Macy’s to Join Ranks of Retailers Going Private?
Here’s something interesting to consider: Mergers and acquisitions were up $33 billion in the first half of this year, according to a July 9 article in DM News. A recurrent hot topic in the retail sector is the rumored possibility that various venture capital firms (Kohlberg Kravis Roberts & Co. earlier this summer; Vornado Realty Trust and ESL Investments Inc. last week) are is considering whether to buy Macy’s, formerly Federated Department Stores. As the second-largest department store chain in the U.S., Macy’s sale would rank among the largest acquisitions of retailers in history, right up there with the 2005 buyout of K-Mart and Sears/Lands’ End, which was led by the same person, investor Edward Lampert, who runs ESL Investments Inc. Other private equity purchases in the last few years have included retailers such as Lord & Taylor, Neiman Marcus, and Linens ’n Things. Istithmar, the investment arm of the government of Dhubai, has won a bidding against Japan’s Fast Retailing for Barneys New York.
What would such an acquisition mean for a retailer the size of Macy’s? Will there be a breakup and sell-off of some of the assets and stores that are not performing? Closing non-profitable stores?
Meanwhile, Macy’s has launched a major new ad campaign based on celebrities—Martha Stewart, Sean Combs, Jessica Simpson—in an attempt to develop a coherent image for the giant Macy’s family of department stores created by the acquisition of May Co. The going has been rough. Macy’s sales were down 77% for the second quarter this year (although same-store sales were up 2.4% in August); and protesters showed up earlier this month at Macy’s Chicago State Street store demanding that the store be returned to its historical identity of Marshall Field’s. To make the new ad campaign more interesting behind the scenes, two senior marketing executives have jumped ship this year, Macy’s Chief Marketing Officer Anne MacDonald, who left in June, and just last week, Brad Jakeman, the executive vice president of marketing.
Extrapolate all this activity to the direct-to-customer, multichannel business world—does this kind of venture capital acquisition/consolidation represent the wave of the future for catalogers to become profitable? We’re thinking here of recent acquisitions by such VC firms as Golden Gate Capital, which owns Haband, Catalog Holdings (which owns Spiegel, Newport News, Carabella, AB Lambdin, Norm Thompson, Solutions, Sahalie, Appleseed’s, Draper’s & Damon’s, and The Tog Shop), and Sun Capital Partners (which owns Lillian Vernon, Sharper Image, and Hickory Farms). What are the implications of this kind of ownership? How long will the VC companies hold on to these catalog titles, and just what does it mean for the companies that have been acquired?