Department-Store Superstar

Mall developers are also scrambling to figure out how to fill their big, empty boxes when the lights go out in those 78 stores. They have relied on department stores as anchor tenants to attract shopping-center customers. To replace their lost Federated-May stores, landlords are renegotiating leases with other department-store chains, national retailers like Barnes & Noble and Best Buy and even with cineplex owners and restaurateurs. "The definition of an anchor has gone well beyond the boundaries of what it used to be," says Ross Glickman, CEO of Urban Retail Properties, a Chicago real estate company that manages 50 million sq. ft. of retail space. One developer, the Gordon Group in Greenwich, Conn., wants to reshape empty department-store space into a mall-based bazaar, called Epicenter, for online and catalog retailers that otherwise have no physical stores.

Cosmetics companies such as Estée Lauder and L'Oréal, among the biggest suppliers to department stores, also see an upside to the merger. They may lose some of their sales volume from the closed stores, but they believe that Macy's new national marketing push will allow them to streamline their marketing messages. Macy's, for example, will for the first time be able to advertise its own stores during the nationally televised Thanksgiving Day parade. Cosmetics companies, in turn, can do national ad campaigns instead of running multiple promotions in multiple markets. Says Dan Brestle, Estée's chief operating officer: "The branding of Macy's can only help us." Edgar Huber, president of the luxury-products division of L'Oréal-USA, says, "Now that department stores have a clear strategy, they'll be able to bring magic back into their stores."

If only it were as easy as waving a wand. What Macy's is attempting is more than just a shift in strategy. The company is, in effect, trying to fix everything that's been wrong with department stores over the past 20 years, and it is trying to do it all at once, all over the country, without digging itself into debt. "It's quite a mountain climb," says fashion consultant Wolfe. If Macy's can get to the top, it may not matter what nameplate is above the door. [This article contains a table. Please see hardcopy of magazine.]

MINDING THE STORE Federated's growth has been relatively flat compared with most other retailers' Sales per square foot

Source: Company reports and Citigroup estimates