The owners of department store giant JCPenney have reportedly made a billion-dollar bid to take over one of the chain’s biggest competitors – Kohl’s – two years after filing for bankruptcy and closing nearly a third of its stores.
The proposal by Simon Property and Canada-based Brookfield Asset Management – who jointly bought the mall from $1.5 billion to $8.6 billion in December 2020.
A source reportedly told The New York Post that the owners plan to maintain the identity of the two competing brands while streamlining operations and reducing costs by about $1 billion over the next three years.
The two chains would reportedly be run by a single management team in the early stages of the merger, the source said. The companies would also have all of their in-house garments made by the same label.
If successful, the new company would scuttle previous plans to launch Sephora booths at its 689 Kohl’s stores, the insider revealed.
The owners of department store giant JCPenney have reportedly made a multi-billion dollar bid to acquire Kohl’s, one of the chain’s biggest competitors — two years after it filed for bankruptcy and closed nearly a third of its stores to losses during the pandemic
Wisconsin-based Kohl’s put itself up for sale earlier this year at the behest of investors Macellum and Engine Capital, who accused the retailer’s board of “fingers crossed to keep Kohl’s in operational mediocrity.”
News of the prospective purchase sent Kohl’s shares higher on Monday, topping $60.39 — a five percent rise from Friday’s close of $57.36.
Simon Property is led by CEO David Simon, son of the company’s late co-founder Melvin Simon. Simon, 62, is also the nephew of Indiana Pacers owner Herb Simon, 87, who co-founded Property with his late brother Simon. The couple bought the team in 1983 for $10 million.
Simon Property Group and Brookfield Asset Management bought JCPenney after store owners filed for Chapter 11 in May 2020. The chain closed nearly 200 locations across the US in the first few months of the pandemic.
The closures left the 118-year-old chain with just over 600 stores — up from more than 1,110 in 2012. Some 30,000 employees also lost their jobs.
Kohl’s, which is based in Wisconsin, put itself up for sale earlier this year at the behest of investors Macellum and Engine Capital, who accused the retailer’s board of “fingers crossed to keep Kohl’s operational mediocrity.” .
Shareholders also accused the directors of wasting their credibility with shareholders through secretive and confusing practices while trying to broker a sale.
News of the prospective purchase sent Kohl’s shares soaring on Monday, breaking through the $60 mark and hitting $60.39 — up 5 percent from Friday’s close of $57.36
Macellum, which owns 5.4 percent of the retailer, is now pushing to take control of Kohl’s board, arguing that a new “capital-intensive,” three-year standalone strategy the company has been rolling out since the pandemic hit its share price hurts.
Kohl’s, meanwhile, has reportedly been in talks with more than 20 potential buyers about a possible sale, with Brass saying the firm has authority to coordinate with selected bidders.
The retailer said in February it had rejected all takeover bids it had received at the time, calling the bids too low — including a $64-per-share bid from Acacia Research Corp., which is backed by hedge fund Starboard Value LP.
The fund has held positions in well-known brands such as Smithfield Foods, Yahoo, Brink’s Home Security, Macy’s and Papa John’s Pizza.
Goldman Sachs is reportedly overseeing all sales negotiations. Kohl’s said in March that Goldman had already spoken to nearly two dozen prospective buyers.
Kohl’s shares, meanwhile, haven’t traded above $65 for nearly three years. The company is currently valued at $7.8 billion, Reuters reported.
JCPenney was one of more than two dozen superstores that nearly went under during the pandemic as lockdown measures preventing in-person shopping prompted shoppers to turn to online options like Amazon and Macy’s.
However, after buying Simon and Brookfield, the company avoided liquidation, and the stores’ remaining 60,000 employees kept their jobs.
During the pandemic, Simon and Brookfield also took advantage of the languishing state of another department chain, Forever 21, and offered $81.1 million to salvage the once $4 billion empire.
The downfall of superstores during the pandemic
JCPenney was one of several megastores to file for bankruptcy during the pandemic, and filed for bankruptcy in May 2020 after store sales plummeted during the enforced lockdowns.
Through the filing, the chain joined other stories like Sears, Banana Republic and Victoria’s Secret – all of which derive a large portion of their sales from in-person purchases, often in malls – whose businesses have been irreparably damaged by the lockdown measures.
Shopping for goods sold in malls has since shifted to online platforms, including online platforms for reputable mall retailers like Macy’s, which is currently ranked among the top 10 e-commerce sites in the country.
No group, however, has been hit harder than the brick-and-mortar department stores that effectively serve as the lifeblood of American malls.
JCPenney was one of several megastores to file for bankruptcy during the pandemic, and filed for bankruptcy in May 2020 after store sales plummeted during the enforced lockdowns. No group has been hit harder than the brick-and-mortar department stores often found in malls – which were largely empty in the early days of the pandemic
One victim of the rapidly changing sales stratum was family-run department store Century 21, which closed all 13 of its primarily New York City stores after undergoing Chapter 11 proceedings
The original store, just steps from the World Trade Center, survived the 9/11 terrorist attacks but fell victim to the pandemic nonetheless, blaming its demise on insurers who refused to pay $175 million in claims, which the chain claimed were due to business-disconnection policies.
The store has since announced plans for a comeback, opening its first international store in Busan, South Korea last summer. The company says buyers can expect “further global expansion as well as the brand’s relaunch in New York and across the country” in the coming months.
The award for the oldest department store, meanwhile, wasn’t enough to save long-established retailer Lord & Taylor – which first opened in Manhattan in 1859 – which announced in August 2020 it would close all 38 of its locations due to losses amid the pandemic.
Sears, once the country’s favorite department store, has struggled to compete with online retailers like Amazon and Walmart during the pandemic and filed for Chapter 11 in 2020, closing hundreds of stores across the country
The award for the oldest department store, meanwhile, wasn’t enough to save long-established retailer Lord & Taylor – which first opened in Manhattan in 1859 – which announced in August 2020 that it would close all 38 of its locations due to losses during the pandemic
The announcement comes almost exactly a year to the day after fashion rental startup Le Tote acquired Lord & Taylor and 25 days after both companies filed for bankruptcy due to losses in business due to the pandemic.
At the time, Lord & Taylor blamed the bankruptcy filing on the “unprecedented strain” on its business from COVID-19 – despite reporting declining numbers in previous years.
Other mall staples to file for bankruptcy in the wake of the pandemic included longtime staples Sears, Kmart, Modell’s Sporting Goods, Victoria’s Secret, Bed Bath and Beyond, Gap and Banana Republic.
From December 2000, when US department store sales peaked, sales fell 45 percent through February 2020 after a series of department store closures, including Sears, then the number one department store chain in the US.
By September 2020, sales were down 48% from that peak.
Now Simon and Brookfield, along with several other mall real estate mutual funds, are buying many of these retailers in bankruptcy court to make a profit.
Businesses to be saved from the dreaded Chapter 11 include Century 21, as well as Brooks Brothers and Forever 21, both of which Simon bought.
Of course, Simon also bought JCPenney in December 2020, saving tens of thousands of jobs in the process.