NEW YORK (AP) — A reported overture by Saks Fifth Avenue’s parent to take over Macy’s Inc. underscores how further consolidation may be needed to revive the department store sector amid drastic changes in the retail landscape and consumer behavior.
Macy’s shares soared in trading Friday, after being temporarily halted on the New York Stock Exchange on a news report that Saks’ owner has approached the department store chain about a takeover.
The article, posted on The Wall Street Journal’s website, reported that Canadian chain Hudson’s Bay Co., which operates stores under Saks Fifth Avenue and Lord & Taylor as well its namesake, is in preliminary stages of discussion with Macy’s that also include a possible deal for the department store’s real estate. The report cites people familiar with the matter.
The potential deal would come as Hudson’s Bay has been on an acquisition binge for the past several years. But Macy’s has been shuttering stores as it tries to become more nimble and compete better with online rivals like online leader Amazon.com. It announced earlier in January that it would close 68 stores after shuttering around 100 last year. It’s also been under pressure to sell some of its valuable real estate.
The reported talks come as Macy’s faces pressure to turn its business around after struggling with a string of quarters of sluggish sales amid stiffer competition and shoppers’ shift away from buying clothing and investing more into experiences like spas and spiffing up their homes. And it seems that Macy’s efforts to offer more exclusive merchandise, boost online investment and test new concepts like an off-price chain haven’t been enough to turn around its business.
Both Macy’s and Hudson’s Bay declined to comment.
“Macy’s has been a troubled company that is trying to shrink,” said Craig Johnson, president of Customer Growth Partners, a retail consultancy. “But the world is moving faster than they are.”
Mortimer Singer, CEO of Traub, a retail consulting firm, said that a consolidation would help give both operators more staying power and leverage with their own brands, which are increasingly gaining more control as they open their own stores and sell their products online. This year, he believes there will be lots of “musical chairs” in the industry.
Outgoing Macy’s CEO Terry Lundgren, who steps down this month and will be succeeded by Jeff Gennette, has been credited for nearly doubling sales during his 13-year tenure at the top. Lundgren led the acquisition of May Department Stores Co. in 2005. The deal involved the then-Federated Department stores buying May for $11 billion and converting a slew of May’s brands including Hecht’s and Marshall Fields into Macy’s banners. Lundgren defied naysayers who thought the acquisition would be a disaster, and soon began leading a move to tailor store merchandise to local markets. That helped create customer loyalty. And under his tenure, Macy’s became one of the top six online retailers in the U.S.
Macy’s had been a stellar performer after the recession but has seen sales growth slow in the past two years as it and other traditional department store chains face competition from online and off-price rivals. Both J.C. Penney and Kohl’s are also trying to reinvent themselves.
The Cincinnati company has been looking for opportunities to boost sales, from buying upscale beauty brand Bluemercury to launching its own off-price stores called Macy’s Backstage.
Macy’s launched an Apple shop late last year at its flagship New York store in Herald Square. Beyond the Apple shop, it’s highlighting consumer tech at 180 stores, rolling out a display of smart watches.
It’s also been testing an artificial intelligence tool that would free up sales assistants to provide higher levels of customer service.
Shares rose more than 6 percent, or $1.89, to $32.61 on Friday. Shares have been down 21 percent over the past 52 weeks.
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