Who is going to buy Macy’s?
There has been a great deal of speculation about the future of the troubled department store chain. In fact, Macy’s and Hudson’s Bay Company are reported to be in early-stage talks for a buyout.
But is that really the best idea for Hudson’s Bay?
No, says Neil Saunders, Managing Director of research firm GlobalData Retail. “I personally think it’s not a very sensible deal,” he told Business of Fashion. “Despite the property assets, Hudson’s Bay is biting off far more than it can chew. Macy’s is a business that has a lot of structural issues…and I think integrating it would be a massive distraction for Hudson’s Bay.”
On the other hand, Amazon could benefit greatly from having a nationwide network of retail outlets.
In a report released in early February of 2017, analyst Oliver Chen of financial services firm Cowen & Company argued that the giant online retailer would gain relationships with some very important apparel vendors, and that owning more brick-and-mortar space would give customers a place to easily pick up and return items.
“Amazon needs better brands, a more curated assortment, a physical place to return items, and customers could use help with ensuring fit—Macy’s would also give Amazon greater credibility in curation and fashion authority,” Chen wrote.
Macy’s could also benefit from a relationship with Amazon. Amazon’s technology could help it make better decisions about inventory and pricing. Chen also wrote that Amazon’s online traffic, younger customer base, and mobile technology could also help save Macy’s.
Others in the investment community are less convinced about the benefits of such a merger.
“Amazon’s market capital is bigger than Macy’s and Hudson’s Bay put together. But for them to buy Macy’s, they are going to end up with a ton of real estate on their books. Is that really advancing the ball?” asked Craig Johnson, President of retail consultancy firm Customer Growth Partners. “Fighting yesterday’s war to get into the retail real estate business. I’m not convinced that they would want to do that.”
Then there’s the fact that as CNN Money points out, the only reason Macy’s is vulnerable to a takeover is because it’s struggling to remain relevant. That alone may make a Macy’s deal unattractive to Amazon and its investors.
Additionally, if Amazon were to take over Macy’s, it would inherit numerous employees, which may not be in keeping with its current business model of keeping costs low by not requiring a lot of people to sell products.
Amazon is no stranger to brick-and-mortar retail, however. The company has opened three bookstores and has plans to open five more. It has also opened retail stores on seven U.S. college campuses.
But would Macy’s really be a good deal from an investment standpoint?
Bernstein analyst Brandon Fletcher says that if Amazon wants to get into nationwide retail, discount chain Dollar General might be a better choice. Dollar General would increase Amazon’s presence in rural markets and give it less competition with other large department store chains.
“The most powerful element of this combination is that the core strategy of price and convenience is a defensible one AND the location of most of the growth is defensible,” Fletcher told CNN Money. “Being a rural retailer has serious advantage when the dominate [sic] disruptor is primarily urban.”
Amazon’s valuation and cash assets mean it could do almost anything it wants as far as buying out other businesses. Will it use that power to scoop up Macy’s or another retail chain to expand its presence and give its customers additional convenience, or will it keep its assets to itself?
Considering that traditional retailers like Target, Best Buy, and Walmart are investing in digital operations, it might make sense for the world’s biggest digital retailer to expand into the brick-and-mortar realm.
What do you think? Should Amazon move into physical retail? If so, which chain do you think they would benefit most from buying? Please share your thoughts in the comments.
Photo: hans engbers / Shutterstock, Inc.