California Retailing Shake-Up : Federated’s Next Move: Sell Some Broadways : A Variety of Buyers Expected to Emerge

Federated Department Stores Inc., weighing how to marry two overlapping retail empires in its takeover of Broadway Stores Inc., said Tuesday that it hopes to sell stores accounting for nearly 40% of Broadway’s $2.2 billion in annual sales.

Officials are still not saying which Broadway stores it will try to sell and which will be converted into Macy’s, Bullock’s or Bloomingdale’s. Broadway operates 83 stores in the West, with a per-store sales average of about $26.5 million.

Federated officials made the statements in a telephone conference with analysts.

Analysts speculated that a wide variety of potential buyers will emerge, including leading Federated rivals May Department Stores Co. and Dillard Department Stores Inc., and others such as Nordstrom Inc. and J.C. Penney Co.

“There are a number of Broadway stores . . . whose locations would be very complementary to J.C. Penney’s marketing needs,” said Hank Rusman, a spokesman for J.C. Penney in Plano, Tex.

However, it is unlikely that Cincinnati-based Federated would unload the Broadway locations to companies such as Dayton Hudson Corp. or Wal-Mart Stores Inc. that operate discount stores. Spokesmen for each chain said neither has an interest in any of the Broadway locations, and such transactions would probably require the approval of mall landlords.

The sale of Broadway stores would help Federated pay for the deal, which several analysts said Tuesday is surprisingly expensive given Broadway’s recent financial woes.

One Wall Street firm, NatWest Securities, slightly downgraded its assessment of Federated stock--to “accumulate” from “buy”--largely because of the Broadway purchase price.

Assessments of the value of the complicated stock-and-debt deal vary, with Federated putting the sum Tuesday at $1 billion, plus about $500 million in anticipated renovation expenses.

On Tuesday, as expected, Broadway stock soared, closing up $4.25 a share at $7.125 on the New York Stock Exchange, approaching the $7.96 per share indicated by the terms of the deal announced Monday after markets closed. Federated stock fell $1.50 to close at $28. The transaction is scheduled to be completed in October, with no changes in store operations until after Christmas.

The sale of Broadway stores would help Federated deal with its most obvious problem arising from the merger: overlapping stores in a number of shopping centers and other locations.

In Southern California, such prominent malls as Beverly Center, the newly rebuilt Northridge Fashion Center and the Century City Shopping Center & Marketplace each boast a Bullock’s and a Broadway.

The overlap is even greater in Northern California, where as many as 20 malls are anchored by a Federated-owned Macy’s and either an Emporium or a Weinstocks, both part of the Broadway group.

If a sale cannot be consummated, the worst-case scenario for a shopping center owner would be for Federated to close one of the stores. But that is considered unlikely, particularly at such high-visibility malls as Beverly Center, where retail space is at a premium.

More likely, Federated would transform the ailing Broadway locations into other Federated stores, either Macy’s, Bullock’s or Bloomingdale’s, to complement the other Federated retailer already there. (Federated said it will continue to restrict Macy’s sites to Northern California and Bullock’s to Southern California.)

That prospect is good news to mall operators. Harry Newman Jr., chairman of Long Beach-based Newman Properties, which operates the Mall of Orange, would be “thrilled with any one of these operations--Bullock’s, Macy’s or Bloomingdale’s.”

Said Jan Wohlwend, general manager of Anaheim Plaza: “Since emerging from bankruptcy in 1992, Broadway never knew what it wanted to be when it grew up. But Federated, with Macy’s, Bullock’s and Bloomies, has a real focused vision and a solid merchandising plan.”

Some observers believe that the Broadway locations in either Century City or Beverly Center present attractive sites for the West Coast’s first Bloomingdale’s store, particularly since a proposed site only a few miles away in Beverly Hills would require more than a year’s worth of construction.

“We’re keeping our fingers crossed,” said Linda Smith Frost, a spokeswoman for the Century City mall.

Another attractive option for Federated is splitting existing Federated retailers at the same site into two pieces, one for fashion and the other, in a vacated Broadway store, for housewares or menswear. (Bullock’s already has two locations divvied up that way at Beverly Center.)

Ultimately, the risk for Federated is that it will end up cannibalizing its own business with its various stores.

“You already have Bullock’s stores that are very close together that used to be I. Magnin stores,” said Bruce Frasco, an executive vice president with Beitler Commercial Realty Services, a commercial real estate brokerage in Sherman Oaks.

The transaction has three main financial components. Broadway shareholders are to receive Federated stock valued, at Monday’s closing price, at $373 million. Prudential Insurance Co. of America, a mortgage lender to Broadway Stores, would get another $200 million in stock and $222 million in new debt.

Federated plans to assume additional Broadway debts valued at from about $200 million to more than $800 million, depending largely on how analysts account for Broadway’s $575 million in secured accounts receivable.

Walter F. Loeb, a veteran retailing consultant, said Federated paid dearly for Broadway Stores largely because it will discourage its main rival, May Department Stores, from expanding into Northern California while also easing the entry of Federated’s high-profile Bloomingdale’s chain into California.

At the same time, he said, ego was doubtless a big factor: With Federated’s annual sales now at slightly more than $14 billion and May’s at slightly less, Federated needed the acquisition to firm up its position as the nation’s No. 1 traditional department store chain.

Times staff writer Greg Johnson contributed to this report.

Bestsellers

With its planned acquisition of Broadway Stores Inc., Federated Department Stores Inc. will become the largest retailer in California by far, holding about three times the number of stgores statewide as the Robinsons-May chain. A look at California’s top department store chains:

Federated ( Bullock’s, Macy’s)

Number of stores: 80

1994 sales in billions: $2.2

*

Broadway Stores (Broadway, Emporium, Weinstocks)

Number of stores: 69

1994 sales in billions: $1.9

*

Robinsons-May

Number of stores: 48

1994 sales in billions: $1.5

*

Nordstrom

Number of stores: 32

1994 sales in billions: $0.8

Note: Discount and general merchandise chains such as Wal-Mart, Sears, J.C. Penney and Montgomery Ward are not included. The Nordstrom figure includes Nordstrom Rack outlets.

Sources: Genesis Merchant Group Securities, Nordstrom, Robinsons-May

* TOUGH SELL: Can full-scale department stores survive? A1