Hudson’s Bay Co. has hired investment bank Evercore Partners to review options for merging its business with debt-burdened Neiman Marcus Group, which the Canadian department store retailer is considering taking over, Reuters reported Monday.
Hudson's Bay, which has about $2.4 billion of debt, is hoping to avoid taking on Neiman Marcus' full $4.9 billion debt load, according to the report, although little progress has been made on the deal. Reducing the debt intake will require negotiations with Neiman Marcus’s creditors, sources told Reuters.
Earlier this year HBC was in talks with Macy’s regarding a takeover, but talks broke down because Macy’s price was reportedly too steep.
The potential purchase of Neiman Marcus (or Macy’s for that matter) certainly falls in line with Hudson’s Bay’s acquisition history, which over the years has included high-profile, luxury U.S. department store chains Saks Fifth Avenue and Lord & Taylor.
Like many department store companies, Hudson’s Bay continues to face declining foot traffic and challenges in the women’s apparel, department store and luxury segments — which contributed to a $114.5 million loss in the first quarter. Its decision earlier this year to cut guidance came on the heels of similarly disappointing results from Macy’s (which announced further store closings and job cuts), Kohl’s (which also cut its guidance for its full year) and J.C. Penney (whose holiday season set back its comeback).
The company has staked much of its financial strength on a real estate play. The company has been unabashed about its moves to glean profit from its property holdings: Governor and Executive Chairman Richard Baker in 2015 told investors that the company is on the hunt for more real estate as part of its growth strategy. On a call with analysts in early April, he reaffirmed that acquisitions remain a key piece of the company's growth strategy.
Hudson's Bay has largely avoided the more severe impacts ailing major department stores like Macy’s, Sears and J.C. Penney. All those retailers contributed to a massive, nationwide department store expansion in the late 1990s and early 2000s, but have since announced widespread closures of many of those locations: Macy's in August announced it will shutter 15% of its stores, Sears in January said it will close 150 Sears and Kmart stores and J.C. Penney in March reported it will pull the plug on 138 stores.
Unlike these department stores, however, Hudson's Bay did not over-expand, retaining a relatively small fleet of stores in profitable locations. Moreover, the department store conglomerate has a history of slimming down department store chains and helping them regain profitability after taking over. As the company prepares to not only survive but thrive in the new age of retail, a strategy of buying up struggling retailers is one way to grow, Michael Brown, a partner in the retail practice of strategy and management consultancy A.T. Kearney, told Retail Dive.
"Where there is weakness in the market, there is opportunity for any strong retailer to strike and leverage their strength at this time," Brown said. "This is an opportunity for store retailers to make acquisitions, leverage their strength, increase their portfolio and their reach in the market while others are suffering. And from that hopefully get the cost synergies that come with it."