So, the Kohl’s deal is off and the tire-kickers at The Franchise Group aren’t going to get the keys to Menomonee Falls. Meanwhile it appears that Bed Bath & Beyond is not likely to sell its buybuyBaby banner since its value seems to have diminished in the ongoing meltdown of the parent company. JCPenney could only find its landlords to buy it. And Hudson’s Bay had to go private because investors just weren’t interested in taking a flyer on the stock.
We are once again in a time when you have to ask, “Who wants to buy a retailer?”
Retailing corporations as an acquisition have always been an intriguing option. History is full of strategic purchases where one retailer buys another. The old Federated, Allied, May and Dayton Hudson amalgamations were largely built that way. Today’s Macy’s monolith is very much the result of a countless series of mergers and acquisitions. Most of these deals have worked out in varying degrees of success.
But retailers bought by outside investors, that’s another story entirely. The most recent poster child for such endeavors is of course Fast Eddie Lampert, with his conquest of Sears and Kmart, once each the largest retailer in the country and now essentially ghosts operating a few remaining locations on the periphery of shopping existence, the textbook example of how to destroy a company.
But there’s also Toys’R’Us, Linens’n’Things, Belk (though still around and trying to hang in there) and countless other brands that are mostly now memories. The financial fact of the matter is that retail operations, no matter how successful they are, rarely generate the amount of cash needed to service debt levels incurred in takeovers. The numbers just don’t work.
Not that it stops new investors from making new deals. And here’s why: The special dividends, management fees, assorted monies kicked upstairs and all the other perfectly legal bookkeeping stunts that enrich the new owners usually come at the expense of the long-term health and wellness of the retail business itself but as a business model it often makes sense for a deal to be done.
So, the current crop of retailers du jour in play are by no means immune to waking up one day and finding a new corporate overlord. Kohl’s can keep fighting the good fight but there are more Franchise Group-type buyers out there and with its stock price now below $30 as of this morning, you have to figure the real bottom feeder types are circling for the kill. Kohl’s, sadly, is too cheap to flail.
As for buybuyBaby, it’s a good business and someone – be it the current owners or new ones – is going to find this attractive. But in fact Bed Bath & Beyond, with a book value of barely $355 million, is itself a tantalizing takeover target. Even more, going private could be a real option if things don’t improve quickly.
There’s some sort of an adage in physics that says a body in motion stays in motion. I was a liberal arts major so I’m not exactly sure what it means but all of these troubled retailers are not going to just suddenly recede into the landscape. This urge to merge, purge and regurge is far from over.
Who wants to buy a retailer? Somebody.