Written by By Staff Writer
Julia Klauer-Cabrera, CNN Written by
With their shops filled with famous brands like Diesel, American Eagle and Victoria’s Secret, Kohl’s and Macy’s are undoubtedly two of the most influential retailers in the United States. But the two department stores are set to be sold to billionaire investor Carl Icahn and Canadian real estate developer Brookfield Asset Management , respectively.
In a recently filed Securities and Exchange Commission Form 13D , an anonymous shareholder says that the American shoppers may not know what they have until they’ve lost it.
“The shares of Kohl’s and Macy’s have traded with a lack of transparency by being priced above their underlying value for several years,” said the filing. “We believe that this disconnect could lead investors to perceive that both companies are thriving.
“It also allows management to perform a PR campaign claiming that one company is doing better than another despite major shortfalls.”
The SEC filing goes on to say that current management has not proved transparent and thus created a disconnect between the potential value of the companies and their current valuations.
The retailer competition
If these two iconic American companies change hands at a fair price — $60 billion for Kohl’s and $17 billion for Macy’s — it is hard to imagine what they would be trading at now.
Sources have told Forbes that they would have been worth far more than $60 billion in 2017, but after a prolonged decline in earnings and investments to bolster business, their value has fallen.
Macy’s — a major department store with more than 850 stores across the US and $26 billion in revenue — recorded a 31% drop in net profit for the year ending January 30. Similarly, it announced a 17% drop in quarterly sales in August.
Business Insider’s Amanda Macias argues that Buffett and other investors are struggling to find quality investments in retailers as consumers across the globe adapt to a “Shop Retail Now” culture.
Kohl’s, she points out, is relatively cheap at $24 billion, putting it at a 25% discount to its peers in terms of market cap.
“Since the companies are in a different sector, it’s more understandable and consistent,” Macias told CNN Business. “It is logical to look at several retailers in the retail space; it’s not easy finding a standout at this time.”
Despite the fact that other conglomerates, like The Walt Disney Company and 3M, are outperforming their counterparts on Wall Street, some observers argue that there are many pitfalls to consolidate.
“Macy’s is trying to improve its ailing sales, and this will only make them less successful,” says RBC Capital Markets retail analyst Deborah Weinswig.
“All together, Kohl’s is seeing sales weaken and Macy’s (has a) declining trend in comps.”
Kohl’s profit declined by 35% in its last earnings report.
According to Weinswig, the consolidation is also a sign of how difficult it is to be a retail stock.
“This industry is highly competitive and difficult to make money at,” Weinswig said. “The shift from ‘Shop Local’ to ‘Buy Locally’ is ongoing.
“Customers are telling us they prefer local stores and are looking for value, so the combination of larger chains, like Kohl’s, with many of their local rival stores, such as Macy’s, could create another synergy of the same product.”
‘Wise move’ for Kohl’s
An anonymous memo on the announcement of the sale of the department stores says that both companies are poised to improve their brands by breaking up and doing away with each company’s management.
Macy’s and Kohl’s are not the only major retailers to be transformed by change in the era of e-commerce and the megabrand.
Babies R Us and Payless have announced plans to either close or sell. Gap, Inc. has seen similar announcements and is rapidly closing outlets in a move that could see it continue as one of the least profitable retailers in America
While some have complained about the loss of profit, others have viewed it as a “wise move.” For veteran analyst Kurt Barnard, investors are just looking for growth — but without the risk.
“You’re missing some very valuable stakeholders,” said Barnard, president of Barnard’s Retail Trend Report. “You lose a certain amount of liquidity but you’re taking away a lot of uncertainty from any real estate investment.”