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Are JCPenney’s owners a good fit to take over Kohl’s?
Simon Property Group and Brookfield Property Partners, co-owners of JCPenney, have joined a growing list of bidders looking to acquire Kohl’s.
The two mall owners in recent years have jointly bid, sometimes with Authentic Brands Group as a third partner, to snap up struggling retailers at discount prices.
The bid, first reported by the New York Post, if successful would be a deviation from past deals for the two companies.
Kohl’s, which has been under pressure from activist investors to return greater shareholder value, is not in bankruptcy as Penney was in 2020. Simon and Brookfield are said to have bid $68 a share ($8.6 billion total) to acquire the retailer. The retailer’s shares were up 3.03 percent to $60.39 in premarket trading this morning.
Simon and Brookfield are also not looking to acquire a retailer that is a key tenant in their enclosed mall properties. Kohl’s has differentiated itself by its choice to operate standalone locations outside of malls where rivals such as Penney and Macy’s operate.
A single “well-placed source” told the Post that Simon and Brookfield believe that they will be able to maintain Kohl’s and Penney as separate businesses but will be able to streamline some operations to cut costs between the two chains. The plan is to cut costs by $1 billion over the first three years of operations.
Simon and Brookfield are joining a long list of bidders for Kohl’s including Franchise Group, owner of Vitamin Shoppe, Hudson’s Bay, the parent of Saks Fifth Avenue, Sycamore Partners and Acacia Research. More than 25 companies have reportedly expressed interest in Kohl’s, which could expand the bidding parties even further.
Kohl’s announced last month at its Investor Day that it plans to open 100 smaller stores over the next four years. The stores, which would measure about 35,000-square-feet versus its typical 80,000-square-foot units, are expected to give the retailer access to locations where it previously didn’t fit.
Michelle Gass, CEO of Kohl’s, said that the smaller stores will provide curated experiences based on local tastes.
“We’ve created a new test store in the Seattle area,” she said. “In that region, the store reflects local customer preferences, such as a greater emphasis on outdoor apparel. In the South, that same size store would carry more warm weather product, such as year-round swim sandals and lighter weight apparel.”
- JCPenney owners offer to buy archrival Kohl’s for $8.6B – New York Post
- Kohl’s receives an unsolicited buyout bid, others may follow – RetailWire
- Does this activist investor know what’s best for Kohl’s? – RetailWire
- Will smaller, more localized stores work for Kohl’s? – RetailWire
- Will JCPenney’s core customers come back and show their love? – RetailWire
- Simon says J.C. Penney is ready to become a 21st century retailer – RetailWire
- Will J.C. Penney be renewed under new ownership? – RetailWire
- J.C. Penney rescued. Will it now find success and save the mall, too? – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: What do you think needs to be fixed at Kohl’s? Would Simon Property Group and Brookfield Property Group make better owners than some of the others rumored to have an interest in acquiring the chain?
Poll
Loading …BrainTrust
Travis Mariea
CEO, Flxpoint
Ananda Chakravarty
Vice President, Research at IDC
While the Simon and Brookfield offer is a serious one, I’m not certain this combination will produce the best outcome for Kohl’s shareholders in the long term. Their approach to “run Kohl’s and JCP as two separate brands but streamline operations and cut costs” is telling. What could go wrong? Notwithstanding the size and resources of Simon/Brookfield, I think Kohl’s management should continue to explore options and, given that there were some 25 interested parties, they have plenty to explore.
As Mark points out, “Their approach to ‘run Kohl’s and JCP as two separate brands but streamline operations and cut costs’ is telling.” Historically, if you look into the plans and actual payoffs of M&A activity, much of the ROI is based on synergies. In this case, $1 billion. The reality is most often dis-synergies. If they need $1 billion in cost savings to make this work, it will be a disaster.
OMG, it’s a classic “circle the wagons” move. All this will do is slow the downward spiral to Sears-land. They both need to think about being smaller and better rather than bigger and just as bland.
When SPG acquired J.C. Penney in bankruptcy, I felt that they did so to protect their own interests in the real estate that JCP was occupying, and not because they are particularly good operators of retail companies. With that in mind, it is hard for me to understand why SPG would be interested in acquiring Kohl’s.
Great point! What is the motivation here?
Partially because they are salivating at the prospect of populating some of that abundant retail space with ABG brands. And then taking ABG public in a couple of years.
Definitely an interesting move and I would think there is much more upside for JCPenney than Kohl’s in this deal.
Kohl’s has been fairly progressive in their push to online and incorporating new technology. They have embraced expansion of assortment via dropship, partnered with Amazon for returns, etc. While JCPenney seems to want to double down on in-store (according to their recent marketing campaign).
So maybe the differing approaches can be complementary to round out a complete retail vision but more likely it seems that there could be some shake up and misalignment of vision/future strategies.
This worries me because we haven’t seen a big comeback story from JCP. Kohl’s needs a massive shakeup in its strategy that will completely modernize its model. Every attempt at saving Kohl’s thus far has been a revamp that maintains too much of its same positioning. The Kohl’s offering and store design needs to resonate with how consumers are shopping today. Discount and dollar stores are doing well, department stores that are taking on more of a marketplace approach (e.g. Macy’s) or that are staying extremely trendy (e.g. Nordstrom) are turning around. Big box has continued to do well. The problem is that Kohl’s kind of straddles all of these categories. There needs to be much more focus and clear direction.
I agree — moves have been less than innovative at Kohl’s the past decade.
Leave them alone! This caterpillar is still weaving its cocoon. Kohl’s has evolved tremendously over the past few years and is on an excellent trajectory. Brand acquisitions, shop-in-shop partnerships, drop-off returns, DEI commitments, and cause marketing programs are just some of the initiatives. Through its plethora of recent national brand launches it has cemented itself as a true department store. Yes, the stores and lighting could use some upgrading but they are on the way. Selfishly I would love to take over some of their home business being sourced through importers rather than a direct manufacturers thus improving margins, but I am very impressed at their willingness to innovate.
Given the strong similarities between the Kohl’s and JCPenney shopper, this merger makes a lot of sense that offers big benefits and efficiencies for both branding and operations. Kohl’s smaller footprint, location deeper inside of communities and partnership with Sephora would be the shot in the arm JCPenney needs to update their legacy. And Kohl’s would benefit from what JCPenney’s operational scale would bring in terms of better product range, pricing and omnichannel fulfillment capabilities. I see it as a great way to preserve this middle place between discount and mainstream that so many shoppers have been missing.
Given JCPenney is as bad as it ever was and evidence of a turnaround is scant to non-existent, I think it would be wise for Simon and Brookfield to focus on fixing what they already have. There probably would probably be some cost synergies to be found if JCP and Kohl’s were under the same ownership, but this is absolutely not the solution to the problems either brand faces. In my view, it is also a very poor reason to make a deal.
There was a time when cost cutting may have helped. As in last century. JCP and Kohl’s need investment in change and modernizing. Investment on an uncomfortable scale, not cost cutting. And localizing product based on climate and seasonality? Again, a good idea to have initiated last century. Management at Target must be rolling in the aisles.
Placing Kohl’s in the same portfolio with JCPenney and Authentic Brands has its perils. Maintaining Kohl’s and JCPenney as separate entities isn’t the same as differentiating between the two. Should the acquisition happen, Simon/Brookfield should resist the temptation to crowbar Authentic Brands’ IP assets into both retailers without giving through to distinguishing them from one another.
Great point, but the temptation to flood those two pipelines with ABG product is going to be overwhelming. Just think about the money to be made by taking ABG public in a couple of years. It’s all doable, but oh so carefully.
Totally. The traditional licensing business is rife with speculation (buying brands as a licensor and securing categories as a licensee — often before retailers have shown any interest). The ABG connection takes out a lot of risk!
At first thought, I envisioned two super tankers on the ocean running head to head on a collision course. They better get some very strong retail brains that are not afraid to take chances. I don’t know which one would get the most benefit, but I would definitely advise to exercise extreme caution. A bad outcome would be very serious. Good retailers, real good retailers, must be in the mix and enjoy extreme authority to do what must be done to make this a powerhouse move.
As I’ve often stated on RetailWire, I worked for Kohl’s for 24 years and continue to hold some shares in an IRA after my retirement — so perhaps I am not the most objective person to comment on this thread!
That being said, Kohl’s has been a stronger company than JCPenney for many years, and continues to be despite its more recent tepid sales and stock growth. It is financially sounder, further advanced in omnichannel and other retail technology, and with a much more attractive real estate portfolio. Maybe these are things that attracted the Simon/Brookfield partnership to Kohl’s in the first place, but recent retail history suggests that acquisitions of stronger companies by weaker ones do not work out well for either brand.
One more note: The reporting about JCP’s interest suggests that the buyers will immediately end the Sephora rollout at Kohl’s, set for 400 more stores this year. Assuming the initial results drove sales and were not a drag on capital spending (otherwise why add 400 stores?), it’s hard to understand the motivation of Penney’s owners.
It’s interesting that Brookfield would want to double down on the same market segment. Especially since this segment has not been particularly lucrative for either company in the last several years. The Penney acquisition made sense to me as a real estate strategy to keep anchors open in Brookfield owned malls. Kohl’s is a bit hazier I think. I do believe there are some interesting opportunities for both if they both become part of the same management group. From an assortment and marketing perspective, Kohl’s is far more successful and can help JCPenney. Streamlining product development, sourcing and product branding could help both companies, and each has segments of the market where they are stronger than the other.
The question is, what is the future of the mid-market department store in general? Both brands have been stuck in a never land between department stores and big box retail. Their customers aspire to brand prestige at Macy’s and Nordstrom when they can, while shopping at Target for basics and disposable fashion for every day purchases, leaving these two behind. The long term prognosis for both of the brands isn’t great. Without some sort of complete reinvention, which admittedly I can’t imagine what that looks like, there’s not a lot of upside for either one of the brands. I suspect this move helps Brookfield do a bit more to prop up JCPenney, but I think they’re just kicking their issue a bit further down the road.
I don’t mind the concept so much, but I’m not sure what’s in it for Simon and Brookfield. The stores are predominantly not mall based, and the proposed owners don’t want them to be. I suppose it’s one way to hedge bets outside of malls, and pick the best technologies between the two companies, but something about it doesn’t feel quite right.
Having said all of that, it’s better than splitting Kohl’s into stores vs. online. That concept really has to die.
This announcement says more about Simon Properties and Brookfield than about Kohl’s. If the deal goes through, the acquirers will likely run JCPenney and Kohl’s as two separate brands while rationalizing operations into a single management team, combining their IT systems, and reducing costs by about $1 billion. I would also expect rationalization of their private label under a single brand.
While past Simon Property acquisitions were defensive, where they were buying failed tenant brands, this move expanded their strategy to strip malls and non-distressed chains. It may point to Simon’s perceived operational strength and the opportunity to streamline JCPenney and Kohl’s operations. Also, this signals the group’s interest in expanding to high-quality strip mall locations and potential for redevelopment.
From a consumer perspective, I don’t see how this new ownership brings any differentiation. Instead, the cost savings will cause brand dilution and confusion. The market doesn’t need a mall and off-mall department store one-off format and merchandising. The timing in the business cycle is not good as we enter a challenging year-over-year comps period, inflation, wage pressures, and decreased consumer sentiment. That $68 a share offer price will seem quite frothy by the fall.
Simon Property and Brookfield aren’t the only suitors but are the first to put a bid together. There are about two dozen interested parties, including PE firms Sycamore Partners and Leonard Green & Partners, who are also interested in Kohl’s.
Winners in retail are investing heavily in the customer experience. While Kohl’s is an innovator that keeps pushing the envelope and creating lots of new partnerships to enhance the customer experience. JCPenney is not. The big concern is that any cost cutting measures will curb Kohl’s ability to innovate and actually reduce long term shareholder value, not increase it.
Kohl’s has pre-conditioned its customers to rely on Kohl’s Cash as an incentive to shop. The mechanism is threshold based on timing constrained. In order to improve business metrics including a reduction on markdowns and improved margins on goods sold a different, more compelling construct is indicated. Kohl’s has been on the bounce back coupon train for way too long. In addition, the store has zero energy. The biggest news in recent years was the Amazon returns shop with the benefit of new traffic walking the store. Stop by for a visit and see how many Amazon customers actually shop post drop-off.
They would be better owners than most, if not all, private equity firms or hedge funds. But that’s the wrong question. The right question is whether they bring the skills to address the challenges that have caused Kohl’s to stagnate and JCPenney to tank. The answer to that is no — or at least there is little evidence of that. Both brands have a remarkability problem, that is they are not sufficiently differentiated or customer relevant. Merging a retailer that is slightly better than mediocre with a terrible one might bring some economies of scale and scope but does precisely nothing to deal with the core issues.
I have been watching mall developers for a while and worked on that side of the industry for many years. The only benefit I see with developers owning retail is if they provide an exclusive and differentiated tenant mix in their properties. Meaning, you can only shop a JCPenney or Kohl’s at a Simon property. Otherwise I can’t see the added value for either entity. With Kohl’s being off-mall and other investors interested, I would explore a more innovative path forward.
My first impression is that this is a land grab for property. Kohl’s owns about 35 percent of their real estate and the portfolio is worth over $7 billion. Simon and Brookfield’s $8.6 billion bid doesn’t seem to take into account the $6.99 billion revenues from 2021 or the profits earned last year. Kohl’s is not struggling as much as other retailers and hence the high interest in their operations. I’ll be surprised if Kohl’s doesn’t put in a poison pill to increase the bids. There would be a challenge to integrate JCPenney – if that is the intent for Simon and Brookfield. Alternatively, Simon’s interest could be as simple as filling out vacancies by bringing Kohl’s into the mall. Whatever the case, Kohl’s is actually doing well, breaking a profit across this pandemic with $340 million and $299 million in profit the past couple of years.
Just to be clear — these are quarterly numbers and YOY quarterly numbers mentioned.
No. Creating another losing department/megastore in a mall is a proven recipe for disaster. Unless we are looking at a move to start focusing on online development, using the mall locations as omnichannel/warehouse suppliers, this buyout is a recipe for disaster.
There are really two separate questions here: 1) Are there advantages to merging Kohl’s and Penneys? And, if #1 is true, 2) Is Simon the one to do it? I don’t have clear answers to either, but I’m much more likely to say “no” to #2 … at least until they’ve shown some genius with JCP; their purchase of the latter made sense in that it was trying to save what they already had; that isn’t true of Kohl’s.
The majority of department stores are struggling to reinvent themselves in the face of innovative, data-rich, and customer-centric D2C firms. Similarly, Kohl’s has been unable to redefine itself and remain relevant in the modern era. Simon Property Group and Brookfield Property Group are attempting to keep their real estate businesses afloat by simplifying operations and lowering costs for these retailers. Because off-mall store locations, such as Kohl’s, are only lucrative as long as customers value these businesses. These investors, in my opinion, intend to leverage the retailers’ estate in one way or another.
I think a Kohl’s merger with JCPenny is ill advised for many stakeholders – investors, consumers, Kohl’s employees etc. Their metrics look pretty darn good. Our in-store and on-line experiences have been above par.
Previous Close 59.19
4/29/22 Open 58.85
Bid 57.51 x 1400
Ask 58.49 x 800
Day’s Range 57.69 – 59.57
52 Week Range 43.67 – 64.80
Volume 1,730,460
Avg. Volume 3,119,969
Market Cap 7.443B
Beta (5Y Monthly) 1.94
PE Ratio (TTM) 9.16
EPS (TTM) 6.32
Earnings Date May 19, 2022
Forward Dividend & Yield 2.00 (3.46%)