 58, of Stanton Heights.

Some shoppers were excited about Macy’s. “I would like to see a Macy’s come into town,” said Jessica McMullen, 20, of Washington Plaza apartments. She and fellow Point Park University student Michaela Ryfa, also 20, said that Macy’s would be more upscale than Kaufmann’s.

If Macy’s becomes the mid-price department store standard locally, what about the upper end of shopping?

“This area could be prime for a Bloomingdale’s,” said Gayle J. Marco, associate professor of marketing at Robert Morris University. “But I don’t think Federated would put a Bloomingdale’s in each (geographic) quadrant. The South Hills would be the area for Bloomingdale’s.”

Last Pittsburgh retail giant standing

Should Federated Department Stores decide the Kaufmann’s name must be retired for the good of the company, it will mark the first time in 133 years “Kaufmann’s” has not stood guard over a storefront in the Pittsburgh area.

The first store, just 600 square feet of space, was opened by immigrant brothers Jacob and Isaac Kaufmann in 1871 at 1918 Carson St. on the South Side. The massive Downtown store, with 755,000 square feet of merchandising space, opened in 1946 under Kaufmann’s President Edgar J. “E.J.” Kaufmann, who was recognized as the most brilliant retailer in the family.

The newest area Kaufmann’s opened at the Waterfront in 2003, designed as a new breed of department store, smaller in size, emphasizing convenience and accessibility, complete with shopping carts and central checkout.

Kaufmann’s at one time was one of seven Downtown department stores vying for consumer dollars. The other players included the well-known Joseph Horne Co. and Gimbel Brothers, and lesser-known Boggs & Buhl, Kaufmann & Baer, founded by disgruntled cousins who were unhappy with E.J.’s control, Rosenbaum’s and Frank & Seder’s.

By the mid-1990s, all the competitors either had been acquired, moved away or closed. Kaufmann’s was sold to St. Louis-based May Department Stores by Edgar J. in 1946. He continued until his death in 1956 as president of Kaufmann’s and a May corporate vice president.

Today, the Kaufmann’s chain has 55 stores in four states: Pennsylvania, Ohio, West Virginia and New York. Pittsburgh three years ago lost the Kaufmann’s headquarters. May, in a cost-cutting move, consolidated the Kaufmann’s and Boston-based Filene’s chains, with one headquarters located in Boston. The consolidation cost the area some 1,200 administrative jobs.

Additional Information:

At a glance

Federated Department Stores Inc.

Headquarters: Cincinnati

Brands: Bloomingdale’s and Macy’s. As of Sunday, all regional divisions (Lazarus, Rich’s, Bon-Marche, Burdines and Goldsmith’s) will fall under the Macy’s name.

Stores: 450 in 34 states

May Department Stores Co.

Headquarters: St. Louis

Brands: Famous-Barr, Filene’s, Foley’s, Hecht’s, Kaufmann’s, Lord & Taylor, L.S. Ayers, Marshall Fields, Meier & Frank, Robinsons-May, Strawbridge’s, The Jones Store, David’s Bridal, After Hours Formalwear, Priscilla of Boston

Stores: 501 department stores; 239 David’s Bridal; 456 After Hours; 11 Priscilla of Boston

Top retailers

The nation’s top 10 general merchandise retailers, based on 2004 sales figures. The new company formed by Federated Department Stores Inc. and May Department Stores Co. would rank fourth, behind Wal-Mart, Target and Sears Holding Corp., created by Kmart Holding Corp.’s takeover of Sears, Roebuck and Co. set to close in late March.

1. Wal-Mart Stores Inc. , $285 billion

2. Sears Holding Corp., $55 billion

3. Target Corp., $46 billion

4. Federated-May, $30 billion

5. J.C. Penney Co. Inc., $18 billion

6. Gap Inc., $16 billion

7. TJX Cos., $15 billion

8. Limited Brands Inc., $9 billion

9. Dillard’s Inc., $8 billion

10. Saks Inc., $6 billion

Source: Retailers’ financial statements

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