Dept Store War Over Kohl’s Overlooks Old Problem

With JCPenney’s parent company now among a growing list of contenders seeking control of Kohl’s, the department store wars are not only heating up, but becoming impossible to ignore.

No one knows if Kohl will eventually be taken over by an entity or will be able to convince shareholders to leave the existing management team and the restructuring plan in place, but the alleged $8 billion price tag keeps rising.

That said, however, there are several known facts about Kohl’s, as well as long-standing realities in the department store industry, that haven’t changed since Macellum Advisors’ initial board reshuffle approached a while ago. 15 months, followed by the e-commerce spin-off. proposal presented by Engine Capital in December and, more recently, a growing basket of bidders seeking to acquire the company.

“I want to address some of the misinformed and inaccurate comments around the board’s openness to maximizing value,” Kohl CEO Michelle Gass told analysts on the fourth quarter earnings call. from the company last month, noting that the retailer’s existing strategic and financial plan would deliver substantial value.

Meanwhile, and in case Kohl’s omnichannel turnaround game fails, Gass said “the board is testing and measuring this plan against other alternatives,” before highlighting the retailer’s hiring of Goldman. Sachs to “engage with interested parties” – a matchmaking process that seems to be going well.

“This effort is ongoing and has included engagement with unsolicited bidders as well as proactive outreach and engagement with these parties is ongoing,” Gass said.

The list

If Kohl’s were listed and sold the way homes are, the process would likely be much easier. However, with 100,000 employees to consider staffing and stocking its network of 1,100 stores, six eFulfillment centers and nine fulfillment centers, the process is much more complicated.

In theory, any publicly traded company is “for sale” every day, as investors are free to buy as many shares as they want – or would be needed – in order to gain control and influence the board. administration and operations of the underlying company.

Using Engine Capital’s 1% stake in Kohl’s as an example, outspoken minority investors with a plan can — and do — have an outsized effect on a stock.

But just being able to buy something doesn’t necessarily mean it’s a good idea or will actually produce long-term value and better results.

For the sake of argument, combining Kohl’s 1,100 stores with JCPenney’s 650 would create a massive, unrivaled physical footprint of over 1,750 stores – which would be 4 times larger than Macy’s 430 major department store locations. and Bloomingdale’s.

But more stores doesn’t necessarily mean more profit, as is currently the case with Macy’s, which already had about 25% more sales last year than Kohl’s and made 50% higher profits. Additionally, the New York-based retailer continues to actively shrink its store base and revamp its brick-and-mortar portfolio to become more omnichannel efficient while moving closer to its customers.

The same goes for other retail brands, such as Target, which favors smaller-format “Mini-Target” stores and already fulfilled 96% of its orders in its stores last quarter, 18% of sales being done online.

Don’t forget the regional

Amidst all this calculation of the number of stores, there is another factor to consider in a landscape that is already filled with shuttered stores and half-empty prime tenant locations in countless malls across the country: regional actors.

Dillard’s, for example, with 250 stores in 29 states, posted 37% revenue growth in the fourth quarter, en route to its fourth consecutive record quarter. Even though Dillard’s results are a bit smaller than some of its biggest rivals, investors are clearly taking notice and have risen shares 185% in the past year, compared to a 45% jump for Macy’s and virtually no change in price. from Kohl’s where he was in April 2021.