2024 JULY ISSUE
THE RISE & FALL OF
AMERICAN
DEPARTMENT STORES
PART 2
Written by TERRI FISHER
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From the Desk of the Publisher
In our part 2 of this series, Terri, our retail correspondent, is featuring Macy’s and Belk. We are beginning to see that the bricks and mortar retailers are crawling back and we have heard some encouraging news. It seemed that going forward they would work side-by-side with the e-commerce and people still would like to enjoy to come out and enjoy their shopping while meeting their friends in their social life. After all, no man is an island.
We are impressed with Terri’s sharp eyes and her experience from the retail industry. Guess what? She has her stint in Macy’s at one time.
We look forward to her third report.
This is the second part of my writeup about the top 10 department stores, and they are retailers with at least $100M in annual sales and are publicly traded on the U.S. Stock Exchange. With the further delay, we start to report the two of them as the following.
Macy's
You probably already know this but Macy’s has conducted the annual Macy’s Thanksgiving Day Parade in New York City since 1924 and has sponsored the city’s annual 4th of July fireworks since 1976. Macy’s Herald Square is one of the largest department stores in the world and covers almost an entire NY City block, featuring 1.1 million square feet of space, including additional space for offices and storage. The value of this Herald Square store alone is estimated at $3 billion.
Macy’s (originally R.H. Macy & Co.) is an American department store chain founded in 1858 by Rowland Hussey Macy. It has been a sister brand to the Bloomingdale’s store chain since being acquired by holding company Federated Department Stores in 1994, which renamed itself Macy’s, Inc. in 2007.
Macy’s operates with 508 stores in the U.S. and its flagship store is located at Herald Square in New York City. The company had 94,000 employees and an annual revenue of $25.3 Billion as of January, 2023.
There is so much history about this iconic company but I will try to give you just the highlights so you can understand the rise and then the fall of this famous department store chain.
During the past 50 or 60 years there have been many, many acquisitions of smaller regional department stores all over the U.S. with many name changes of these companies and also many mergers. This was a volatile and busy M&A period for Macy’s.
I will continue by skipping history up until 1994 when R.H. Macy & Co. merged with Federated Department Stores in December of that year. Following the merger, the reorganized Macy’s moved its headquarters to Cincinnati, Ohio. So many acquisitions, store closures and name changes occurred between 1994 and 2005 involving nameplates such as I Magnin, Abraham & Strauss, Jordan Marsh, Woodward & Lothrop/John Wanamaker, Broadway Stores, Emporium, Bullock’s, Davison’s, Rich’s, Burdines, Goldsmith’s, Lazarus, and Bon Marche to name just a few!
Macy’s opened its doors in Puerto Rico in 2000, the chain’s first location in a U.S. Territory. It is located in San Juan in Plaza Las Americas Mall. In July 2001 it acquired the Liberty House chain with department stores in Hawaii and Guam, consolidating it with Macy’s West.
In February, 2005, Federated agreed to terms of a deal to acquire The May Department Stores Company for $11 billion in stock, creating the nation’s 2nd largest department store chain with $30 billion in annual sales and more than 1000 stores. Did they grow too quickly or grow too big?
A new batch of regional stores previously owned by May Company were transitioned to Macy’s including some iconic name such as Marshall Field’s, Kaufmann’s, Filene’s, Hecht’s, Robinson’s-May and so many others. This rebranding of the May Company stores was disliked in Chicago and elsewhere because these stores were regarded as beloved local institutions. Many of these customers publicly vowed to never again shop at the renamed May stores and to switch to competitors. At the time this was a big problem for Macy’s.
In January, 2006, Federated announced its plans to divest May Company’s Lord & Taylor division before converting and closing 7 stores. In June, they sold Lord & Taylor for $1.2 billion to NDRC Equity Partners LLC.
In 1997 Terry Lundgren became the President and Chief Merchandising Officer of Macy’s/Federated. He became CEO and Chairman in 2004.
In 1998 Terri Fisher (me!) joined the company in New York City as Group Vice President and GMM of Federated Merchandising Group. I had full profit and loss responsibility for $1.5 billion in sales including both private label and branded products. I had the good fortune to work for both Janet Grove and Len Marcus as the heads of the Merchandising Group.
The company was ripe for change and innovation and started hiring from the outside vs. just promoting from within. This was still a bit difficult as the old culture had been ingrained in many employees for a very long time. New national brands were added, private label brands were expanded and the job was very fulfilling at the time.
In February 2007 Federated Department Stores announced plans to change its corporate name to Macy’s Group, Inc. By March they further announced plans to convert its stock ticker symbol from “FD” to “M”, and revised its name change to Macy’s, Inc. The company continued to operate stores under the Macy’s and Bloomingdale’s nameplates at that time
In 2009 they added a format which was the culmination of 18 months of research to create stores for the “My Macy’s” initiative that allowed stores to be merchandised differently in markets across the country to meet local demands.
Macy’s was the 15th largest retailer in the U.S. in 2014 by revenue. Starting in 2015 Macy’s started closing underperforming stores. On September 9, 2015, Macy’s announced it would close 35-40 under-performers by early 2016. The retailer’s struggles continued into the holiday season in 2015. The company announced it experienced same store sales declines of 5.2% in November and December, their typical busiest months. In January 2016, Macy’s announced that it would lay off up to 4800 employees. The company said that these closings would experience cost savings of $400 million. As of January 2016, Macy’s had 770 stores in total.
On August 11, 2016, Macy’s announced it would close another 100 stores in early 2017, expecting to save $550 million per year and they cut more than 10,000 more jobs. Macy’s claimed it would instead invest $250 million in digital business and growth strategies for the remaining stores. Sales were still dropping precipitously. In February 2017, The Hudson’s Bay Company made an overture to Macy’s for a potential takeover of the now struggling department store.
Macy’s, in my opinion, started to put its “fingers” into too many pies, throwing lots of ideas onto the wall to see which would stick. In May 2018 they acquired experiential concept “Story” and made a minority investment in b8ta, a retail as service concept. Their focus became disjointed and spread thin.
By February 2019 Macy’s Inc was operating 867 stores including Macy’s, Backstage (an outlet-type concept), Bloomingdale’s, Bloomingdale’s Outlets, Bluemercury (a cosmetics-type store), and STORY; only 641 of the 867 stores were Macy’s, including 584 that were full-line and 57 that were home, furniture, clearance and specialty stores.
Continuing their grasping at straws, they announced in November 2018 they would test smaller “neighborhood” stores to reduce costs and promote innovation within the customer experience realm. As of 2018, Macy’s ranked 120 on the Fortune 500 list of the largest U.S. corporations by revenue.
In March of 2017 Jeff Gennette was elected CEO of Macy’s Inc and assumed the role of Chairman in February 2018. Gennette previously held the role of President of Macy’s Inc since 2014. Gennette launched an overhaul of Macy’s stores called the Growth150 strategic plan.
In the second quarter of 2019, Macy’s shares fell more than 13%. On August 14, shares hit $15.82, which was their lowest since February 2010. Spread too thin? You be the judge.
In 2020, Macy’s closed its Cincinnati headquarters, consolidating HQ operations in New York City.
In August 2021 Macy’s announced they were partnering with Toys “R” Us to open toy shops in 400 Macy’s stores. In November 2021, Macy’s announced they were starting a free education program and raising its corporation base salary to $15 per hour.
In January 2024 Macy’s rejected a $5 billion takeover from Arkhouse Management and Brigade Capital Management to acquire all of the outstanding shares of the company.
In January 2024 Sycamore Partners requested to purchase the struggling Macy’s company.
In February 2014, Macy’s announced that up to 150 underperforming stores would close by the end of 2026, with 50 of them closing by the end of 2024. Macy’s said that the closing stores only represented 10% of their total sales.
The company, now under the leadership of Tony Spring (Chairman and CEO) plans to focus on opening 45 Bloomingdale’s stores and 30 Bluemercury stores while remodeling 30 additional Bluemercury stores.
Tony Spring was already working hard to turn Macy’s around. Now the CEO will have 2 new faces on Macy’s Board of Directors as it tries to decide whether to bet on Spring’s vision or sell the nearly 166 year old retailer to activist investors.
As Andrew Sia, our publisher and founder has previously stated, “Macy’s problem has been its store format which is unappealing to younger customers. It is caught between luxury retailers and discount chains.”
Andrew and I believe that the activist investors are NOT interested in fixing Macy’s. They want to get their hands on Macy’s vast real estate holdings. Its property portfolio is worth somewhere between $6 billion and $12 billion, with its flagship store in Herald Square worth approximately $5.3 billion alone.
But by nearly every metric, Macy’s has gotten smaller over the past decade. Its employee count, store count, and stock price have fallen as the company continues to lose market share to competitors, including off-price chains like T.J. Maxx, big-box stores like Target, as well as online retailers like Amazon.
As Andrew Sia has predicted, “the water is full of sharks circling businesses that are suffering”. Certainly, this includes Macy’s, one of the previous giants of retail. It could be a very sad ending to this convoluted story.
Let us know your thoughts, do you think Macy’s can make it out alive? What would you do if you were the CEO?
Belk
While Belk is no longer a retail giant and no longer privately owned, I thought it was still interesting to look into their past so that we may learn for the future of other department stores.
Belk, Inc. is an American department store chain founded in 1888 by William Henry Belk in Monroe, North Carolina, with nearly 300 locations in 16 states. Belk stores and Belk.com offer apparel, shoes, accessories, cosmetics, home furnishings, and a wedding registry.
Their headquarters is in Charlotte, North Carolina which really helped to boost that city’s commerce and size. Belk had 293 locations as of 2019. The CEO is currently Don Hendricks and their revenue was $3.7 billion in 2017. They had 10,639 employees as of 2022.
The store was first called New York Racket (I have no idea why!), and then Belk Brothers, after Belk made his brother, physician John Belk, his partner. Belk bought in volume to pass the savings on to the customer and sold at fixed prices, no haggling, then a relatively unusual practice. This was the start of today’s retail selling method.
Their early complex store is chronicled in a book published by Belk called “Belk, Inc: The Company and the Family that Built It” about the evolution of the company. They started with dual branding using the Belk name with the name of the store managers. Slowly Belk eliminated the dual brands, completing the lengthy process with a chain-wide Belk rebranding in the Fall of 2010.
In July, 2005, Belk completed the purchase of 47 Proffitt’s and McRae’s department stores from Saks Incorporated, primarily in Tennessee and Mississippi. Just over a year later, Belk purchased 38 Parisian department stores from Saks. The logo used from 1968-2010 was “Belk All For You”.
In October 2010, the News & Observer reported that Belk was going to change its logo/slogan, the first change since 1967. The new slogan was “Modern. Southern. Style.” This is still used today.
One of the earliest prototype 1960’s era store to feature the trademark Belk arches as shown in 2015.
By 2014, the chain had 293 stores in 16 states with $4 billion in revenue in 2014. The most stores are in North Carolina with 65 stores, followed by South Carolina and Georgia. The typical store is 100,000 to 180,000 square feet, rather large by today’s standards. 50% of their stores are in regional malls with another 40% in open air malls.
On August 24, 2015, Belk announced that it entered into a definitive merger agreement to be acquired by New York based private equity firm Sycamore Partners. This was completed in December of the same year in a transaction with an estimated value at closing of approximately $3 billion. In June 2016 Belk announced that Lisa Harper, CEO of Hot Topic (which is also part of Sycamore) would replace Tim Belk as CEO of Belk. This would be the first time that a non-Belk family member would head the company.
A specialist in consumer and retail investments, Sycamore Partners has more than $3.5 billion in capital under its management. The firm has today approximately $10 billion in aggregate committed capital and has an estimated net worth of $618 million as of May 2024.
Sycamore utilizes a strategy which sees the firm partner with management teams to improve the operating profitability and strategic value of their businesses. Sycamore’s investment portfolio currently includes companies such as Aeropostale, Coldwater Creek, EMP Merchandising, Hot Topic, the Kasper Group, Kurt Geiger, MGF Sourcing, Nine West Holdings, Pathlight Capital, Talbots and Torrid. Additionally, they own Staples, Inc., and the Limited. In January of 2024, Sycamore acquired Chico’s, FAS in an all-cash transaction valued at over $1 billion. Chico’s, FAS includes Chico’s, White House Black Market, and Soma. From what I understand, they have already started cutting expenses by eliminating positions in the Ft. Myers Florida-based headquarters.
Brian Hamilton, chairman of Sageworks, a firm that provides research on private companies, described the acquisition as a “pretty good deal” for all those involved. He added, “Sycamore is getting a solid company with a proven track record of profitability, positive cash flow from operations, and consistent revenue. Belk is getting what appears to be a fair offer, valuing their company at 20 times their retailing earnings.”
In July 2021, Belk announced that Nir Patel was promoted to CEO from his previous position of President and Chief Merchandising Officer. Patel replaced Lisa Harper who was CEO since 2016, but would then serve as executive chair of the Belk Board of Directors. It was not disclosed what prompted this leadership change.
In May 2023 it was reported that Belk was expanding a new store format, Belk Outlet. There are 16 locations.
The current CEO is Don Hendricks who was elected on September 9, 2022. He previously worked at Hot Topic and Torrid as a Chief Operating Officer.
It certainly seems like Belk has been “saved” from the fall of department stores, at least for now. Sycamore Partners has a wealth of retail knowledge and expert leadership. What happens to them remains to be seen, but for now, this is one of the better outcomes of the department store failure sagas.
What do you think about Belk and its future? Send me an email to let me know your thoughts! I’d love to hear them.
Warm regards,
Terri Fisher
Retail Correspondent
terri@iappareljournal.com