Mall operators Simon Property Group and Brookfield Asset Management have offered to buy retailer Kohl’s Corp. in a deal that would be worth more than $8.6 billion, according to an April 25 report in the New York Post.
Simon and Brookfield, which bought rival department-store chain JCPenney out of bankruptcy, have offered $68 a share, the Post reported. One unnamed source told The Post the buyout plan calls for maintaining two separate brands while creating a single management team, streamlining operations and cutting costs.
News of the possible acquisition generated a mixed reaction from industry watchers.
“If Simon Property and Brookfield Asset Management hope to make this acquisition successful, the best bet is to keep the Kohl’s brand intact. Kohl’s has a solid following thanks to its loyalty programs like Kohl’s Cash and other initiatives that increase their store traffic, such as its partnership with Amazon,” Gregory Ng, CEO of customer experience vendor Brooks Bell, told Digital Commerce 360. “While JCPenney and Kohl’s are technically both an ‘aging brand,’ Kohl’s made a switch early enough to remain relevant and has positioned itself between the affordable Walmart and trendy Target for consumers.”
‘Mediocre strategy’
Kohl’s, which is No. 21 on the Digital Commerce 360 Top 1000 list of online retailers, saw web sales of $5.91 billion in 2021 on total sales of $18.47 billion, according to Digital Commerce 360 estimates.
JCPenney, No. 35, saw web sales in 2021 of $2.58 billion on total sales of $11.49 billion, according to Digital Commerce 360 estimates.
“While Kohl’s is a materially stronger brand than Penney’s is, the core reason both brands have struggled is insufficient differentiation and customer relevance. Merging two unremarkable retailers does nothing to change this reality,” Steve Dennis, author of “Remarkable Retail” and a consultant, told Digital Commerce 360. “This is another example of companies pursuing what I call a slightly better version of mediocre strategy with more of an emphasis on consolidation and cost savings. That’s nice, but it doesn’t do much, if anything, to change competitive positioning (see Sears and Kmart).”
Under pressure
Kohl’s has been under pressure from activist investors including Macellum Capital Management, which is seeking to take control of the company’s board. The Menomonee Falls, Wisconsin-based retailer has engaged Goldman Sachs Group Inc. to field offers, saying the firm is authorized to coordinate with select bidders.
“We believe occupancy-preservation was an important driver behind Simon’s purchases of JCPenney and Forever 21. That’s not a factor here because Kohl’s is mostly an off-mall retailer and isn’t among Simon’s largest tenants. Simon also has yet to show tangible results from its turnaround efforts with Penney,” said Lindsay Dutch, REITs and consumer hardlines analyst with Bloomberg Intelligence.
Kohl’s said in March that Goldman had talked with more than 20 potential buyers. The retailer said in February that it had rejected takeover offers it had received as too low, including a $64-a-share offer from Acacia Research Corp., backed by hedge fund Starboard Value LP. The stock hasn’t traded above $65 in almost three years.
A Kohl’s spokesperson and an outside spokesperson for JCPenney (No. 35 in the Top 1000) didn’t immediately return messages seeking comment.
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