Bold Move

Financial analysts will argue that a holding company like Federated doesn’t need to have a corporate brand, that the only thing that counts are the financial results. I suggest that they wake up and face reality.

By proposing to change its name to Macy's Group Inc., Federated is doing what it should have been done long ago – treating their corporate brand like a business asset.

As a corporate brand, Federated Department Stores is a laggard. Of the 36 retail corporate brands tracked in the Corporate Branding Index, a brand equity measurement system that is managed and owned by CoreBrand, Federated is at the bottom of the barrel in terms of familiarity, brand power and brand equity. Macy’s will likely be near the top, which means that given time, this will prove to be a very smart move.

Following in Target’s Footsteps

Brand equity for Federated (a calculation of how much value is being contributed to the market cap based on the corporate brand) is only 2.28%. The category average is 11.36% and the best in the retail category is 19.32%.

With this move, Federated seems to be following in the footsteps of Dayton Hudson Corp.’s highly successful name change to Target Stores back in 2000. Target created energy and excitement behind its corporate brand, but most importantly it created tremendous value by treating the corporate brand as an asset.

Consider the brand equity scores for both retailers over the last three years. While the retail category grew modestly, Target’s corporate brand equity grew by 2.47% or an improvement of $3.48 billion of market cap directly relating to the corporate brand. Federated, on the other hand, has lost ground in the retail category. (See chart below.)

Keys to Success

If shareholders vote to go forward with Federated’s proposed name change, it should consider some of these keys to success in a major name change:

• Be decisive – do it and don’t look back.

• Develop a clear strategy and announce it to the world.

• Let your employees know why you are making this change.

• Share your vision with Wall Street.

• Spend enough on the change to make it look like you mean it.

• Be patient – the dividends for this type of move take 3 years minimum.

Federated must remember: Financial performance counts. But so does intelligent strategy.

James Gregory is ceo of CoreBrand, a branding firm based in New York.