When the war came home to America in 1941, Federated responded with the resolve of a company dedicated to community and civic support. Selling war bonds, volunteering with the Red Cross, helping in Victory Gardens and participating in USO events became part of its daily business. Thirteen percent of Federated's workforce fought in the war, and 56 died in action.

As the nation went on to recover from the strife of a long war, Federated surged forward into a new era of the company's history. It was about to embark on a new venture sparked by another epiphany credited to Mr. Fred. During a trip to Houston, TX, in 1944, he was astonished to find that the sizeable city had not a single department store. It became obvious to him that Federated had to begin acting on such opportunities that were there for the taking. Upon his return, he convinced Federated's directors that remaining a holding company was no longer conducive to achieving the kind of success possible in the country's booming retail industry. He suggested a bold transition to an operating company that could take advantage of the incredible growth and expansion opportunities that lay ahead. After much debate and some resistance, the directors agreed and Federated was reconstituted as an operating company in 1945, with Fred Lazarus as its president and Cincinnati as its headquarters.

Federated's first priorities as an operating company were expansion and acquisitions that spanned the late 1940s to the early 1960s. By 1964, it was prospering at an extraordinary pace. Its number of divisions had expanded from the original five to an impressive 14, and annual sales for the first time had skyrocketed to more than $1 billion. The growth continued steadily into the 1970s as Federated mirrored the population trend of expansion to the suburbs. New malls and shopping centers were springing up everywhere, and Federated was there to satisfy the new demand for a retail presence in suburbia. This new trend played a major part in the growth of Federated between 1964 and 1979, when its number of stores increased 400 percent and annual sales quadrupled to $4.8 billion.