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THE MATRIMONY MARKET

Federated cashed out of the bridal business, but other retailers are cashing in

By Rodger Brown

Kara Hudson is the future of the American wedding industry. She’s 26, a graphic designer, and, while braving the pre-Christmas crowds, she is picking out her fiancé’s tuxedo at After Hours, at Phipps Plaza, in Atlanta. “He’ll have four groomsmen, and I’ll have four bridesmaids,” she says, describing her May wedding. “He said he wanted to do something crazy, like wear kilts, but I said: ‘No way! You’re wearing a tux!’”

According to an October study of the wedding industry by the Mercanti Group investment banking firm, there will be nearly 4 million people turning 27 each year between now and 2030. These “echo boomers” — the children of the baby boomers — will be entering the “engagement zone,” the age at which most people get married, at a greater rate than has been seen since their parents began setting demographic records themselves 30 years ago.

With brides like Hudson leading the way, the echo boomers “will provide an ample supply of brides and grooms for the next 20 to 25 years,” the report concluded.

And not only will there be an increasing number of these couples taking the big leap, they will be going off the cliff clutching bigger fistfuls of cash than ever. Since 1990, the average cost of a wedding has nearly doubled to about $28,000, according to The Condé Nast Bridal Group, and that does not include the engagement ring or the honeymoon.

“The number of weddings has stayed pretty consistent — around 2.3 million a year,” said Dave Remick, the Mercanti Group principal who authored the wedding industry report. “That number will either stay where it is or go up.” And though census data show that more couples are living together longer before marrying, “growth in the $100 billion wedding industry certainly isn’t showing any signs of slowing.”

So, given Federated Department Stores’ announcement last November that it had finally found buyers for its Bridal Group, one could feel that Federated is walking away from quite a party. The company said the 269 David’s Bridal stores and 10 Priscilla of Boston stores were going to a private equity firm, Leonard Green & Partners, for $750 million. Meanwhile, the 511 After Hours Formalwear stores — the country’s largest tuxedo rental chain — got added to the 743 Men’s Wearhouse stores throughout the U.S. and Canada, bringing that chain’s ready supply of rentable tuxes up to 3 million. Federated had acquired these three names when it bought May Department Store Co. in the fall of 2005 and made it clear shortly afterward that it planned to sell them.

With Federated’s divestiture of the Bridal Group, it has completed the last of the strategic moves it had outlined following its $17 billion acquisition of May. “While the Bridal Group did not fit with Federated’s strategy for focusing on the nationwide Macy’s and Bloomingdale’s brands, we do believe these businesses have a promising future under the [new] owners,” Federated CEO Terry Lundgren said in a press release. Federated wanted to shed the Bridal Group so that it could focus on Macy’s and Bloomingdale’s, says James Sluzewski, a Federated spokesman. “We put it up for sale,” he said. “We have a buyer, and we presumably will close the transaction the first quarter of 2007. It’s pretty straightforward, nothing complicated.”

But though the sale is the end of the story for Federated, it represents a new chapter for Men’s Wearhouse. One of the leading specialty retailers in men’s apparel, Houston-based Men’s Wearhouse has been building its tuxedo rental business since 1999, when it began testing the service in 12 stores. By the next year, the chain was offering tux rentals at 127 stores and boasting that it would roll the services into nearly every one of its stores within two more years. The company made good its boast. In 2005, between Men’s Wearhouse and its Canadian brand, Moores Clothing for Men, the company rented over 1 million tuxedos. The After Hours acquisition triples its formal-wear closet.

“We are extremely pleased to announce this acquisition as we execute our strategy to be a market leader in men’s tailored clothing categories and related services in North America,” said George Zimmer, founder and CEO of Men’s Wearhouse, in a press release. Ken Dennard, a Men’s Wearhouse spokesman, said at press time that the company was excited about the purchase but that it would not elaborate until the closing of the deal sometime in early 2007. “When they close the deal, we will have a whole new level of data points we can share,” Dennard said.

Just as Men’s Wearhouse is postponing detailed disclosure of its plans, so is Leonard Green & Partners. But Jonathan Seiffer, managing partner, explained his firm’s purchase to The Daily Deal just after the announcement. “What we really like about [Federated’s] bridal business is it’s the dominant provider of bridal products in the U.S.,” Seiffer said. “It’s a pretty stable, growing business with good demographics. It’s a relatively recession-resistant product because people continue to get married in good times and bad.”

Remick agrees, noting that a key point of his study is that the wedding industry, while flourishing, remains highly fragmented because most of the activity is related to smaller, local businesses: catering, photography, facilities rental and the like. There are few pure-play investment strategies in the sector, he says, but Federated’s Bridal Group was one of the choicest. Remick advises companies desiring to benefit from the wedding sector not to focus on courting brides full time. Instead, they should adapt part of their existing business to capture some of the bridal activity, he says, pointing out that Men’s Warehouse is unusual in having been able to implement both strategies.

Even before the purchase, Mercanti was highlighting Men’s Wearhouse as an example of an effective adaptation strategy in growing its $20 million-a-year tuxedo rental business. “Not only does the rental business provide an incremental, higher-margin revenue stream, but it also drives additional customer traffic to Men’s Wearhouse stores, where they can get information on the groomsmen and begin to build relationships,” Remick said.

The core business of Men’s Wearhouse remains menswear, Remick says. “But if you have a relationship with the groom, you’re going to get three-to-10 guys coming into your store,” he said. “The tux rental will drive incremental traffic. That gives them a chance to establish a relationship with them. Guys who never thought about going to Men’s Wearhouse will find themselves there and maybe take a look around while waiting for the clerk to finish up the work.”

But optimistic as Remick seems otherwise, he hedges his forecast of the future a bit. “There are trends within the greater trends,” he said. “As you see more and more dollars spent on weddings, formal wear is only one aspect of it. Look at destination weddings and how fast they’re growing. People don’t wear tuxes on the beach.”