Sullivan & Cromwell LLP’s Post

I remember how this worked out for these iconic #brands, their #employees, and their #customers! "The story at Sears is even darker. In 2015, after a #hedgefund run by Eddie Lampert acquired Sears and Kmart, the #retailers spun off their #property into a #realstate investment trust dubbed Seritage Growth Properties, including 235 Sears and Kmart stores. At least one of Macy's would-be suitors, ARKHOUSE Management, specializes in unlocking “unrealized equity value caused by the mispricing of real estate assets in the public market,” per its website." #larrytheleasinglawyer #privateequity #corporateinvestigations

Thanks Beauty Independent and Erica La Sala for sharing my thoughts on the Saks Fifth Avenue / Neiman Marcus Group deal and how it might impact the luxury beauty market and the department store channel overall. Some of my key takeaways: ▶ The Saks/Neimans merger is occurring amidst significant department store challenges as growth has shifted to specialty retailers like SEPHORA and Ulta Beauty. ▶ The declining department store channel has historically been key for luxury beauty brands which could face reduced retail options and leverage as a result of the merger. ▶ This further emphasizes the need for luxury beauty brands to pursue direct-to-consumer growth strategies leveraging their high AOV and gross margin profiles to support profitable new customer acquisition growth. ▶ Perhaps the combination of Saks and Neiman Marcus will allow for a more enhanced retail experience overall that is even better suited for luxury beauty in the future - only time will tell. Great insights also shared by Kelly St. John, Tina Henry Bou-Saba, Karen Hayes and other beauty industry colleagues! True Beauty Ventures #beautyinvesting #beauty #VC https://lnkd.in/eswm8YD3

Great insights Ken Pilot! Given the current value of the RE assets, I am not surprised by the bid. Under Terry Lundgren, Macy's massive expansion through acquisition always seemed a bridge too far. To your point, extracting value from flagship real estate would be difficult. However, opting for smaller, more curated stores (as per their latest initiatives, which have been under Jeff Gannette) while closing and selling underperforming stores in secondary and tertiary markets would likely improve the balance sheet and enhance profitability. The benefit of a PE-backed redux should allow Macy's to prune what isn't working well, focus on innovation, improve CX, while experimenting with what a next-generation department store could be... There is the added benefit of doing all of this while avoiding the pain of public market scrutiny. No doubt interesting times ahead for Macy's!

Just in time for the Holidays…Miracle on 34th $treet….Arkhouse management and Brigade Capital hope to pay less than the book value of the combined Macy's Real Estate holdings. Kinda smells like the opportunity Eddie Lampert eyed with Sears and Kmart and what Richard Baker saw as the opportunity with Saks Fifth Avenue (he paid $2.9B with the RE value of the Manhattan Flagship valued as greater). The hard part for these real estate motivated moves, buy the buildings and get the company for free, is you still have to grow the business. And we know, regardless of the potential value of the buildings (which are not easily converstable to anything other than retail) department store businesses are challenging. Give credit to Richard Baker for at least trying to realize the value of Online versus the stores and creating 2 separate companies. But, even with that approach, Saks is still fighting to pay it’s bills on time. Will Santa come for Macy’s??

Two wrongs rarely make a right. Case in point: the rumored report that Saks' parent company is looking to buy Neiman Marcus. Haven't we seen this one before? Remember how past deals -- often involving these very same retail banners -- worked out. https://lnkd.in/gPtFS6fS #neimanmarcus #saksfifthavenue #hudsonsbayco #bergdorfgoodman #richardbaker #departmentstores #retail #LVMH #Kering, #eddielampert #bobcampeau #warrensreport

Hudson's Bay Company has announced its acquisition of Neiman Marcus for $2.65 billion USD. This move merges Neiman Marcus with Saks Fifth Avenue and Bergdorf Goodman under a new entity called Saks Global. Amazon and Salesforce join as investors, hinting at big changes in the luxury retail market. Stay tuned for more updates! #HudsonsBay #NeimanMarcus #LuxuryRetail #SaksGlobal #Amazon #Salesforce #RetailNews #BusinessUpdate #LuxuryFashion #Investments #RetailMarket

More on HBC buying Neiman Marcus. The corporate entity will be consolidated with the two entities that are Saks. And then the Canadian HBC entity will be spun off as a separate company. That separate company owns approximately $2B in real estate. This deal has two components: 1. Amazon gets its fingers in more retail. And in a type of retail its been trying to access. 2. The owners of HBC have built a stronger real estate empire. Not a stronger retail empire. This is a real estate play.

Everyone's trying to figure out what the Saks Fifth Avenue acquisition of Neiman Marcus Group is going to mean in the luxury market. I took a look and here's how I read it, in my latest Forbes.com post with Warren Shoulberg Richard Kestenbaum Marc Metrick Pete Nordstrom Nordstrom #luxuryretail #luxurymarket #mergersandacquisition #luxuryconsumers #luxurycustomers #luxuryshopping

Department Stores, which have been at the core of American cities since the mid-to-late 1800s, are one step closer to saying goodbye. For more than two decades, their cultural relevance (think Macy's #Thanksgiving Day parade and 4th of July fireworks) has been much greater than their economic relevance (in 2022, department stores accounted for less than 2% of US retail sales). The proposed $5.8 Billion acquisition of Macy's -- which, as an aside was valued at $4.8 billion before the offer, despite having a real estate portfolio "worth about $6 billion" -- is just the latest chapter. "Kohl's ... has faced pressure from activist investors and continues to struggle with sluggish sales. JCPenney filed for #bankruptcy and was rescued by mall owners. Saks Fifth Avenue and Neiman Marcus Group have been exploring a merger amid a slump in sales of luxury goods. And The Bon-Ton Stores, Inc. is a shell of its former self. Only Dillard's Inc., which is run by its founding family, has continued to thrive." (NOTE: No mention of Belk and Von Maur, two other notable dept store chains). The symptoms? A shift in consumer spending "to discount stores, fast-fashion retailers, and new entrants" as well as "buying more directly from brands," a reluctance to evolve the business model and self-cannibalize, under-investment in stores and nextgen operations and technology, all leading to "years of chronic underperformance.” https://lnkd.in/enJTq7nr

With the big announcement of the Saks takeover of Neiman Marcus, news that activist investors have upped their bid for Macy's flew under the radar. This week, Arkhouse and Brigade Capital Management increased their offer by around $300 million. This values the stock they don’t already own at $6.9 billion. Putting more money on the table automatically makes the bid more attractive. However, it does not necessarily make it right for the long-term health of Macy’s. Arkhouse and Brigade are focused on real estate. They want to monetize Macy’s property to generate a return. This essentially means selling off stores and then charging Macy’s rent on the shops it continues to operate. We have seen this story play out many times before, and it rarely ends happily for retailers or brands. Take Red Lobster as the latest example. After being bought by private equity, a sale of real estate generated $1.5 billion; but it ended up costing the chain $200 million a year in rent – effectively pushing it into bankruptcy. The tragedy of all this is that it comes just as Macy’s, for the first time in a long time, has recognized the problems in its retail operation and is working to remedy them. CEO Tony Spring has set out a plan for renewal and is executing with speed. There is still a lot to do, but in my view that strategy should be given the time and chance to succeed. At the end of the day, Macy’s can be run as a retailer and built up. Or it can be used as an ATM to generate some short-term cash and torn down. Only one of these paths leads Macy’s into the future.  #retail #retailnews #departmentstores #corporatedeals #realestate