The May Department Stores Company

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The May Department Stores Company

611 Olive Street
St. Louis, Missouri 63101
U.S.A.
(314) 342-6300
Fax: (314) 342-6584

Public Company
Incorporated: 1910
Employees: 116,000
Sales: $10.04 billion
Stock Exchanges: New York Pacific

Lord & Taylor of New York City; Filene’s in Boston, Massachusetts; and Pittsburgh, Pennsylvania-based Kaufmann’s are 3 of the 12 department store chains owned by the May Department Stores Company. At the end of 1991 May’s full lineup included more than 335 department stores in 31 states and the District of Columbia. A subsidiary, Payless ShoeSource, Inc., operated about 3,160 self-service shoe stores in 46 states and the District of Columbia.

Company founder David May opened his first store in 1877, in the mining town of Leadville, Colorado when he was 29. An immigrant from Germany, May hadsettled in Indiana during his teen years, where he earned his living as asalesman in a small men’s clothing store. Diligence and marketing flair won him a quarter-interest in the business, but ill health forced him to sell his stake and seek a drier, healthier climate in the West, where he tried prospecting. Inexperience brought swift failure, whereupon he returned to the field he knew and opened a men’s clothing store with two partners.

The firm of May, Holcomb & Dean supplied the miners with red woolen underwear and copper-riveted overalls. The store was an instant success, but a real estate disagreement dissolved the partnership, leaving May to put up a building on newly purchased ground. This second venture was called The Great Western Auction House & Clothing Store, and was soon large enough to welcome a partner, Moses Shoenberg, whose family owned the local opera house. By 1883 the new partnership was flourishing, for the town’s population had become sophisticated enough to demand clothing for many purposes. May and Shoenberg kept pace with demand, ensuring success with aggressive advertising methods and conservative fiscal management. Before long, they were financially able to expand their merchandise to include women’s apparel, after testing the market with a huge stock of expensive dresses bought from an overstocked Chicago store. Despite a post-boom depression that would doom Leadville’s prosperity by the end of the decade, May bought out Moses Shoenberg’s interest in 1885, adding first one branch store in Aspen, Colorado, then another called the Manhattan Clothing Company in Glenwood Springs, Colorado.

Corporate strategy was already firmly established by this time. Print advertising that trumpeted genuine bargain prices lured an ever-escalating, middle-class clientele, while frequent sales kept the merchandise moving. Fast stock turnover kept the customers in the height of fashion. Energy and swift management decisions were David May trademarks. A frequently quoted story tells that he paid $31,000 for the stock of a bankrupt clothing store he spied during an 1888 visit to Denver, Colorado. Before the day was out, he installed a brass band out front to help sell out the existing stock. It took him just one week to clear the inventory, remodel the store, and establish the property anew as The May Shoe & Clothing Company.

May’s expansion efforts continued through the 1890s. First came the 1892 purchase of the Famous Department Store in St. Louis, Missouri, for which he and two Shoenberg brothers-in-law paid $150,000. Then, spreading his interests to Cleveland, Ohio, in 1898, he spent $300,000 to buy the aging Hull & Dutton store.

In 1911, one year after The May Department Stores Company was incorporated in New York, it bought a second St. Louis chain, William Barr Dry Goods Company. To consolidate the firm’s Missouri holdings, they merged the two St. Louis chains, forming the Famous-Barr Company. In spite of the investment, sales for the year reached $14.8 million, with net profits of $1.5 million.

By 1917 David May was ready to hand the company presidency to his son Morton. Becoming chairman of the board did not reduce his active interest in business affairs; although he was 75 years old in 1923, he bought a Los Angeles department store, A. Hamburger & Sons, for $4.2 million cash, personally supervising its renovation and its energetic promotion. Renamed The May Company, the new store opened new avenues in California and helped to produce 1926 sales figures that surpassed the $100 million mark for the first time. It was a final triumph for David May, who died in 1927 at the age of 79.

The same year, the company acquired Bernheimer-Leader Stores, Inc. in Baltimore, Maryland. Costing $2.3 million, the new acquisition was also renamed The May Company and by newly established company policy, was the last acquisition for some time. Top priorities then were consolidation, improvement in performance, and store remodeling. Systematic modernization to update delivery systems and to provide customer parking began in 1928, and was completed in 1932.

Still unaffected by the Great Depression, May’s sales reached $106.7 million in 1929. During the bleak years that followed, the company maintained its stability with tried-and-true strategy and rigorous financial planning. One important practice focused on inventory. Buyers had always maintained large stocks of merchandise, regardless of the external economic climate. This policy now proved profitable, for higher purchase costs were not a problem; the company simply added the old and the new prices of an item, averaged the two, and held one of its famous sales. Large inventories thus became an asset, leaving the stores unaffected by the Depression-era foundering of distressed suppliers.

A distinct advantage to the company lay in the wide geographical spread of May’s subsidiaries. Each store had its own buying department, allowing it to cater to its individual needs. Since the Depression’s depth likewise varied from area to area, buyers could gauge their stock requirements with accuracy. Additional centralized buying facilities, however, allowed buyers to take advantage of mass-purchasing practices to keep their costs down. Careful planning paid off—although sales dipped to $72.5 million by 1932, they slowly recovered, rising to $89.2 million by the end of 1935.

A downside of the 1930s came from new competitors. The automobile’s increasing popularity made cheaper locations on city outskirts more accessible to customers. These locations became more attractive to specialty stores wanting to keep overheads down, as well as to the new mail-order houses that offered a huge selection at reasonable prices, while catering to an infinitely larger market than any department store had.

Labor disputes were a problem for most department stores during the late 1930s. May’s turn came in 1937, when one disturbance resulted in the arrest of a New York May store manager, and another caused panic among customers after strike organizers from the local chapter of the Retail Women’s Apparel Salespeople raised false fire alarms at the same store. Sales figures, unaffected by union complaints of low wages and long hours, reached $98.4 million in 1938, yielding a net profit of $3.8 million.

By 1939 the company was ready to expand once again. Foreshadowing a 1940s trend toward suburban shopping centers, it opened a Wilshire Boulevard branch of its Los Angeles store, stocking it with merchandise for the upper-income customer.

In 1946 May organized a merger with Kaufmann Department Stores, Inc., of Pittsburgh. With a history stretching back to 1871, Kaufmann’s was western Pennsylvania’s largest department store, and had cordially shared several May buying offices for many years. Together, the two operations were large enough to produce combined 1945 sales of $246.4 million. Kaufmann’s brought to the partnership a higher-income clientele, seven new units, and its own brand of paint, linens, and toiletries. Terms of the agreement were complex; 0.20 share of new $3.40 dividend preferred stock and 0.45 share of May Department Stores common stock were issued for each outstanding common share of Kaufmann stock. This involved the issuance of 110,532 preferred and 248,697 common shares. May made no changes in Kaufmann’s management; instead, it gave the new officers representation in May affairs.

In 1948 there was another important acquisition: the Strouss-Hirshberg Company of Youngstown, Ohio. This gave the company stores in Youngstown and Warren, Ohio, and New Castle, Pennsylvania. These stores had produced a 1947 turnover of $22 million. The price tag was reasonable—approximately 148,000 shares of May common stock, worth $5 each.

By this time May had stores in several cities in Ohio; Los Angeles, California; Denver, Colorado; Baltimore, Maryland; and St. Louis, Missouri. Yet company policy in the 1940s showed little change. Each unit was still independent, each management team autonomous. A loosely knit central organization with auxiliary offices in Chicago, Boston, St. Louis, and Los Angeles provided the financial benefits of combined purchasing, augmenting the store-buyers’ efforts. The founder’s formula of aggressive promotion, competitive pricing, and wide selection gave the company dominance in five of the eight cities that were home to May stores. Liberal salaries and incentive plans ensured loyalty, as exemplified by several department store heads who had been with the company for many years. The different elements made a successful mix, resulting in 1949 sales that reached $392.9 million, despite population shifts to the suburbs, competition from discount houses, and increases in customer spending for food and gasoline.

In 1951 Morton D. May succeeded his father as company president, Morton J. May moving on to the company chairmanship. Continuing in his father’s expansion and consolidation footsteps, the younger May held the reins of 25 stores by the end of 1953; the lineup now consisted of 10 large downtown stores, 5 large branch stores, and 10 smaller branch stores. Sales for that year topped $447.5 million, and the company could well afford the $10 million it spent over the 1954-1955 period to remodel, modernize, and enlarge suburban stores. Additional potential for suburban expansion spurred construction of the firm’s first shopping plaza, The Center of Sheffield. Covering 55 acres near Lorain, Ohio, the development contained about 40 retail stores as well as parking for 3,000 cars. It proved so popular that another center was constructed in Los Angeles within the next two years.

Other new ventures of the 1950s included the 1957 purchase of Denver’s Daniels & Fischer Stores Company, which was subsequently merged with existing Denver operations and renamed May D&F. Hecht Company of Washington, D.C., in 1959 was a new subsidiary with branch operations in Baltimore. Secured in 1959 for 42,560 preferred shares issued in exchange for a similar number of Hecht preferred and 827,623 common shares, Hecht welcomed the merger of its Baltimore outlets with existing May operations. Though start-up costs and refurbishing usually curbed earnings in an acquisition’s first year, Hecht’s merger did not affect profits. May finished the decade with sales reaching $645.1 million, soaring past the 1948 year-end total of $540.9 million.

Operations centralized during this period included real estate, legal, and promotional planning. Demographic research, used to track present and future buying patterns, showed two new trends as the 1960s began. At the one end of the scale, there was a shift to discount merchandising, bringing the company into competition with drugstores, supermarkets, and discount houses. On the other hand, the more expensive end of the spectrum was now showing an increased emphasis on fashion in clothes, linens, and other May staples. To move inexpensive staples more efficiently, the company increased automation in most units. At the specialty merchandise end, the company upgraded its merchandise and exclusive brands.

Two important acquisitions were negotiated in 1965, both of which were finalized in 1966. One was the merger of Meier & Frank Co., Inc., a Portland, Oregon, company. The other, G. Fox & Company, brought May into Hartford, Connecticut. Founded in 1847, G. Fox was now headed by the founder’s granddaughter, Beatrice Fox Auerbach, who continued as the store president after the merger, assuming a directorship of the May Company. Terms of the agreement included an exchange of 720,000 May shares. Both these mergers were scrutinized by the Federal Trade Commission (FTC), whose restrictive powers were broadened early in 1966. As both transactions had been initiated before the new restrictions came into force, both acquisitions were allowed, although the company had to agree to make no further acquisitions for 10 years, unless specifically permitted by the FTC.

When Morton D. May became chairman of the board in 1967, to be succeeded as president by Stanley J. Goodman, a disturbing new trend appeared—the vigorous acquisitions program and its concomitant store renovations and expansions began to eat into profits. Downtown stores were waning in popularity, and customer demand at the new suburban branches was not yet enough to compensate, because of a slowdown in the economy. Labor costs also rose significantly. Year-end figures told their own story; in 1966 total sales reached $869.1 million, yielding a profit of $45.9 million, while 1967 total sales, reaching $979 million, brought a profit of just $38.4 million. The following year, although total sales passed the $1 billion mark for the first time, profit sank to $36.2 million.

Plans went ahead, nevertheless, for the discount end of the market. In 1968 the company hired John F. Geisse, an experienced discount merchandiser, to head its new discount subsidiary; he became a vice-president. The new enterprise, called Venture, started in St. Louis in 1970. Achieving quick success, it burgeoned to a 12-unit chain by 1972. Three years later there were 20 stores, serving a population of 11,200,000.

In 1975 the Venture subsidiary contributed an estimated 9% of May’s $1.75 billion in sales. Focusing on the Midwest market, the company had eight Chicago-area Venture stores, a number too small to give the advantages of increased productivity or warehousing and distribution savings. To remedy this problem, in 1978 the subsidiary purchased 19 Turn-Style stores with a combined annual sales figure of about $180 million from Jewel Companies. The units were then redesigned and restocked, at a cost of $27 million. Further expansion had to be temporarily shelved, however, because existing distribution and inventory monitoring systems were unable to cope with the sudden increase in the Chicago-area activities.

Catalog shopping, accommodating the ever-swelling numbers of working women, was another new enterprise of the 1970s. In a 50-50 partnership with Canadian Consumers Distributing Company, Ltd., May opened 18 catalog showrooms in 1973, planning an eventual 150 more. Unlike other catalog stores that offered merchandise that was dispatched from separate warehouses, these supplied catalog-ordered items from storage facilities on the premises. The goal was to have many such stores in a given area, to meet competition and also to utilize the efficiency of a central distribution point. Although hopeful that the new enterprise would at least break even by the end of 1976, this was not the case, and May sold its 70 U.S. showrooms to Consumers Distributing Company (CDC) in 1978, in exchange for 24% of CDC stock, valued at $26 million.

In November 1979 the company bought Volume Shoe Corporation for about $150 million in stock. A Topeka, Kansas, family-owned chain of more than 800 self-service stores, Volume was then enjoying annual sales totaling more than $200 million. The following year a recession, coupled with start-up costs for an enlarged shoe distribution center, cut deeply into profits, which rose only 3.6% in 1980. Between 1979 and 1983, however, the chain’s compound growth reached 23.4%, producing $58.8 million in 1983 operating earnings, and showing the biggest jump of any May Department Store Division. Moving purposefully toward its goal of establishing Pay-less Shoe outlets nationally, Volume purchased 83 stores from HRT Industries as well as 38 from Craddock-Terry Shoe, and was eyeing possibilities in east coast cities by year’s end.

At the same time, the new May president, David Farrell, instituted a program of refurbishments to renovate some of the company’s more outdated units and rejuvenate their image as trendy fashion outlets. The company spent $117 million on the Famous-Barr chain alone, although other stores were also remodeled.

This substantial amount of money came principally from the company’s real estate holdings, among which were 11 shopping centers plus interest in 8 more, along with a 27% interest in a Los Angeles housing complex. Total value of the real estate holdings was $242 million in 1979, an amount enhanced considerably by a 1980 partnership with Prudential Insurance Company of America. Terms of agreement included joint ownership and operation of six of May’s regional shopping centers, for which equity and appreciation were shared. Benefits to May from this deal specified a $75 million 20-year loan at only 9% interest, with no principal payments until the loan matured.

Several department store chains noted an earnings slowdown at the beginning of the 1980s. May’s annual figures reflected only a 3.3% rise to $117 million, on a total sales rise of 6.6%. Farrell instituted stringent cost-cutting, which included the installation of new telephone and energy-management systems for all 138 department stores. Some units were made smaller for profitability, the extra space being leased to tenants often providing further sales potential with their own business traffic. Merchandise was upgraded to tempt the upscale customer, for the company was competing against specialty stores whose fashion reputations were already established.

A significant threat to market share appeared in the mid-1980s, however, in the form of warehouse stores and off-price outlets. Offering brand-name merchandise at discount prices, they forced retailers to rethink their customary strategy. May’s answer, to fulfill its requirements of upgrading merchandise at one end of their market niche and meeting the off-price challenge at the other, was the 1986 acquisition of Associated Dry Goods (ADG), at a cost of $2.5 billion. This steep purchase price brought the company the quality Lord & Taylor chain, J.W. Robinson department stores, L.S. Ayres units, Caldor discount operations, and Loehmann’s off-price apparel shops. As was the case with the other May subsidiaries, each chain continued to operate independently.

In 1987 May formed a 50-50 partnership with PruSimon, May Centers Associates (MCA). May transferred its shopping center operations to MCA. Two partners owned PruSimon: Melvin Simon & Associates, Inc., an Indianapolis, Indiana, company, and New York-based Prudential Insurance Company of America. PruSimon paid $550 million in cash for its share of the partnership. May’s chief benefit was to disengage from management functions unrelated to the stores, whose number once again increased with the $1.5 billion acquisition of Filene’s of Boston and Foley’s of Houston in 1988.

To narrow its focus on retailing further, the company decided to discontinue its discount operations. Loehmann’s was sold in 1988. Offered next were Venture and the Caldor chain that had been part of the ADG acquisition. There were, however, a large number of retail operations for sale at the end of the 1980s, and the company was unable to reach its asking price of about $600 million for Caldor. It therefore in 1989 sold this unit to an investor group, which formed a company called Odyssey Partners L.P., to buy an 80% share. In 1990 Venture was spun off to shareholders, in a tax-free distribution of 0.13 shares of Venture stock for each share of May stock.

In 1990 May acquired Thalhimers, a 26-store group based in Richmond, Virginia. That year May’s sales surpassed $10 billion. From 1991 to 1995, the company planned to open 90 department stores and 1,200 Payless Shoe stores; Volume Shoe Corporation changed its name to Pay less ShoeSource, Inc. in 1990. Among the company’s existing department stores, 11 were earmarked for remodeling, with an increase in size planned for 6 of these. While May stores continued to face keen competition, they had the strength of their stellar reputations. The company went into the 1990s planning to build on this strength with innovative merchandising ideas, while reducing expenses wherever possible.

Principal Subsidiaries

Lord & Taylor; Foley’s; May Company (California); Hecht’s; Robinson’s; Kaufmann’s; Famous-Barr; Filene’s; May Company (Ohio); G. Fox; May D&F; Meier & Frank; Payless Shoe-Source, Inc.; May Merchandising Corporation.