Federated-May's Vendor Impact

NEW YORK CITY-In the short term, the $11 billion merger of Federated Department Stores and May Department Stores could hurt some of the chains’ vendors, if an expected 150 units out of its 950-store portfolio close, according to a SG Cowen & Co. report. The good news for some apparel vendors and other suppliers, though, is that the merger, expected to close this quarter, will benefit them in the long run, it says.

The possible store closures could reduce vendors’ sale and operating margins. Companies “with large reliance on the combined [Federated-May] entity face significant challenges likely to pressure margins and financial returns [long term],” the report says.

But the closure of underperforming stores could also speed up inventory turnover, especially for some companies like watch and accessory seller Fossil, the report says. Estee Lauder could also benefit from the elimination of underproductive beauty products departments.