A heated climate of mergers and acquisitions is developing in retailing following the flurry of dramatic moves this year, from Kmart’s deal for Sears to Jones Apparel Group’s play for Barneys New York to May Co. acquiring Marshall Field’s. The trend is being spurred by strong cash flows at retailers such as Federated Department Stores and Neiman Marcus Group; vendors such as Liz Claiborne, Jones and Kellwood eager to expand, and billions sloshing around in investment funds, with estimates ranging from $80 billion to $140 billion available to spend.
Not to mention the Wal-Mart effect. In an environment where the world’s largest company is a retailer with sales of almost $270 billion a year, the name of the game has become economies of scale and synergies and everyone who wants to compete has to bulk up.
Among the possibilities being mooted are Federated acquiring or merging with May Department Stores, J.C. Penney and Gap Inc. moving into acquisitions mode and Liz Claiborne, Nike and VF Corp. eager to continue buying brands to expand their portfolios. Other scenarios being suggested by industry sources — and there is no shortage of them — include major foreign retailers such as Carrefour taking a closer look at the U.S. market as a way to counter the Wal-Mart attack internationally.
“There’s a lot of money out there, easy access to it and everybody agrees that there are too many retailers, so the best answer is to consolidate them,” observed Allen Questrom, the outgoing chairman and chief executive of J.C. Penney Co.
“In the late Eighties and early Nineties, there was a big cycle of retail mergers,” said Arnold Aronson, managing director of retail strategies for Kurt Salmon Associates, citing May Co.’s takeover of Associated Dry Goods, Campeau buying Allied and Federated and Federated later buying Macy’s. “Another cycle is developing, like the tide going in and out. We are in high tide.”
Another reason for more mergers: “Organic growth has been much more difficult; even Wal-Mart is now in the low-single digits, Target is 3 to 4 percent and Kohl’s has not shown any positive store-for-store growth,” noted Aronson.