July 9, 2007
Imagine Macy’s with Lampert in Charge
Rumor-meisters rejoice. The current gossip behind the most recent run up in the price of Macy’s shares is that Edward Lampert, chairman of Sears Holdings, is interested in putting his company’s considerable cash to work to acquire the parent of Macy’s and Bloomingdale’s.
Andrew Wilkinson, senior market analyst at Interactive Brokers Group, told The Associated Press, “The takeover rumor was doing the rounds a couple of weeks ago. I don’t think (Edward Lampert’s) name was attached before, but now someone has thrown that one out there.”
Speculation over Macy’s future has grown in recent weeks with analysts claiming to detect unusual activity in the sales of the retailer’s stock. William Lefkowitz, options strategist at brokerage firm vFinance Investments, told Reuters that investors have turned to “buying shares and some options in case something happens.”
Many in and around the retailing business would not be thrilled at the idea of Macy’s in the possession of Edward Lampert.
Jim Ostroff, associate editor of Kiplinger Washington Editors, told the Chicago Sun-Times the popular view would be that “Macy’s and Bloomingdale’s would never see better times again.” He also said he would not be surprised to see Sears Holdings make a run at Macy’s because the company is led by “an individual with a huge war chest and an even bigger ego.”
Mr. Lampert has not been the only one connected to a potential bid for Macy’s. Kohlberg Kravis Roberts (KKR) is among those thought to be possibly interested in making a run at the company.
Neither Sears Holdings nor Macy’s representatives would comment on the speculation.
Discussion Questions: What do you make of the speculation surrounding a possible takeover of Macy’s? What would you expect from a deal that saw Edward Lampert and Sears Holdings acquire Macy’s and Bloomingdales?
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It’s hard to picture a private-equity deal for Macy’s that doesn’t try to keep its current management in place. You can poke a lot of holes in the execution of the Fed/May merger but you can’t deny its strategic validity. Macy’s can still capture some of the moderate promotional business that helped May gain market share in its heyday, to balance its emphasis on “better” and private brands.
But throwing Lampert into the equation would run this train off the tracks. His team has shown little aptitude and less urgency as merchants in managing the Sears/Kmart merger, no matter how much the deal made sense as a financial play. Adding Macy’s to the mix would be a “dream deal” only if you work at Penney or Kohl’s.
Stock prices worldwide are at, or very close to, historic peaks. Whenever this has occurred in the past, when interest rates are reasonably low, merger and acquisition activity soars. Every retailer, like every other stock, is being screened to determine if it’s a worthwhile takeover target. If the financials are strong enough to pay for the projected buyout debt, why not buy the company? And some retailers, like Macy’s, own substantial real estate that might be sold at a profit.
After the buyout occurs, if substantial debt is required, the remaining competitors are likely to breathe much more easily, because a heavily indebted competitor has trouble making big new investments in its business until after the buyout debt is paid off. Retailers need to build new stores, renovate old locations, acquire new technology, etc. All this investment becomes harder if you have to pay off a huge debt first. Wouldn’t you like to have a competitor that can’t easily invest in its business?
For the major shareholders the rumors are exciting to think about the possibility of Edward Lampert and Sears Holdings acquire Macy’s and Bloomingdale’s. However, Kmart is an example of where money doesn’t always buy happiness. Kmart stores are pretty much still in second rate condition. Even since Lampert took over, that retailer remains in clumsy and inept. Macy’s and Bloomingdale’s will not be the same if Edward Lampert and Sears take over the leadership. It’s not that same is always better, but in this case, same is better.
Lampert is known for squeezing value out of his assets. In this case, Federated is vulnerable because it has bungled its attempt to convert local icon brands into a national brand of Macy’s stores. Also, Lampert is basically a real estate dealer and Federated owns many prime properties that might generate a lot of cash.
Frankly, I would be surprised if this really goes anywhere. Carl Icahn took a run at Federated a few years back that just served to run the stock up and Lampert may be doing the same.
If it does happen, look for Federated to be broken up, downsized, and its prime property liquidated.
If Lampert is looking at Macy’s, he could also be looking at Dillard’s, the underperforming southern department store chain that also has a lot of real estate. Meanwhile NDRC Equity Partners could also be looking to acquire Macy’s. They bought Lord & Taylor last year and have said they were looking at other acquisitions.
Okay–I’ll pile on.
There’s no reason to think Lampert would do anything but destroy Macy’s and Bloomingdale’s; Sears and Kmart certainly haven’t improved on his watch.
If he’s made money on those deals, it wasn’t by serving customers–it was by extracting cash from assets or cutting costs, i.e., extracting it from the customer experience.
Apparently he doesn’t need any repeat business.
As a consumer, who liked Kmart for excellent quality men’s casual shirts (Route 66) and housewares (Go Martha) I have found NOTHING to buy in my last four visits in the last 6 months. Just as with Orchard Hardware, too much floor space is taken up with large appliances. (With real estate downturns those items tank). There is just NO stock. As a previous reader wrote, doing the numbers and selling items are TWO very different things. I hope Kmart gets turned around because the lower end of the market needs competition.
Two weeks ago the “rumors” were rampant that KKR was going to do a Macy’s buyout. Now, the “rumors” are that it’s Lampert. The real under-reported story here may be who’s starting these rumors and why. Hint: The only thing about Macy’s that has changed recently is that the stock price has recovered, apparently due to “rumors.”
Mr. Lampert may be able to make the deal for Macy’s, but I have some doubts that he–or anyone–can manage the sheer complexity of a Macy’s/Bloomie’s/Sears/Kmart combo. Financial dealings are one realm, but merchandising to the masses is a whole ‘nother discipline.
Mr. Lampert has done a very good job of ruining what was left of Sears. Since Kmart already had major problems there wasn’t much left to ruin. The concept of ringing all of the extraneous costs out of a business is sound as long as those costs don’t have a significant impact on the customer’s experience, the quality of the merchandise, and the overall store itself. Under Mr. Lampert’s leadership, Sears has continued to lose customers and market share.
Yes, investors are happy, but how long can a retailer continue to lose customers and market share before they start closing stores and trying to rebuild what was once America’s largest retail company.
While Macy’s is undergoing a rebuilding and repositioning process, it would be a real tragedy to see how quickly Mr. Lampert and his team could ruin the good things that are beginning to happen at Macy’s.
This would be a “dream come true”…for Penney’s and Kohl’s. They would essentially be handed the mainstream department store category (which neither really are at present but they both clearly aspire to be perceived as in that category). A “dream come true” because there is absolutely no question that such a purchase would destroy Macy’s.
It’s intriguing, but I don’t see it happening. Doing so gives him greater leverage in lease costs and negotiation with companies like Simon Properties (who is probably more than a bit concerned). Macy’s would provide greater access to soft line brands, a major hole in the current SHLD strategy. A combination of the two companies creates a tiered department store strategy with immense cash flow. Finally, in the Macy’s scenario, Lampert could become a real estate landlord, piecing out real estate within both stores to other brands via store-within-store concepts (see the Lands’ End strategy).
That said, while there’s value in Macy’s, ESL focuses on investments in more distressed businesses. Autozone was in distress when he made his initial investment almost 10 years ago. Kmart was in bankruptcy. And Sears was in perpetual turnaround with a market cap in decline. I believe Lampert’s next move will be to leverage his current real estate assets–perhaps in acquiring a specialty off-mall player, where he can bring that brand inside the Sears store. Macy’s sounds appealing, but not realistic.
If this rumor ultimately proves to be fact, this would be the beginning of the end of the department store era in the US. Residing in Chicago, we have seen Macy’s destroy the Marshall Field’s brand when they rebranded all of the stores under the Macy’s umbrella. But at least they still tried to merchandise product. Macy’s may not have a lot of style, and they may focus on being mundane and safe, but at least they attempt to be retailers and marketers.
Edward Lampert, on the other hand, is not someone who understands merchandising or marketing. While he absolutely understands how to make money, when it comes to being a marketer, he is proof that the Peter Principle is alive and well. He has risen to his level of incompetence.
The problem with the Macy rebranding of the Marshall Field’s stores was the dumbing down of the merchandise selection. Depending on who you listen to, the other May Stores were low end and Macy’s has elevated the merchandise level. So, the former Marshall Field’s division, now Macy’s North has lost significant business due to the rebranding and the other May customers think Macy’s is too expensive. What a disaster! Lundgren will end up destroying what he wants to save–the department store, as the spiral nosedive at Macy’s continues.
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It’s hard to picture a private-equity deal for Macy’s that doesn’t try to keep its current management in place. You can poke a lot of holes in the execution of the Fed/May merger but you can’t deny its strategic validity. Macy’s can still capture some of the moderate promotional business that helped May gain market share in its heyday, to balance its emphasis on “better” and private brands.
But throwing Lampert into the equation would run this train off the tracks. His team has shown little aptitude and less urgency as merchants in managing the Sears/Kmart merger, no matter how much the deal made sense as a financial play. Adding Macy’s to the mix would be a “dream deal” only if you work at Penney or Kohl’s.
Stock prices worldwide are at, or very close to, historic peaks. Whenever this has occurred in the past, when interest rates are reasonably low, merger and acquisition activity soars. Every retailer, like every other stock, is being screened to determine if it’s a worthwhile takeover target. If the financials are strong enough to pay for the projected buyout debt, why not buy the company? And some retailers, like Macy’s, own substantial real estate that might be sold at a profit.
After the buyout occurs, if substantial debt is required, the remaining competitors are likely to breathe much more easily, because a heavily indebted competitor has trouble making big new investments in its business until after the buyout debt is paid off. Retailers need to build new stores, renovate old locations, acquire new technology, etc. All this investment becomes harder if you have to pay off a huge debt first. Wouldn’t you like to have a competitor that can’t easily invest in its business?
For the major shareholders the rumors are exciting to think about the possibility of Edward Lampert and Sears Holdings acquire Macy’s and Bloomingdale’s. However, Kmart is an example of where money doesn’t always buy happiness. Kmart stores are pretty much still in second rate condition. Even since Lampert took over, that retailer remains in clumsy and inept. Macy’s and Bloomingdale’s will not be the same if Edward Lampert and Sears take over the leadership. It’s not that same is always better, but in this case, same is better.
Lampert is known for squeezing value out of his assets. In this case, Federated is vulnerable because it has bungled its attempt to convert local icon brands into a national brand of Macy’s stores. Also, Lampert is basically a real estate dealer and Federated owns many prime properties that might generate a lot of cash.
Frankly, I would be surprised if this really goes anywhere. Carl Icahn took a run at Federated a few years back that just served to run the stock up and Lampert may be doing the same.
If it does happen, look for Federated to be broken up, downsized, and its prime property liquidated.
If Lampert is looking at Macy’s, he could also be looking at Dillard’s, the underperforming southern department store chain that also has a lot of real estate. Meanwhile NDRC Equity Partners could also be looking to acquire Macy’s. They bought Lord & Taylor last year and have said they were looking at other acquisitions.
Okay–I’ll pile on.
There’s no reason to think Lampert would do anything but destroy Macy’s and Bloomingdale’s; Sears and Kmart certainly haven’t improved on his watch.
If he’s made money on those deals, it wasn’t by serving customers–it was by extracting cash from assets or cutting costs, i.e., extracting it from the customer experience.
Apparently he doesn’t need any repeat business.
As a consumer, who liked Kmart for excellent quality men’s casual shirts (Route 66) and housewares (Go Martha) I have found NOTHING to buy in my last four visits in the last 6 months. Just as with Orchard Hardware, too much floor space is taken up with large appliances. (With real estate downturns those items tank). There is just NO stock. As a previous reader wrote, doing the numbers and selling items are TWO very different things. I hope Kmart gets turned around because the lower end of the market needs competition.
Two weeks ago the “rumors” were rampant that KKR was going to do a Macy’s buyout. Now, the “rumors” are that it’s Lampert. The real under-reported story here may be who’s starting these rumors and why. Hint: The only thing about Macy’s that has changed recently is that the stock price has recovered, apparently due to “rumors.”
Mr. Lampert may be able to make the deal for Macy’s, but I have some doubts that he–or anyone–can manage the sheer complexity of a Macy’s/Bloomie’s/Sears/Kmart combo. Financial dealings are one realm, but merchandising to the masses is a whole ‘nother discipline.
Mr. Lampert has done a very good job of ruining what was left of Sears. Since Kmart already had major problems there wasn’t much left to ruin. The concept of ringing all of the extraneous costs out of a business is sound as long as those costs don’t have a significant impact on the customer’s experience, the quality of the merchandise, and the overall store itself. Under Mr. Lampert’s leadership, Sears has continued to lose customers and market share.
Yes, investors are happy, but how long can a retailer continue to lose customers and market share before they start closing stores and trying to rebuild what was once America’s largest retail company.
While Macy’s is undergoing a rebuilding and repositioning process, it would be a real tragedy to see how quickly Mr. Lampert and his team could ruin the good things that are beginning to happen at Macy’s.
This would be a “dream come true”…for Penney’s and Kohl’s. They would essentially be handed the mainstream department store category (which neither really are at present but they both clearly aspire to be perceived as in that category). A “dream come true” because there is absolutely no question that such a purchase would destroy Macy’s.
It’s intriguing, but I don’t see it happening. Doing so gives him greater leverage in lease costs and negotiation with companies like Simon Properties (who is probably more than a bit concerned). Macy’s would provide greater access to soft line brands, a major hole in the current SHLD strategy. A combination of the two companies creates a tiered department store strategy with immense cash flow. Finally, in the Macy’s scenario, Lampert could become a real estate landlord, piecing out real estate within both stores to other brands via store-within-store concepts (see the Lands’ End strategy).
That said, while there’s value in Macy’s, ESL focuses on investments in more distressed businesses. Autozone was in distress when he made his initial investment almost 10 years ago. Kmart was in bankruptcy. And Sears was in perpetual turnaround with a market cap in decline. I believe Lampert’s next move will be to leverage his current real estate assets–perhaps in acquiring a specialty off-mall player, where he can bring that brand inside the Sears store. Macy’s sounds appealing, but not realistic.
If this rumor ultimately proves to be fact, this would be the beginning of the end of the department store era in the US. Residing in Chicago, we have seen Macy’s destroy the Marshall Field’s brand when they rebranded all of the stores under the Macy’s umbrella. But at least they still tried to merchandise product. Macy’s may not have a lot of style, and they may focus on being mundane and safe, but at least they attempt to be retailers and marketers.
Edward Lampert, on the other hand, is not someone who understands merchandising or marketing. While he absolutely understands how to make money, when it comes to being a marketer, he is proof that the Peter Principle is alive and well. He has risen to his level of incompetence.
The problem with the Macy rebranding of the Marshall Field’s stores was the dumbing down of the merchandise selection. Depending on who you listen to, the other May Stores were low end and Macy’s has elevated the merchandise level. So, the former Marshall Field’s division, now Macy’s North has lost significant business due to the rebranding and the other May customers think Macy’s is too expensive. What a disaster! Lundgren will end up destroying what he wants to save–the department store, as the spiral nosedive at Macy’s continues.