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Macy's may be poised to sell itself

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A buyout giant is said to be near a $24-billion deal for the chain.

July 19, 2007|Daniel Yi and Andrea Chang | Times Staff Writers

Macy's wants to be America's department store, but America isn't entirely buying it -- and that could mean the entire company could soon be sold.

Buyout king Kohlberg Kravis Roberts & Co. is close to reaching a deal to buy Macy's Inc. for $24 billion, Women's Wear Daily reported Wednesday. Both sides declined to comment on the report, but investors greeted the news by bidding up Macy's shares $3.06, or 8%, to $43.09.

Retail industry analysts said the company's tepid performance of late has made it vulnerable to an acquisition. Revenue fell 0.2%, to $5.9 billion, for its fiscal first quarter that ended May 5. Sales at stores open at least a year have slipped for the last three months.

The giant chain, with more than 820 stores nationwide, was forged by Federated Department Stores' 2005 acquisition of May Department Stores. The combined company then converted regional chains -- including Robinsons-May in Southern California and Marshall Field's in Chicago -- to the Macy's name, with mixed results.

"They wanted to build a national brand, and it wasn't working," said Eli Portnoy, founder of Portnoy Group Inc., a brand marketing consulting firm.

"There is no question Macy's didn't live up to the expectations," said Kurt Barnard, a retail consultant based in Nutley, N.J. "The company generated a great amount of animosity with consumers."

Steve Cain, 50, was shopping at the Macy's in downtown Los Angeles on Wednesday, but said he was doing so only because he wanted to redeem a 10-year-old gift certificate.

"Macy's has taken a major dive since they combined with Robinsons-May," said Cain, who bought a bottle of cologne. "It's all become the same. There's no difference in the merchandise.... Because they've become the only game in town, they get to call all the shots retail-wise. It's just so bland. I mean, it's a little upscale Wal-Mart for all I care."

But David Eads, 45, said he shops regularly at Macy's and praised its variety.

"They've got good quality merchandise and good prices. I can usually find what I'm looking for.... You can get a $300 suit or you can get a $1,000 suit," he said.

Analysts said at least part of what's ailing Macy's is beyond its control. Rising gasoline prices have pinched the pocketbooks of many of its customers, and the slumping housing market is crimping sales of home furnishings.

Private equity firms such as KKR often look to improve a company's bottom line by cutting costs and selling off pieces of the business -- with the eventual goal of selling the company for a profit or taking it public again.

Retail analysts were not sure what a sale would mean for Southern California and whether store closures might be on the horizon.

About two dozen Robinsons-May and Macy's stores were closed after the 2005 combination. That doesn't necessarily mean that there won't be additional closures under new ownership, said Jack Kyser, chief economist with the Los Angeles County Economic Development Corp.

He said Macy's still had a ways to go in distinguishing itself with shoppers.

"In Southern California, the stores are so uneven," Kyser said. "The Macy's in South Coast Plaza [in Costa Mesa] is very high-end, but downtown, it is a different story."

Some analysts said that taking the company private could give its management some breathing room to rework its national branding strategy.

"Private equity firms can make longer-term investments" away from the quarter-to-quarter performance markers that Wall Street investors demand, Ernst & Young retail industry consultant Aubie Goldenberg said. "Private equity investors look at many aspects of a company and are looking to increase the total value."

Portnoy, the branding consultant, said Macy's could reinforce its national strategy with remodeled stores and more incentives to its sales staff to grow revenue, but that would be throwing good money after bad.

"It is so hard to build brand loyalty these days," he said. "People are moving away from brands."

Whatever happens, Tyrone Carter says he hopes Macy's keeps offering bargains.

"They have stuff that I like and that I can afford," said Carter, who works for a nonprofit group. "If they get rid of those sales racks, I won't be shopping here."

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daniel.yi@latimes.com

andrea.chang@latimes.com

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