APPAREL RETAIL Economy forcing stores to merge
To be more competitive, many retailers are buying smaller companies.
NEW YORK (AP) -- With reports popping up almost every week about apparel retailers planning takeovers or considering splitting up, the drama may appear to resemble a plot from a soap opera. But there's a hard-nose reality driving the dealmaking.
At a time when apparel sales have hit the wall as shoppers are shifting more of their spending to items like iPods and flat-screen TVs, Wall Street is placing even more pressure on retailers to grow. In addition, the gap is growing between merchants that are doing well and have the cash to buy, and those that are not and are looking to be acquired.
"There are a whole set of buyers and sellers who are trying to take advantage of this period of consolidation, where growth is not an option, but a mandate," said Arnold Aronson, managing director at Kurt Salmon Associates, a retail consulting firm. "It's a grow or die environment."
This past week, it was Saks Inc.'s turn in the spotlight. Women's Wear Daily, an industry trade publication, reported that Sak's may sell or spin off its middle-market department store division in order to concentrate on its Saks Fifth Avenue unit, which targets the luxury market, one of the hottest areas in retailing. It's expected to make a decision in a few weeks.
Meanwhile, the New York Times said Richard A. Smith, the 81-year-old chairman of Neiman Marcus Group Inc. whose family controls the company, may be planning to sell, hoping to cash in on a white-hot luxury market.
Julia Bentley, a spokeswoman at Saks, and Stacie Shirley, vice president of finance at Neiman Marcus declined to comment.
Federated Department Stores Inc., which owns Macy's, Bloomingdale's and other retail chains, also has been considering a bid for May Department Stores Co., whose chairman and CEO recently resigned. May, whose stable of department store chains includes Lord & amp; Taylor, Hecht's and David's Bridal, reported Thursday that its fourth quarters fell from a year earlier.
The $11 billion takeover of Sears, Roebuck & amp; Co. by Kmart Holding Corp. topped last year's retail M & amp;A rush. That deal is set to close early next month.
Last summer, Target Corp. completed the sale of the Mervyn's department store chain and its credit card receivables unit to an investment consortium for $1.65 billion in cash and sold the Marshall Field's chain to May for $3.2 billion in cash. Also, apparel and shoe giant Jones Apparel Group Inc.'s acquired Barneys New York for $294.3 million in cash.
After total U.S. apparel sales peaked in 2000 at $175.7 billion, the category posted annual declines for the following three years. Last year, sales rose 4 percent to $172.8 billion, but the number of pieces sold dropped 1 percent, according to NPD Group Inc., a market research company in Port Washington, N.Y.
This year, apparel sales should rise anywhere from a 3.0 percent to 3.5 percent, but after that, growth should be anemic over the next few years, unless retailers come up with some new must-have items that will excite consumers, according to Marshal Cohen, senior industry analyst at NPD.
Mid-tier department stores, whose core merchandise is clothing and other apparel products, have been the most vulnerable, squeezed by high-end retailers like Neiman Marcus and discounters such as Wal-Mart Stores Inc. and Target.
Still, the urge to consolidate may not be a cure-all for department store woes.
"Shake up is good, but not everyone is making a decision with the right personnel in place," Cohen said. Some observers say that since May purchased Marshall Field's, it hasn't shown a clear-cut merchandising vision for the division.
Even as the Wall Street Journal reported that the Federated-May talks have hit a snag over price, analysts say a combination of the two would be a better fit than if Federated acquired Saks Inc.'s traditional store portfolio, which includes regional chains like Proffitt's, Parisian and Younkers.
May and Federated each operate stores that typically are between 180,000 square feet and 240,000 square feet, and share many of the same vendors, Aronson said.
In comparison, Saks traditional department stores are smaller, ranging in size from 100,000 to 120,000 square feet, making it harder to align with Federated's merchandising strategy, he said.