Federated Department Stores

I. Introduction

Present day Federated consists of both Bloomingdale's and Macy's stores and operates in 34 states as well as Guam and Puerto Rico. While Bloomingdale's and Macy's provide both private and national brands and are similar in merchandising categories (men's, women's and children's apparel, home dйcor, shoes, beauty, and accessories), they differ greatly in culture. Bloomingdale's, being more upscale, targets consumers that are more concerned with trend and quality than they are price. Macy's targets the more value oriented consumer and represents a broader Federated clientele. Macy's represents 423 of the 459 Federated locations while Bloomingdale's represents only 36 locations. Because I can better relate to the value conscious consumer of the Macy's division and because they represent such a large portion of Federated, I will further explore their current characteristics and behaviors that suggest that they possess qualities of both monopolistic competition and oligopolies.

II. Brief History

Federated Department Stores was founded in 1929, the same year the stock market crash signified the commencement of the Great Depression, with the merger of Abraham & Straus of Brooklyn, Filene's of Boston, F&R Lazarus & Co. of Columbus, Ohio and Bloomingdale's of New York. Recognizing economic sensitivity to the Great Depression and WWII, Federated initially focused its efforts on ground-breaking retail tactics such as accommodating credit policies. In the mid to late 1900's, Federated shifted its endeavors to growth and development, having increased its stores by 400 percent between 1964 and 1979. Although the company filed for bankruptcy in 1988 because of a failed takeover by Robert Campeau, a Canadian real-estate developer, Federated persevered through the tough times by taking risks and embracing change. While originally being composed of four family-owned department stores in 1929, Federated is now comprised of over 450 stores and is known as one of the leading department store operators in the industry.

III. Nature of the Product/Target Market

After co-branding the Macy's name with local Federated stores in 2003, the Macy's division became the central focus for revamping. Federated describes their Macy's "core customer" as a fashion conscious working woman between the ages of 25-54, with an average household income of more than $75,000 a year. She is married and loves to shop, but her buying habits are based solely on her standard of living. Through product assortment, pricing, customer feedback for improvement and marketing strategies, Macy's plans on reinventing itself to an all new level. Macy's sales for 2003 were broken down into the following categories:

I would consider the products at Macy's to have a large negative price elasticity of demand and a large positive cross-price elasticity of demand because there are many alternatives and good substitutes, following monopolistic competition. If I was speaking of some of the extremely high-end clothing brands at Bloomingdale's, such as Dolce & Gabbana or Vera Wang, I might agree that the price elasticity of demand was relatively low because of brand loyalty to the most contemporary designers. These consumers are willing to pay the extra money, even to excessive amounts, to be seen in the trendiest and most expensive lines. Possessing these two different types of department stores probably accounts for much of their success during economic fluctuations such as recessions. Although I prefer the high-end brands at Bloomingdales, I would be more likely to shop at Macy's during economic hardship.

The typical Macy's customer relies on the value of the dollar as well as quality. While Macy's consumers probably appreciate the well known, reliable brands provided such as Nike and Guess, they are not obsessed with the up-to-the minute trends and expensive lines of Bloomingdale's and would rather spend the money they save elsewhere. As research has proven that about half of female Macy's shoppers have children, I am sure they have more important priorities than contemporary clothing. But because the brands supplied at Macy's are more affordable, they are also more common.

IV. Market Size/Type

Federated competes nationally in a market that Standard & Poor's defines as "full-line department stores." According to Standard & Poor's, full-line department stores, such as J.C. Penney and Sears Roebuck, can be defined as those providing a variety of products while specialty department stores, such as Nordstrom and Neiman Marcus, are those that focus on apparel, shoes and accessories. As one would expect, full-line department stores are much more common than specialty stores.

Federated competes nationally because they are competing as a department store operator. They have to look at the big picture. For example, they must decide on the best places to open new locations. Federated was forced to close all 66 of their Florida locations at one point or another during hurricane season this year. I doubt they will be opening new stores there any time soon as they reported a loss of $30 million in sales due to Hurricanes Frances, Ivan, and Jeanne in August and September. Federated also makes general improvement decisions for their stores. Over the past couple of years they have invested over $170 million on improvements such as making their fitting rooms more accessible, appealing to the female market (their decision-maker) by providing cable television in designated areas to keep husbands and children busy while they shop, and supplying electronic price checkers and shopping buggies.

While there are thousands of department stores in the U.S., they vary greatly in size, products and services, prices, marketing, etc. Regional department stores such as Boscov's offer only 41 locations and are limited to the Mid-Atlantic region of the country. International department stores such as Wal-Mart offer over 1,500 locations and are located in 9 different countries. Federated's biggest national, full-line department store competitors include Sears Roebuck & Co., J.C. Penney Co. Inc., and May Department Stores Co. Sears Roebuck & Co. dominates the full-line department store industry with nearly 900 stores and a reported $40 billion in annual revenue. The reason for this is probably because they appeal to a broader market providing a variety of products and services that many department stores do not offer, such as lawn and garden