Department Store Consolidation Could be On the Horizon, According to Bear Stearns.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 29, 2001

Department stores are likely to experience a wave of consolidation, according to the latest report from Bear Stearns retail analyst Steven Kernkraut. The new report, entitled "To Live or Let Die?" argues that consolidation will allow the department store business model to thrive well into the future. "Through mergers and acquisitions, department stores should be able to increase their strength and fend off discount stores and specialty stores that continue to eat away at their market share," Kernkraut said. The Bear Stearns analyst believes the industry will be consolidated around three strong players--Kohl's (NYSE: KSS), Federated Department Stores (NYSE: FD) and May Department Stores (NYSE: MAY). "Most of Kohl's growth should come from new store construction, but we expect Federated and May to be active acquirers of quality locations," Kernkraut said.

In addition to consolidation, department stores need constantly to reinvent and reengineer their business models in order to prosper, Kernkraut believes. Targeting customer focus, improving merchandising techniques and adding shopping excitement are all ways department stores can stay ahead. "Kohl's has created a `wow' concept and Federated's private labels have become a point of differentiation," Kernkraut said. "It is now up to J.C. Penney, Sears, Dillard's, Saks, and Nordstrom to rise to the challenge before it's too late."

Despite challenges that face the industry, Kernkraut believes department stores are very resilient and provide some attractive investment opportunities. Kohl's, Federated and May all exceeded earnings estimates this past quarter and continue to succeed thanks to shrewd promotions, strong private label sales, tight expense and inventory management and excellent vendor relations.

Members of the Press

To receive a full copy of the Bear Stearns Department Stores report or to speak with Steve Kernkraut, members of the press can contact Michelle O'Brien on 212-272-6659.

Founded in 1923, Bear, Stearns & Co. Inc. is a leading worldwide investment banking and securities trading and brokerage firm, and the major subsidiary of The Bear Stearns Companies Inc. (NYSE:BSC). With approximately $25.8 billion in total capital, Bear Stearns serves governments, corporations, institutions and individuals worldwide. The company's business includes corporate finance and mergers and acquisitions, institutional equities and fixed income sales, trading and research, private client services, derivatives, foreign exchange and futures sales and trading, asset management and custody services. Through Bear, Stearns Securities Corp., it offers prime broker and broker dealer clearing services, including securities lending. Headquartered in New York City, the company has approximately 11,000 employees located in domestic offices in Atlanta, Boston, Chicago, Dallas, Denver, Los Angeles, San Francisco and San Juan; and an international presence in Beijing, Buenos Aires, Dublin, Hong Kong, London, Lugano, Sao Paulo, Seoul, Shanghai, Singapore and Tokyo. For additional information about Bear Stearns, please visit the firm's Web site at www.bearstearns.com.