Federated/May Merger Will Impact Local Ads

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By: Jennifer Saba

The $11 billion marriage of Federated and May department stores is just one more mega-merger to come along in recent months. This deal, however, will most likely affect the newspaper industry the most: Retail-store advertising is the bread and butter of many papers.

?It will not have a positive impact on newspaper advertising,? said economist Miles Groves. ?It’s a big impact on local advertising.?

According to a recent report from Merrill Lynch, in 2003 Federated and May each spent over half its advertising budget in newspapers. Federated purchased $493.7 million of newspaper ads, from a total budget of $707.2 million. May spent $440.3 million with papers, from a total ad budget of $630 million.

Merrill Lynch notes that every acquisition is different, but the investment firm points out there’s more downside than upside for newspapers here. ?At a minimum the resulting entities are likely to take a tougher stance on media rate negotiations. Ad agencies could also lose out when their clients and their respective ad budgets are consolidated,? the report said.

The effects of this deal will be felt by newspapers of all sizes. The mergers of Cingular and AT&T Wireless, and Sprint and Nextel, for example, impinged on larger metro papers, since they rely more on national advertising. This latest merger will have more of a democratic feel to it, explained Groves. ?The pain will be shared,? he said.

In the short term, analysts estimate there won’t be a lot of change. According to Federated, which owns Macy’s and Bloomingdale’s, it will start consolidating brands in 2006. May owns Lord & Taylor and Marshall Field’s.

According to a report in The New York Times: “Analysts predict that Federated, based in Cincinnati, will probably close a significant number of May’s underperforming locations, perhaps as many as 200 stores. Federated may also give the Macy’s name to many of May’s regional stores, discarding the familiar names that have been known to generations of shoppers in those areas. Besides Lord & Taylor and Marshall Field’s, which are likely to go untouched, May owns Famous-Barr, Filene’s, Foley’s, Hecht’s, Kaufmann’s, Meier & Frank, Robinsons-May and Strawbridge’s, among others.”

But it’s unlikely that Federated will shutter the bulk of retail outlets. Ed Nakfoor, a retail consultant in Birmingham, Mich., said that Federated bought May to gain a presence in certain parts of the country. Nakfoor suspected that Federated would close stores in small to mid-sized towns experiencing slow growth — places like Saginaw and Flint, Mich.

And advertising might pick up initially as Federated and May publicize the union. Still, in the long run, one more brand is off the market. “With all these consolidations, it’s one less business for full and half-page ads,? Nakfoor said.

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