Macy’s received an offer well above the market price to buy out all outstanding shares. It rejected the offer.
Buyout Offer
On December 1, Reuters reported Macy’s Investors Mount $5.8 Billion Buyout Bid
An investor group consisting of Arkhouse Management and Brigade Capital has made a $5.8 billion offer to take department store chain Macy’s (M.N), opens new tab private, according to a person familiar with the matter on Sunday.
Arkhouse Management, a real-estate focused investing firm, and Brigade Capital Management, a global asset manager, submitted a proposal to acquire the Macy’s stock they don’t already own for $21 a share on Dec. 1, the person said.
J.P. Morgan analysts estimate Macy’s total real estate value at about $8.5 billion, or $31 per share, including the iconic Herald Square property worth about $3 billion.
Macy’s to Cut 2,350 Jobs, Close Five Stores
On January 18, the Wall Street Journal reported Macy’s Announced 2,350 Job Cuts.
Macy’s plans to lay off about 13% of its corporate staff and close five stores in a bid to trim costs and redirect spending to improve the shopping experience for customers.
The job cuts total roughly 2,350 positions, or 3.5% of Macy’s overall workforce excluding seasonal hires, according to a memo sent to employees Thursday afternoon and people familiar with the situation.
Macy’s plans to add more automation to its supply chain and is outsourcing some roles, according to the memo, which didn’t specify which jobs. It’s also reducing management layers to speed decision-making.
The company will be investing in areas that impact consumers, such as adding more visual display managers to enhance the look of stores and upgrading digital functions to make online shopping more seamless, one of the people said.
Macy’s Rejects Offer
On January 21, we learned Macy’s Rejects Arkhouse’s $5.8 Billion Bid.
“The Board has determined not to enter into a non-disclosure agreement or provide any due diligence information to Arkhouse and Brigade,” Macy’s said in a statement, citing “a lack of compelling value” in the proposal.
Macy’s also said that information furnished by Arkhouse and Brigade “failed to address the Board’s concerns regarding Arkhouse and Brigade’s ability to finance their proposed transaction.”
Macy’s said it had concerns with the uncommitted financing that had numerous non-standard preconditions.
The investment firms’ bid has spotlighted how undervalued Macy’s is relative to its real estate, which is projected by analysts to be worth between $7.5 billion to $11.6 billion.
Macy’s owned 316 of its 722 total stores as of the end of January, according to its most recent annual report.
Two Possible Reasons for the Offer
- Arkhouse wanted to drive up the share price for the shares it owns.
- Arkhouse actually believes the property is worth more than its bid
Macy’s Daily Chart
The above chart has me wondering: Who knew what, well in advance of the Arkhouse offer.
I also wonder if Arkhouse really wanted to buy Macy’s or if the whole intent was to drive up the share price.
Department Stores Getting Killed by Online Sales
I created the chart by taking total sales and subtracting things one does not normally buy online.
Gasoline is obvious, so is eating out at restaurants.
Although one can buy groceries online and have them delivered, most do not order much food online. Omaha steaks and Christmas cheese packages don’t add up to much. I subtract groceries from the total.
The same applies to cars. Most do not buy cars online. But I am sure this will change eventually.
On January 20, I asked How Did Covid Change Your Propensity to Buy Things Online?
Covid did not change the trend towards online shopping but it certainly accelerated the trend.
Progression
- In 1992, about 9 percent of sales were online
- In the next eight years online sales rose to about 12 percent.
- In another eight years ending to the start of the covid recession, online sales were at 15 percent then dipped in the recession.
- In the 10 years starting from 2010 to 2020 online sales zoomed from 15 percent to 26 percent.
- In the last four years online sales jumped over eight percentage points from about 26 percent over 34 percent, ignoring the initial covid spike.
Every step of the way, department store sales as a percentage of sales went the other way.
On top of that, we have shoplifting issues.
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I am sure Macy’s is in better locations, but what is the upside?
Are millennials and zoomers suddenly going to reverse course and head to department stores?
If the Macy properties are really worth $11 billion, not the $5.8 billion offered, then for what use?
This whole thing is more than a bit curious from many angles. But I can’t quite put my finger on which angle is right.
Could it be the standard play of strip any equity, load up on debt, give the insiders huge profits, and let the corporation go bankrupt?
Let’s hope the SEC has the same questions.
Yes. Occam’s razor.
What do the numbers look like for western Europe?
The brand must have value for selling luxury goods to chinese consumers, whether in china itself or as physical stores in airports etc.
Dept stores operate boutiques inside selling perfumes, mascara, watches, high end fashion clothes…with vendors sales force. They use memo goods shifting the risk to suppliers.
Designers pledge loyalty to them and sell exclusively through them. They expanded their exposure and scope online. They are changing goods four times a year. They also operate discount outlets in shopping centers. Dept stores are not dead.
Depto store are just going through a slow death cycle
The losers are gone. Saks Palm beach, Bal Harbour, Collins ave, Miami, Key West… are still open and are good enough. The middle has focused selection, with high markup (before discounts) for high turnover. The low end, a hybrid of 7-Eleven junk food and junk goods with a huge markup.
In ’92 that must have been teleshopping.
QVC and Home Shopping Network television shopping channels probably.
Catalog shopping. Lots of people used to use the Sears Christmas Wishbook (as a kid I loved looking at the toy section when making my Xmas list).
And J.C. Whitney.
I suppose at the right price the land at which these stores sit is what they have in value, If you live in cornfield county they say there not making any more of it. Land that is.
The non-leased real estate is the only thing of value. Then again, given the state of commercial real estate the value ain’t what it used to be. With zoning changes some of the existing stores could be turned into Amazon warehouses.
Land isn’t going to be needed for farming.
Going forward, farming will be done in massive vertical farms inside buildings where all growth factors can be controlled. Meat will be cultured, grown from a cell line in food labs. The majority of people will be living in huge cities on top of each each other in mile high mixed use buildings.
Land will be returned to Nature and the animals.
…..And Flash Gordon will teleport around in his battery AI….
Online sales make economic sense. Turn the malls into organic farms that way we’ll have less crazed by glyphosate adolescents with AR-15’s even if republicans can’t ethically throw off the gun lobby and pass reasonable legislation to that end.
I got my first gun at age six. The gun is not a problem. It hasn’t shot anyone yet. The gun leans peacefully in the corner and needs no supervision, and no laws.
Keep eating food with 10% of the nutrients in it that it had 50 years ago and sprayed with glyphosate….and who knows?
Teens on Roundup with AR15s. Good Democrat! LOL
Scientific facts don’t lie.
What exactly are those scientific facts?
Sounds like we need to ban roundup then.
“An investor group consisting of Arkhouse Management and Brigade Capital has made a $5.8 billion offer…”
“J.P. Morgan analysts estimate Macy’s total real estate value at about $8.5 billion…“
Sell the real estate, shut down underperforming stores and do leasebacks on anything you want to keep operating. It’s a replay of the Sears strategy. They see an easy 2.7 billion sitting there for the taking.
It took you a while to get around to it, but you summed it up in the last sentence.
You can measure the social rot by how many department stores, strip malls, and mega-buildings have been converted to church plants. I call it the “strip-church” index.
My church 2 decades ago moved into a former DMV building. lol
I’m surprised churches are dying even faster than department stores, and strip malls.
Maybe Macy’s needs another Miracle on 34th Street. What would the Macy’s Thanksgiving Day Parade be without Macy’s?
The Amazon Thanksgiving Day Parade?
Won’t miss the parade. Too woke to watch anymore.
Online sales stalled even after getting a booster from department stores and WMT.
Somebody must be losing sales.
There’s a social and entertainment aspect to shopping at a store vs shopping on line. Thus, stores will always have appeal and always be around. The ever degrading quality of the citizens in America is a big issue. Stores will pull out from feral communities and we’ll hear stories about how these communities are under served. But they did it to themselves and we can all cry them some crocodile tears.
And suddenly, everything that had become big, was small again. Drive an hour outside any metro area and go to a restaurant or small shop. You’ll find that civilization still thrives where law exists.
Department stores are a hybrid of online and physical sales. Online sales stalled
for 4 years since 2020 high. Department stores sales retraced 60% of the plunge to 2020 low. Online blogs are no match to humans touch, to a physical touch, to saleswomen mouth and skills. They are located near people who can pickup their goods, on the spot, in a nice bag, or after 3 days.
I disagree. Department stores are ultimately doomed in the long run. They sell too many things (clothes, furniture, tools etc) and so have too few choices / sizes of each item (20 years ago they had the most choices / sizes of each item). You can see that by going online and immediately seeing 10x the selection and options.
That’s why people shop and order online. Plus they don’t have to pay the high mall rents so online has better prices.
Specialty stores will be the only survivors (a pure furniture store or a pure hardware store like Home Depot).
It seems like the top tier malls are thriving. Locally in Dallas, I agree but I don’t have any other data points on this.
“Dying shopping malls have become cultural symbols in the US, evoking nostalgia among Americans who reminisce about their experiences in these once vibrant centers. However, the reality of the American mall landscape is more nuanced than the popular narrative suggests. While headlines and media coverage have focused on the decline of malls, top-tier malls are actually thriving. Since the lifting of restrictions and consumers’ gradual return to more normal ways of living, physical retail has bounced back, with 2022 seeing more store openings than closures for the first time since 2016, and retail sales at malls grew more than 11% in 2022 to nearly $819 billion.”
https://coresight.com/research/the-state-of-the-american-mall-competitive-attractive-and-here-to-stay/
“Online blogs are no match to humans touch, to a physical touch,”
It is, when every “different” product one touches, originated as exactly the same product; only to be labeled differently before distribution; in the same factory in China somewhere.
Undoubtedly the department stores like K-Mart, Montgomery-Ward, and Sears were the endpoints of market evolution, so to speak. But like the dinosaurs, they’ve disappeared with the advent of the internet.
But they might be making a comeback in a miniaturized form. I wondered into a Dollar Tree store looking for lightbulbs and I discovered a department store with mini-departments. It was very convenient and rather clever. In our area they have been popping up everywhere, including it’s competitor Dollar General, which even has a small fresh foods section, such as milk. These stores are somewhere between enlarged 7-11s and miniaturized K-Marts. Yes, they even have clothes and shoes!
So the model still works, assuming shoplifting is not their undoing.
Dollar Tree/Dollar General are the reincarnation of five and dime stores (Kresge, Woolworths etc). It’s just that things used to cost 5 and 10 cents. Now they cost 1 to 4 dollars so they get Dollar in their names.
Hey now! Kmarts still exist. 😉
https://www.scrapehero.com/location-reports/Kmart-USA/
Here in Orlando, one of the oldest malls, Fashion Square, is now only anchored by Macy’s. Sears, Penney’s, and Dillard’s (full service store) left years ago. It used to be hard to find a parking spot at this mall, especially during the holidays. When I rarely go, I can park in the first row in front of the Macy’s entrance…maybe 6-10 cars. The store is decrepit and displays are in shambles. The main hallway of the mall is barren of shops and customers. Only about 1/2 of the storefronts are occupied and I don’t see how they can turn over $200 in sales per day. The movie theater is the only thing that has activity, and even that is sparse.
Numerous proposals have been floated to reinvigorate the mall by adding outdoor plaza with shops, restaurants, and apartments. The mall is in an excellent location. As I have been told, Macy’s is the only establishment that actually owns the real-estate that it sits upon. I guess for this particular store, the value is in the land, because they sure cannot be profitable from sales of merchandise in my opinion.
If I were a Macy’s shareholder, I take the offer and never look back.
What about Saks in Florida mall and other locations, in southern Fl, where there are no Sears or JCP.
Saks are typically only found in high end merchandise malls.
Not sure about Saks at Florida Mall or Bloomingdales at Mall at Millenia. Both of those malls seem to get decent crowds due to their proximity to the tourist corridor. There is also a Macy’s at Millenia. Not sure if the above mentioned stores own their real-estate footprint outright or not.
West Palm Beach had a mall like that when I first arrived (05) but it closed in around 2011 (JC Penny was it’s last store). It was torn down and replaced with an outdoor outlet mall that seems to be thriving (in addition to retail it has a whole foods and a couple restaurants).
I suspect the same will happen there because it worked here in what was also a good location (right next to I95).
A large mall where I live has a Hyundai dealership in the store that formerly housed Sears. There are three anchor points left in this mall – a large theater complex, a Target and a JC Penny. The mall is slated to be torn down and replaced with what is currently termed “mixed-use”, which is a mixture of smaller stores, townhouses and apartments.
Since Arkhouse’s focus is on the property and not sales, Maybe Arkhouse has undisclosed plans to convert those properties into apartments/condos. If Macy’s uses the property as collateral for future loans, Arkhouse would then have shares worth less than now, and then greater costs to procure Macy’s property.
Except large retailers including Macy’s lease most of their space. It’s not owned. Arkhouse wouldn’t control the repositioning.
Agreed. I’ve never seen a Macys anywhere but in a mall where they are clearly leasing.
I have no idea where they own real estate unless it’s warehouses.
The article clearly stated “J.P. Morgan analysts estimate Macy’s total real estate value at about $8.5 billion, or $31 per share”
I got that part of the article. Just trying to figure out exactly what they could own. the Macys I know are all in malls which they clearly don’t own (unless they own a part of the mall itself somehow). There are probably a few standalone ones like the flagship in NY but otherwise I’d think they mostly must own warehouses.