The Federal Trade Commission today issued a statement that explained its reason for closing the investigation of the $17 billion acquisition by Federated Department Stores, Inc. (Federated) of the May Department Stores Company (May) and allowing the deal to proceed. Federated owns or operates 456 department stores nationwide – under the Macy’s and Bloomingdale’s name – and May owns or operates 491 department stores throughout the United States under names including Marshall Field’s, Lord & Taylor, Filene’s and Kaufman’s, Hecht’s and Strawbridge, Foley’s, Famous Barr, and Robinson-May.
The Commission – writing with Chairman Majoras recused – has issued the statement in accordance with its policy to help provide transparency for decisions in high-visibility matters. According to the statement, which can be found on the FTC’s Web site as a link to this press release, the Commission “conducted an exhaustive six-month investigation” of the proposed transaction, because the combination of the two chains, each of which is the product of multiple earlier combinations, “will create by far the largest chain of so-called ‘traditional’ or ‘conventional’ department stores in the country.” In addition, the transaction will create high levels of concentration among conventional department stores in many parts of the country, and thus facially appeared to raise issues of competitive concerns.
According to the statement, however, “When an industry is changing rapidly . . . it is necessary to take account of fundamental changes in the structure of the market.” The statement details the rapid evolution of retail markets in the United States to demonstrate that suburban shopping malls “have largely replaced downtown shopping destinations.”
The statement next examines evidence on pricing patterns, which it says “provides the most compelling, objective demonstration that . . . conventional department stores are not in a distinct market.” They face competition from multiple retail formats for the merchandise they sell. Accordingly, the Commission states, department stores must consider prices and selections at a wide range of other retailers when they make inventory and pricing decisions.
Equally compelling, the statement continues, is that Federated and May, like other department store chains, set prices that are uniform over broad geographic areas – typically multi-state regions. This fact distinguishes this transaction from, for example, Staples proposed merger with Office Depot in 1997, where a narrow “office superstore” market definition was bolstered by proof of differential prices, depending on the number of superstores in a particular city.
Next, the statement discusses how the Commission defined the geographic market in which to examine the proposed acquisition, and finds that the market “is at least as large as an MSA,” within which there are many alternatives to discipline prices. The Commission was aware, however, that many of the products now sold in department stores have non-price attributes that are also important to consumers. Accordingly, staff carefully reviewed the investigative record for any potential effects in non-price competition, such as reductions in merchandise assortment or new product introductions. None were found.
The statement notes that selected divestitures may take place following the transaction, but states the FTC does not need to take action, in light of the broad relevant markets it found. In concluding its statement, the Commission says that, “. . .We recognize that many individual consumers mourn the gradual disappearance of individual department stores in their hometowns . . . These changes, however, have been ongoing for many years. We have not been able to uncover any evidence that this particular merger will have any adverse effect on consumers as a whole.”
The Commission vote approving issuance of the statement was 3-0-1, with Chairman Majoras recused.
The FTC’s Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580, Electronic Mail: firstname.lastname@example.org; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published “Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws,” which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.