Last month, Macy’s announced plans to cut more than 10,000 jobs and close some of its 880 stores. Terry Lundgren, its chief executive and the architect of Macy’s last big merger, is expected to step down by the end of March. He will be succeeded by the company’s president, Jeffrey Gennette.
Since the recession, shoppers have grown accustomed to hunt for bargains and to not pay full price. Discount stores and outlet malls have flourished. Traditional stores have been compelled to respond by trimming prices, which cuts into their margins.
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Departments stores have been hit especially hard, particularly as shoppers migrate away from malls. What has emerged, analysts say, is a virtual race to the bottom.
That has been particularly difficult for Macy’s, born of a series of mergers over the past two decades that made it a juggernaut in the industry. A stalwart of the middle tier of retail, the company has neither the advantages of low-cost retailers like H&M nor the highest-end stores.
In addition, Macy’s faces increasingly fierce competition online from sites like Amazon and elsewhere. Macy’s troubles have drawn the attention of a prominent activist hedge fund, Starboard Value, which has urged the company to generate cash by selling the real estate beneath its stores.
Starboard, which held just under 1 percent of Macy’s shares as of Sept. 30, had previously estimated the value of that land at about $21 billion. On Friday, analysts at Citigroup estimated that Macy’s real-estate holdings could be worth at least $18 billion. Macy’s market value, by comparison, was just under $11 billion as of Friday morning.
Macy’s has taken some steps to sell or redevelop stores, and last year, it added an expert on real estate transactions to its board. But the company has largely resisted more ambitious efforts to divest its real estate, including so-called sale-leaseback deals, in which a company sells the underlying land beneath its stores and then rents it back.
The company’s suitor, Hudson’s Bay Company, is far smaller — its market value was about 1.9 billion Canadian dollars, or $1.5 billion — but is known for its bold steps. Hudson’s Bay Company has assembled a growing empire that includes the Hudson’s Bay department store chain, Lord & Taylor and its crown jewel, Saks.
And the governor and executive chairman of the Hudson’s Bay Company, Richard Baker, has shown little fear of using debt: In November 2014, the company borrowed nearly $4 billion against the Saks flagship in Midtown Manhattan. He has spoken often of retailers’ need to highlight the value of their real estate.
Financing a bid for Macy’s may be trickier, however, because the it carries about $6.5 billion in long-term debt. That may mean that the Hudson’s Bay Company will have to bring in a partner or borrow against more of its real estate holdings.
A spokesman for the Hudson’s Bay Company declined to comment on the talks, which were reported earlier by The Wall Street Journal. “We do not comment on rumors and speculation,” a representative for Macy’s said.
A representative for Starboard Value did not respond to a request for comment.
Some analysts said that they saw the merit of a potential combination, particularly given Macy’s operational woes and Mr. Baker’s expertise in wringing money out of real estate.
“There is a clear logic, despite disparity in size/market cap” between Macy’s and Hudson’s Bay Company, Craig Johnson, the president of Customer Growth Partners, a research firm, said in a note.
Referring to Macy’s stock ticker symbol, he added, “The retail market has been changing faster than M has been able to keep up with, whether the flight from the mall or the migration online.”
Source: The New York Times