Is Franchise Group’s plan for Kohl’s a retail disaster in the making?
Franchise Group’s plan to acquire Kohl’s is similar to previous deals in retail that saw companies such as Mervyn’s, Shopko and Toys”R”Us saddled with debt and selling off assets before eventually failing, reports The Wall Street Journal.
The owner of The Vitamin Shoppe, Pet Supplies Plus and other retail brands is looking to finance most of its $60 per share bid for Kohl’s by selling off the retailer’s real estate assets. Franchise Group, which will kick in $1 billion of its own money, earlier this week entered into an exclusive three-week negotiation period with Kohl’s, which doesn’t presume a deal will be finalized.
Franchise Group, as its name suggests, has built its business not on operating its own stores but finding franchisees to do that work. There hasn’t been any reporting to date indicating that it would apply the same business model to Kohl’s.
The would-be owner of Kohl’s joins all publicly-named bidders for the chain in seeking to monetize its real estate holdings. It does not appear, however, that Franchise Group will seek to split off Kohl’s physical and digital operations as others, including Acacia Group, Hudson’s Bay, the parent of Saks Fifth Avenue, and Sycamore Partners, have done.
Simon Property Group and Brookfield Property Partners, mall operators and co-owners of JCPenney and other retailers, have also been among more than 25 companies that have reportedly expressed interest in acquiring Kohl’s. History suggests that neither of the two would split off Kohl’s online and physical store operations.
Kohl’s, which operates more than 1,100 stores in 49 states, is known for its off-mall locations. The Journal reports that, as of January, Kohl’s owned 410 locations, leased 517 others and had ground leases on 238 stores.
The retailer, like many others, lowered its annual sales and earnings forecast after its same-store sales fell 5.2 percent in the first quarter. Kohl’s adjusted its net sales forecast to be flat to up one percent over last year, compared with its previous guidance of a two to three percent gain. The chain is now looking for its adjusted earnings per share to come in between $6.45 and $6.85, compared to a range between $7.00 and $7.50.
- Kohl’s Suitor Wants to Buy the Chain by Selling Kohl’s Properties – The Wall Street Journal
- Kohl’s Board of Directors Enters into Three-Week Exclusive Negotiations with Franchise Group – Kohl’s Corporation
- Kohl’s Reports First Quarter Fiscal 2022 Financial Results – Kohl’s Corporation
- Will Kohl’s make a better deal for itself after an activist investor loses board vote? – RetailWire
DISCUSSION QUESTIONS: Do you think that Franchise Group is the right company to acquire Kohl’s? Are there other bidders that you think would be a better fit, or might Kohl’s go unsold at this point in time?