Federated's Lundgren realizes retail dream

Acquisition: Federated's chief executive had dreamed for years of creating a department store behemoth.


NEW YORK - Terry J. Lundgren stood alone at the lectern as he held a news conference to discuss Federated Department Stores Inc.'s $11 billion acquisition of May Department Stores Co.

His appearance Monday was fitting, because it was Lundgren, 52, who came up with the notion of creating a single giant department-store chain several years ago. He repeatedly wooed May's management and drove the deal to its completion Sunday.

Along the way, he might have eliminated a major obstacle to his designs on May, former May chief executive Eugene S. Kahn.

People briefed on the negotiations leading up to the deal said Federated's chief executive approached Kahn about a merger in January. A few weeks later, the May board dismissed Kahn. Because he has not been replaced, there is no question of sharing power and no worry about which company will dominate strategy.

No one from May appeared Monday to discuss the turn of events, which also includes the assumption of about $6 billion in debt.

In Lundgren's Monday appearance, he said he did not know what role Kahn had played at May as the talks unfolded. "I wasn't in the board room," he said, adding that even without personalities, "there were enough issues to get in the way."

After years in the retail industry, watching shifts in shoppers' tastes that weakened once-grand department stores, Lundgren has developed a passion for trying to reverse that trend.

"I want to make us more competitive," he said in an interview after the briefing, held at the Rihga Royal Hotel in Midtown Manhattan. "We're competing with everything today from Wal-Mart to Louis Vuitton, and consumers have demonstrated that they are willing to cross-shop at all kinds of stores." With the deal, he said, "we are creating a reason for consumers to shop with us."

`Being competitive'

Combining forces with another retailer "was never about being big," Lundgren said. "It was always about being competitive."

The changes he will make could be striking. May stores, including Lord & Taylor and Marshall Field, might be renamed Macy's or Bloomingdale's, he said.

"You're marketing the best brand name in retail," he said. "Who else has a movie named after them, Miracle on 34th Street? Who else has a Thanksgiving parade?"

Filene's, Foley's and Hecht's are other May properties that could undergo a name change.

Lundgren's background includes six years at Neiman Marcus, the luxury department store chain that has held on to its clientele better than most competitors have.

While there, he said, he attended the couture shows in Europe and once slipped backstage after a Chanel event with one of the Neiman buyers. He watched as the buyer began ordering dresses, one by one, a size 8 for this customer in Los Angeles, another size for someone else in Dallas.

`Are you serious?'

"I said, `Are you serious? You are here buying for individual customers?' " Lundgren recalled. The buyer told him, "`You bet, and it's a guaranteed sale,' " he said.

Lundgren never forgot that. "The market a lot of times may not be focused on one customer," he said. Ordering for shoppers one at a time is not practical for sprawling operations such as Federated, but by zeroing in on types of customers, based on their lifestyles, as he has done, "it really and truly does make our big company seem smaller."

Originally, Lundgren said, he thought he wanted to be a veterinarian, but he switched to business after a few rounds of artificially inseminating bumptious cows at the University of Arizona.

He put himself through college by shucking oysters, peeling shrimp and waiting tables at a restaurant in Tucson, Ariz. After graduating, he landed a job with Bullock's department store, then owned by Federated.

Retailing has kept his attention "because it changes so frequently," he said.

"I love the changes of fashion. I love the product. We have product for him, product for her, product for the kids, product for the home. It's an ever-evolving process, and I loved the people this business attracts."

No-prisoners style

With a style that includes well-cut suits and contrasting pocket handkerchiefs, Lundgren looks and acts like an executive who takes no prisoners.

"I don't know how many, but there are going to be layoffs," he said at the news conference. "There always are with a merger like this."

Kahn's departure worried some May directors, who thought they would be in a weakened bargaining position without a chief executive, insiders said. That turned out to be the case, executives briefed on the negotiations said. As word leaked out that the two companies were talking, May came under increasing pressure to accept a deal.

Price was an issue. May wanted more than $40 a share, and Lundgren offered $33 a share. Both sides walked away from the negotiating table.

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