After a long and rocky courtship, Federated Department Stores got its bride to say yes. In announcing the $17 billion merger with May Department Stores Federated CEO and chairman Terry Lundgren acknowledged that he has been "waiting for this day for two years" for this day.

Following close on the heels of the investor Eddie Lampert’s deal to combine Sears and Kmart—and eight months after the sale of Marshall Field's—the merger raises questions about the viability of department stores in the age of Wal-Mart. Indeed, the New York Times’ coverage included a quasi-obituary for the kinds of stores where merchant prince’s lured shoppers with exotic goods and imaginative promotions. And one of the effects of the merger will be the demise of storied regional names such as Hecht's, as Federated fits 950 department stores in about a dozen chains into two main brands: Macy’s and Bloomingdales.

Lundgren, naturally, argues that the merger is not a sign of the end, but of the "reinventing" of department stores. Still, before the retail real estate industry sees any payoff from that renaissance, there will be some pain, including the loss of some anchors at regional malls served by multiple May and Federated chains. Federated won't speculate on how many--if any--stores it will close. But analysts put the figure at somewhere between 50 and 200. Moreover, while May's venerable Lord & Taylor and Marshall Field's brands may survive the merger, Federated is likely to subject May's lesser banners, such as Hecht's and Robinsons-May, to the same program that has seen it phase out its regional chains.

In the past year, Federated began the process of nationalizing its brands by hyphenating many of its regional chains such as Burdines and Riches with the Macy's surname. On March 6, the regional names will disappear forever and the stores will carry only the Macy's name. The merger also expands Federated's exposure from 35 to 49 states and introduces Macy's to cities such as Chicago and Denver, where the Foley’s chain could become Macys. All told, Federated will have stores in 64 of the top 65 markets in the U.S. Its annual sales revenue will jump from 15.4 billion to $30 billion. That will make it the biggest department-store chain of all time, but it will still pale beside the $262 billion, 3,600-store Wal-Mart.

For the moment, mall owners are publicly upbeat about the deal, noting that even if some anchors are lost, centers will most likely be able to release space to another store at a higher price or break up the buildings and generate more rent from inline stores.

“We feel that this merger is very good for the industry and especially for the consumer. We look forward to working closely with the combined new company in the coming months and years,” said Simon Property Group in statement issued Monday.

"The only response we've had so far has been positive," Lundgren said at a press conference in New York Monday. "They've supported consolidation in the past. They've been to able to change some dead anchor space into gross leasable area that works better for them."

Under Lundgren’s watch, Federated has been pushing the development of its private label business to the point where it now accounts for 17 percent of the company’s sales. Federated has also tried to bring in more merchandise only available at its stores as a way of retaining shoppers. Today, about one-third of the items on its shelves can be purchased only through Federated. After the merger, Federated will have a “style off” where May and Federated private label goods are put head-to-head to find which are the strongest brands.

Also, by making Macys a nationwide brand, Federated will be able to alter its marketing strategy from local to national.

“That means going on the networks and advertising with the big shows,” Lundgren said.

If the department store is being reinvented, what does that say about the future of the regional malls that were created to house them? Since the heyday of the enclosed mall in the 1970s and 1980s the merchandising equation has been completely reversed; instead of three dominant department store anchors connected by avenues of often inconsequential inline tenants—malls are increasingly dependent on a an assortment of specialty stores to drive foot traffic. As department stores have shed entire product lines, from housewares to books, developers are finding new tenanting strategies. Particularly in town centers developers have found that the new anchors and traffic-drivers are specialty stores, such as Gap, Limited and Pacific Sunwear, and, increasingly, big-box outlets like Bed Bath & Beyond.

Perhaps the most telling development is Westfield Corp.’s decision to incorporate a two-level Wal-Mart into a Westfield Shoppingtown Parkway, a new project in El Cajon, Calif. The lines are being blurred between what were distinct retail destinations. Discounters are joining them mix at regional malls, department stores are opening freestanding locations in urban settings and lifestyle centers. Different classes of retail are beginning to coexist. Elsewhere, Westfield’s $300 million redevelopment of Westfield Topanga (Calif.) will result in the first property in the country with both a Target and a Nieman Marcus.

The immediate issue for retail REITs and other owners is determining the future of overlapping May/Federated product. Most of the big REITs—Simon, General Property and Westfield—have 10 or more properties where two or three anchors will be part of the same chain, post-merger. Simon Property Group has 22 properties with two or more anchors owned by Federated and May. General Growth Properties has 19; Westfield has 14 and Macerich Co. has 12.

In the short term, the merger will have little impact. Because of its size, the deal faces a lengthy approval process. Shareholders and the Federal Trade Commission must sign off. Company executives don't anticipate getting the deal cleared for at least two quarters. But then they will be facing the holiday shopping season. So changes will not kick in until the first quarter of 2006 at the earliest.

-- David Bodamer