May Stores Announces $2-Billion Expansion
May Department Stores on Friday unveiled an ambitious five-year, $2-billion plan to open 125 stores nationwide, including an undisclosed number in Southern California.
The St. Louis-based chain’s expansion plans signal intensifying competition among department stores nationwide and renewed confidence in Southern California’s retail market.
The company also intends to spend $2 billion to remodel 70 stores and modernize its distribution centers and equipment.
Although May would not specify the number of Southland stores or their locations, analysts said fast-growing San Bernardino and Riverside counties are likely sites for some of the company’s Robinsons-May stores.
“The Inland Empire is alluring because retail sales in that region have been growing rapidly,” said Richard Giss, head of retail services at the Deloitte & Touche accounting firm in Los Angeles. “Much of Southern California is over-stored, and May is looking for areas that are underserved.”
May Department Stores was expected to announce some kind of expansion plan when its shareholders gathered Friday for the company’s annual meeting in St. Louis. May, the nation’s second-largest department store company, operates 347 stores in 30 states, including chains such as Lord & Taylor, Filene’s and Robinsons-May.
The scale of the proposed growth surprised many retail analysts. Underlining the significance of the move, May issued a statement calling the expansion “the most aggressive in the company’s history.”
That plan is also a response to Cincinnati-based Federated Department Stores and its Macy’s chain, analysts say. Federated vaulted past May and became the nation’s largest department store operator by acquiring the Los Angeles-based Broadway Stores in 1995.
Federated has put many of the Broadway stores on the sales block, but it has retained 45 of them, including 25 in Southern California.
Federated then established itself as the operator of the largest chain in the Southland with its decision to convert its Bullock’s and the Broadway stores into Macy’s, a process commenced last month and scheduled for completion next Friday. As a result, Macy’s will have 48 Southland stores compared to 46 for Robinsons-May.
Other chains have announced modest expansions, but May’s plan is much larger in scope.
To focus on the increasingly competitive department store field, May earlier this month spun off its shoe store subsidiary--Payless ShoeSource--as an independent company. Last month, May acquired 13 Strawbridge & Clothier stores, a deal that gives it dominance in the Philadelphia market.
May’s expansion is an attempt to be more cost-effective. Vendors are willing to sell merchandise to larger chains more cheaply on a volume-discount basis. And an expanding chain can generate additional sales without incurring additional advertising costs.
“May is a very promotional company, and it relies heavily on sales events and advertising,” said Edward Weller, an industry analyst at Robertson Stephens in San Francisco. “The company has to have a large number of stores to justify advertising costs.”
One industry analyst said May is pursuing a strategy to regain its status as the nation’s largest department store chain.
A spokesman would not respond to speculation about the company’s intentions. However, in comments to shareholders Friday, May Chairman David C. Farrell noted that the firm has “dominant positions in most of the markets where they compete.”
As an industry, department stores have started to rebound, generating higher sales and earnings by cutting costs and prices. As a result, specialty apparel chains have suffered, said Ira Kalish, a retail economist with Management Horizons, the retail consulting arm of Price Waterhouse.
“If May decides to expand strongly into Southern California, the local specialty store chains may be the big loser,” Kalish said.
In Southern California, where the retail industry has struggled, May’s expansion plan is the latest sign that a turnaround is starting. Job growth in the region is attracting retailer interest.
Sears recently purchased six former Broadway stores to expand its presence here. Bloomingdale’s will enter the market by opening four stores in the Southland late this year. Wal-Mart is also expanding, and this week the OfficeMax office supplies chain announced plans to open 20 Southland stores by the fall.
Meanwhile, the largest retail construction project in the nation, the Ontario Mills Mall, is underway in the Inland Empire. Malls and shopping centers are also under construction in Pasadena, Long Beach, Downey, Carson, Santa Clarita and Los Angeles.
