Is the Penney/Kohl’s Mash-Up a Marmaxx Kind of Deal?

The news that Simon Property and Brookfield – the de facto owners of JCPenney – may be making a bid to buy Kohl’s has been greeted with surprise, incredulous outrage and, probably most of all, blank stares.

What are they thinking seems to be the general consensus reaction.

Kohl’s is under siege from multiple directions with various private equity investors, perhaps strategic partners and anybody with retail money burning a hole in their virtual pockets snooping around Menomonee Falls kicking the tires. Exactly who – if anybody – will get the keys to the front door could be decided in the next several weeks in the runup to the company’s annual shareholders meeting on May 11. Only hardcore gamblers and wildcatters would be willing to make a bet on how it turns out and the fact that Kohl’s stock is trading in a fairly narrow $10-plus-or-minus range since January when the first reports of outside interest surfaced would seem to indicate Wall Street is quite unsure what will happen as well.

And while some of the interested parties are reportedly looking at breaking up Kohl’s into online and in-store segments or otherwise financially manipulating the company, none of the suitors seem to be all that focused on working on how to make the retailer itself better.

Which is why the reported Simon/Brookfield interest is so intriguing. Since they took control of Penney some 18 months ago they have slowly – excruciatingly slowly – worked to fix the company, bringing in a new CEO and launching some less-than-overwhelming initiatives. There is also the underlying sense that this deal is much more about real estate than retailing. But while you can argue with the sense of urgency there, much of what they are doing makes some degree of sense though there’s no certainty they will succeed in the long run.

Should they get control of Kohl’s once can assume they will bring a similar gameplan with them…though once again its ultimate success remains questionable. Reports are that they plan to keep the two brands separate while combining many of the back-of-the-office operations. Makes sense.

But the intriguing thing is that there is a precedent for this sort of thing. When the TJX Corp. bought Marshalls in 1995 many people questioned the deal, looking at the redundancy of the two operations and wondering how they could possibly run the two brands in tandem.

But that is exactly what they have done and quite successfully too under the Marmaxx umbrella. With combined merchandising and operations, TJX has been one of the most profitable retailers in the business for more than a decade. And now it appears they are doing the same thing in the home space, ramping up their HomeSense banner to complement HomeGoods. The model works…and works well.

Which is not to say a Penney/Kohl’s mashup would do the same. Retail history is full of far too many examples of companies that have run overlapping brands…usually into the ground. Most recently Bed Bath & Beyond couldn’t make its hook-up with Cost Plus/World Market work smoothly but big companies like the Kmart of the 1990s, Dayton Hudson when it ran department stores, Target and Mervyn’s and many others failed with this strategy.

So, while the rumors surrounding this latest possible hook-up might initially produce confused reactions, there is history behind such a deal working..even if there’s more to suggest it won’t.

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