Federated to Invest in Online Sales

Cincinnati, OH, January 26, 2006--Federated Department Stores announced it plans to invest approximately $130 million in capital over the next two years in infrastructure improvements and service enhancements to support continued growth of its direct-to-consumer businesses, including macys.com, bloomingdales.com, Bloomingdale's By Mail, macysweddingchannel.com and bloomingdalesweddingchannel.com. "Online sales represent the fastest-growing part of our business and an outstanding opportunity for continued progress as we serve millions of new customers nationwide through our acquisition of May Company," said Terry J. Lundgren, Federated's chairman, president and chief executive officer. "Our customers have told us they appreciate the convenience of shopping online as well as in our stores. This cross-channel integration is a vital component of our ability to maximize the potential of the nationwide Macy's and Bloomingdale's brands. "With the initial steps of our planned improvements scheduled to be in place by spring 2007, we expect our direct-to-consumer sales to grow to more than $750 million by 2008 from about $450 million in 2005," he said. These investments are part of the company's capital plan for spending $1.6 billion in 2006 and between $1.1 billion and $1.2 billion in 2007. Investments include: Upgrading and enhancing content and order management software systems that support Internet-based selling functions. These systems will help handle increased traffic and order capacity, as well as improve service levels, enhance efficiency, facilitate additional personalization of gift packages, and provide customers with more detailed information on order status and delivery schedules. Constructing a new 595,000-square-foot distribution center designed specifically to handle direct-to-consumer orders and supported by a tailored warehouse management system. Groundbreaking for the new facility, to be built in Portland, Tennessee, is expected in February 2006, with completion in spring 2007. Currently, online orders are being fulfilled from several Federated distribution centers that primarily supply the company's stores. "Our online businesses have performed very well over the past several years, with consistent double-digit sales growth rates and improving profitability," Lundgren said. "To maintain the momentum, we recognize we need to invest to better serve additional customers who want to shop online for the type of fashion merchandise we sell, especially as Macy's and Bloomingdale's expand their store presence nationwide. We are very serious about capitalizing on this opportunity."