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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.

In the footwear department, more vendors could have opportunities to sell products at the Federated-May stores because executives at the new entity would not likely want to rely on a small number of suppliers. Kenneth Cole, Timberland and Wolverine World Wide could all strengthen sales after such a move.

Promotion levels for some vendors could be reduced as well, especially if, in the cases of malls where a Federated and May store are currently competing, one of the units were to close. Another upside SG Cohen points out, among other areas, is the chance for vendors to concentrate more in international sales due to the consolidation of US retailers. “International distribution allows management to more effectively leverage design, marketing, and production costs across one larger brand,” the report says.

Federated operates about 450 stores in 45 states under the Macy’s and Bloomingdale’s name. St. Louis-based May, meanwhile, operates 487 department stores under the Famous-Barr, Filene’s, Foley’s, Hecht’s, Kaufmann’s, Lord & Taylor, L.S. Ayres, Marshall Field’s, Meier & Frank, Robinsons-May, Strawbridge’s and Jones Store names. The company also owns 243 David’s Bridal stores, 452 After Hours Formalwear units and 11 Priscilla of Boston shops in its Bridal Group.

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