• by Sarah Mahoney  @mahoney_sarah, October 6, 2006

So far, so good for the new Macy's, which was launched early last month with an aggressive marketing campaign. Federated Department Stores announced that September sales for existing Macy's and Bloomingdale's stores were up 6.2 percent over last year, beating their original forecast of gains from 3 percent to 5 percent.

"Increased national marketing support led to better-than-expected results in our ongoing Macy's stores," the company said. "In addition, sales trends improved in the former May Company locations."

Still, total Federated sales decreased by 6.5 percent to $2.303 billion for the period, which the company attributed to elimination over the year of 78 stores as part of the merger. The company does not break out how stores fared that were converted to Macy's just last month. These include Marshall Field, Filene's and other May stores.

At least one industry observer suggests it's too early to celebrate.

"Given the macroeconomic climate that gave so many retailers strong gains in September, as well as the national ad campaign that's driving traffic, I'm not so sure that a 6.2 percent increase is anything to crow about," says Love Goel, a former executive for Federated, and chairman and CEO of Growth Ventures Group, a Minneapolis-based retail investment firm.

Target, for example, announced that its sales for the same period rose 6.7 percent. J.C. Penney saw its sales jump 8.7 percent, and Nordstrom reported a 13.4 percent gain.

Federated is struggling with many of the same issues that have bedeviled mainstream retailers for years, Goel says. Sales at Dillard's, another old-line department store chain, he noted, were flat for the period.

"In the short term, the Federated/May deal has been a no-brainer," Goel says, because Federated is a better store operator and could easily improve performance at the poorly run May stores. But the cash needs to be put to use.

"Federated is reaping the benefits of scale, and the merger will allow it to generate the cash it needs to get back to its roots of innovation," Goel says, citing the underlying challenge as one of format.

"Department stores have become increasingly irrelevant, and have been losing share for years," he says. "Sales per square foot tend to be less than half what they are at specialty retailers. They're a fundamentally flawed model--it's just not how people shop anymore."