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Federated CEO trumpets reinvention

Federated remains a dominant player in the traditional department store sector with 457 stores in 34 states, Guam and Puerto Rico. Operating as Bloomingdale's, The Bon Marche, Lazarus, Rich's, Goldsmith's, Burdines and Macy's, arguably there isn't a major center that does not count one of these stores in its tenant mix.

James Zimmerman became chairman and CEO of Federated in May 1997, after serving 30 years with the company. He started with the retailer in 1965, when he joined its former Foley's division in Houston. SCW caught up with Zimmerman in his Columbus offices for this one-on-one discussion.

Q. Traditional department stores are constantly labeled “dinosaurs.” Yet Federated is well regarded for attempts to stay current. Specifically, Lazarus's store of the future at Easton; and The Bon Marche's smaller store that's been described as a response to Kohl's. What's Federated's philosophy?

A. It's very simple — everything we do is with a genuine focus on the customer: “give the customer what she wants.” We've been experimenting with two different types of stores with less square footage than usual for their divisions. This includes both small market stores that are full-line department stores with selected merchandise from all categories of business except furniture. This would be like the Helena, Mont., Bon Marche store — a one-floor, one-entrance store. Another category is a smaller store in a big market — such as the Macy's West store in Montebello, Calif. It doesn't carry all of our categories — it has no home or children's merchandise, but does have a greatly expanded cosmetics and fragrances area that is the right product mix for that particular market.

Easton is our “Reinvent” store. It's as a laboratory for many different elements of the business — merchandising, technology, product mix. Some elements include: shopping carts, call buttons in fitting rooms, updatable electronic signing to reflect sale prices, plasma screens near cashwraps that display stockmarket figures and sports scores, a “wayfinding” system suspended from the ceiling, electronic scanners for customers to check prices, customer lounges — in young men's/juniors' departments complete with computers. We're also trying on-site childcare.

Q. There's talk of a merger/acquisition between Federated and May Company, or some other combination of players. What are benefits/drawbacks to such large-scale consolidation?

A. Retail consolidation is both healthy and inevitable and we've made no secret of our desire to pursue acquisitions that make sense from both a financial and operational standpoint. Beyond that, however, we cannot comment on particulars.

Q. How many new or “replacement” stores are planned? What areas offer opportunity?

A. We are scheduled to open a total of ten department stores in 2002. Beyond that, I estimate we'll open five to eight new stores a year — that's for all divisions. For competitive reasons we can't discuss other specific locations, but our real estate and area research groups are always looking for good opportunities. In general, the East and West Coast offer the most promise. Certainly high-growth markets always spawn incremental opportunities, but slower growing areas such as the Northeast have potential.

Q. The center industry's turmoil offers challenges and opportunities. What's your take?

A. The development community is contracting in the same as retailers. My hope is with this contraction, there will be less incentive for cannibalistic development and a period of time for overbuilt markets to recover. Our greatest interest would be in centers where our stores would provide a dominant anchor or attraction. The role we play in each of these centers is similar… we are a major traffic generator because of the breadth of assortments and quality of merchandise.

Q. How could developers attract a Federated store?

A. By presenting opportunities in existing or adjacent trade areas that service untapped portions of the market. Federated's site selection process involves thorough review and analysis of market/trading areas that would be served by each location and the property's specific characteristics. Competition is always an important consideration. Specific useful information is research conducted that confirms the center's trade area, demographic profile and taste level of shoppers. Both the center's performance and its co-anchors over time also is relevant.

Q. What developments might Federated consider when looking to locate new stores? What about urban/downtown locations?

A. We have interest in regional, lifestyle and strip centers, and each of these formats can be attractive to customers when well tenanted. We've made significant investments in urban locations in recent years, both in new stores and major remodels. We operate more than a dozen urban locations and will open a new Bloomingdale's home store in downtown Chicago this year. However, there are only a handful of U.S. cities with a sufficient residential base to support a department store.

Janet Groeber is a Cincinatti-based writer.

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