CORRECTION: Macy's is NOT "The Asteroid that Killed Retail." Who is?

 CORRECTION: Macy’s is NOT the Asteroid that Killed Retail. Who Is?

 

 

In April of 2018, I wrote the article, “Macy’s: The Asteroid that Killed Retail”  in which I blamed Macy’s (which is now Federated) for changing the face of retail by buying and absorbing 85 distinguished Department and Specialty Stores, some of which had century-old histories, and sanitizing them with the sometimes unknown and unrespected name of Macy’s. Let’s look at the list again, it is as tragic in 2020 as it was when it was done, and in 2018 when I examined it in the above article:

Fast Forward to December 19, 1994. Federated Department Stores “bought” Macy’s (but yet it was Macy’s management that ran the show and still is). Eleven years later, in 2005, Fedmacys bought May Company Stores, completing the hat trick the same year with the purchase of Broadway Stores. By March 2005, All units were converted to Macy’s stores. The other names, their histories, and maybe their loyal followings, were dead.

 

Look at the list of those stores sanitized to be Macy’s (Wikipedia, The Dead Department Stores–you can see the rest of the names in the graveyard here:

 

·      Abraham & Straus (Macy's in 1995)

·      D. M. Read Macy's In 1990

·      Ames (Eastpoint)

·      Bamberger's (Macy's in 1986)

·      The Bon Marché (Macy's in 2005)

·      C.C. Anderson's Golden Rule (The Bon Marché in 1923)

·      The Paris (The Bon Marché in the early 1980s)

·      Barnes-Woodin Co. (Yakima, Washington, The Bon Marché in 1952)

·      Columbia River Mercantile

·      A. M. Jensen's (Walla Walla, Washington, The Bon Marché in 1951)

·      Missoula Mercantile Co. (Missoula, Montana, The Bon Marché in 1981)

·      Montague-McHugh (Bellingham, Washington, The Bon Marché in the 1950s)

·      Runbaugh-Mclain (Everett, Washington, The Bon Marché in 1952)

·      Stone-Fisher Co. (Tacoma, Washington, The Bon Marché in 1952)

·      Russell's (The Bon Marché after World War II)

·      Bullock's (Macy's in 1996)

·      Bullocks Wilshire

·      Burdines (Macy's in 2005)

·      Maas Brothers

·      Carter Hawley Hale Stores (merged into Macy's West 1996)

·      The Broadway (Southern California). Headquartered in Los Angeles.

·      Emporium-Capwell (Northern California)

·      Capwell's (East Bay)

·      The Emporium (San Francisco and South Bay, North Bay)

·      Hale Bros. (San Francisco and Sacramento)

·      Weinstock's (Sacramento and Reno)

·      Davison's (Macy's in 1986)

·      The F & R Lazarus and Co. (Macy's in 2005)

·      Shillito's

·      Rike Kumler Co. (Rike's)

·      William H. Block Co. (Blocks)

·      Joseph Horne Co. (Horne's)

·      Herpolsheimer's

·      Famous-Barr (Macy's in 2006)

·      William Barr Dry Goods Co.

·      The Famous Clothing Store

·      Filene's (Macy's in 2006)

·      Filene's Basement (separated from Filene's in 1988, closed in 2011)

·      G. Fox & Co.

·      B. Peck & Co. (sold to Gamble-Skogmo, Inc.)^[1]

·      Steiger's

·      Foley's (Macy's in 2006)

·      May-Daniels & Fisher

·      Daniels & Fisher

·      May Company Denver

·      The Denver Dry Goods Company

·      Z.L. White

·      Sanger-Harris

·      A. Harris

·      Sanger Brothers

·      Gold Circle (discount store chain) Founded in 1967 by Federated; merged into Richway in 1988 and later dismantled during 1990 bankruptcy

·      Gold Triangle (discount store chain for electronics, appliances, home building supply, sporting goods, photography, housewares) Founded in 1970 - closed in 1981, 6 Florida locations - 3 Miami, Plantation, Tampa and Orlando.

·      Goldwater's

·      Goldsmith's Merged into Rich's in mid-1980s. (Macy's in 2005)

·      Hecht's (Macy's in 2006)

·      Castner Knott (Hecht's in 1998)

·      Miller & Rhoads (Hecht's in 1990)

·      Strawbridge's (Macy's in 2006)

·      Thalhimers (Hecht's in 1990)

·      Woodward & Lothrop

·      I. Magnin, owned by Federated 1965-1988 and R.H. Macy Co. 1988-1994; most stores closed 1988-1993, remainder of stores converted to Macy's West and Bullock's or sold to Saks Fifth Avenue. Union Square, San Francisco location eventually incorporated into adjacent Macy's.

·      John Wanamaker or Wanamaker's (Philadelphia and New York City flagship stores), sold to Carter Hawley Hale in 1979, then Washington DC-based Woodward & Lothrop owned by Alfred Taubman; sold to May Company in 1995; merged with Federated Department Stores in 2005 (now known as Macy's, Inc.)

·      The Jones Store (Macy's in 2006)

·      Jordan Marsh (Macy's in 1996)

·      Kaufmann's (Offices merged with Filene's in 2002, Macy's in 2006)

·      May Company Ohio

·      O'Neil's (department store)

·      Stark Dry Goods - Canton (department store)

·      Sibley's

·      William Hengerer Co.

·      Strouss-Hirshberg

·      L.S. Ayres (Macy's in 2006)

·      Stewart's

·      H. & S. Pogue Company

·      Wolf and Dessauer

·      Liberty House (Macy's in 2001)

·      Marshall Field's (Macy's in 2006)

·      Dayton's (Marshall Field's in 2001)

·      Frederick & Nelson (defunct in 1992)

·      The Crescent (department store) (defunct in 1992)

·      Lipman's

·      Halle Brothers Co.

·      Hudson's (Marshall Field's in 2001)

·      J.B. Ivey & Co.

·      Meier & Frank (Macy's in 2006)

·      Zions Cooperative Mercantile Institution (Meier & Frank in 2001)

·      O'Connor Moffat & Co., purchased by R.H. Macy in 1945, renamed Macy's in 1947. Their Union Square, San Francisco location is Macy's flagship West Coast store and headquarters of Macy's West.

·      Rich's (Macy's in 2005)

·      Robinsons-May (Macy's in 2006)

·      May Company California (Robinsons-May in 1993)

·      Hamburger's

·      J. W. Robinson's (Robinsons-May in 1993)

·      Steiger's (May in 1994)

·      Stern's (Macy's in 2001)

·      Gertz

 

No matter who you are, and where you lived, this list brings a memory and a tear to your eye.

 

Now I am correcting myself in the attribution of the death of retail. Macy’s Federated did not kill retail as a whole; they hastened the death of Department Store Retail by robbing their identity and the customer loyalty that kept them going for decades.

 

As it turns out, both Federated and Macy’s, before they merged, and many or most of the above names, were on the sick list before they were absorbed. Case in point: Federated was in Chapter 11 bankruptcy 1990-92 and Macy’s was in that state of business since 1992, and still in 1994 when the negotiations were going on. (Washington Post). I guess all that this proves is that two sick people teaming up do not result in one healthy person.

 

That said, the combined brand and buying power of 85 sometimes iconic or legendary department stores could have been leveraged to create an 85-headed monster that could have competed well for the consumer’s dollar.

 

So Macy’s/Federated didn’t kill retail; they killed Department Store retail. Any chance these hometown units had to compete was erased when they all had to be named Macy’s. That tragic decision goes down in history as one of the most wrong-headed and arrogant decisions in the history of American Retail.

 

What was the disease that made these hometown stores sick in the first place? Same as the fate that befell millions of local stores in rural America. This disease is named Wal-Mart (now Walmart).

 

Then, as time went by, Walmart was joined by a second company named Amazon.

 

My corrected conclusion is that Macy’s was not the Asteroid that Killed Retail- it was one of the dinosaurs that died a slow death due to inability to evolve. IN fact, America was hit by two deadly asteroids: First Walmart, then Amazon. The two together changed the entire retail value proposition for American consumers.

And Macy’s, instead of playing on reputation and loyalty, tried to play in that sandbox. So did many others who have faced the same fate recently.

 

Let’s first look at some numbers which illustrate my point:

 

ANNUAL REVENUE ($BILLIONS)
Date	1994-95	1999	2005	2015	2019
WALMART	82	137.6	281.2	482	519
AMAZON	0	1.64	8.49	107	280.5
COMBINED	82	139.24	289.69	589	799.5
FEDERATED/MACY'S	13	17.7	22.3	27.1	24.5

 

IF we go further back, we can see a day where these department stores, along with others such as Sears and JC Penney, dominated retail. But the fact is, by 1994 when the merger of Federated and Macy’s was agreed, and, coincidentally, the year Amazon got its start, the game was over; American consumers were spending their money elsewhere and department stores became, in the famous words of Perry Mason (and his nemesis Hamilton Burger), “incompetent, irrelevant and immaterial.”

 

So why the hell am I using the term, “killed retail?” Just these two companies are doing a ton of business and making millions of consumers happy every day.

 

The thesis of this article, which I have said many times before, particularly in my article, “Not Understanding the Relationship Between Price and Value Can Be (Is, Was) Lethal”, the price/value proposition in America has been turned on its ear. How Mariana Mazzucato explains it in her great book, “The Value of Everything”(notice the link here is to Amazon:-/):

She says that, previously, the determinants of value actually shaped the price of a good or service. Lately, however, that relationship has gone into reverse and the price of a good is determining its value.

 

There is no doubt that the success of Walmart was and is all about price, and so is Amazon (started by undercutting everyone on books, now is the default site for everything, but still heavily depends on price). So, over the years and more so now, the majority of goods available to Americans fall under this price/value proposition (Walmart and Amazon are not alone; they are joined by Target, TJ Maxx/TJX, Dollar General, Dollar Tree etc. etc.: the lower price I pay, the higher the value to me).

 

This is not the value/price proposition we were raised on in the Department Store era, but it is the overwhelming retail model today. And, when Department Stores as well as Brands like Brooks Brothers abandoned their value proposition in favor of the Walmart/Amazon paradigm, of course they failed.

 

So, this is what I mean by “Killed Retail:” Not one, but two mega-asteroids, Walmart and Amazon, changed not only the face of retail, but murdered what drove retail for the entire 20^th Century:

You pay a little more to buy from the store that you are loyal to, because you have trust in them and the product. When I worked at A&S in Brooklyn during the 1970’s, this is what drove our customers. And when we did give them a sale or promotion, they understood the value and feasted on it.

 

What is worst, it is my theory that this change also contributed to the plummeted standard of living in the US (which I have also written about), and poor working conditions in supplier countries worldwide, because cheap product requires cheap labor, cheap materials, and a cheap experience.

 

What can be done about this situation?

 

First, Brands have to have the courage to stick to the real value price of their products, and not fall into the trap of training their customers to wait for a sale;

 

Second, since loyalty to geography (your local store) is dead and gone, new brands have to give customers a reason to buy other than price: Product, Quality, Business Conduct such as Sustainability. IF enough companies do this, it will start to change minds and the Price Guys will be on the defensive.

 

Disrupt the Disruptors.

 

Honestly speaking, you never know what happens in business, but this might take a while. And it might not.

 

 

Amazon WIll Buy Kohls. Bet on It. I Did.

 

Amazon Will Buy Kohls. Bet on it. I Did.

A recent article in Forbes, “It’s Time For Amazon & Kohl’s To Consummate Their Relationship With An Amazon Go Partnership” by Chris Walton envisions that the next step for Amazon and Kohls, who already have partnered with Kohls accepting Amazon online returns, would be an Amazon Go partnership within the 1158 Kohls stores (or some part thereof).

 

He points out that several competitors in the mass market genre have found a windfall during the pandemic, while Kohls has dropped: “ Kohl’s sales were down 23% over the last quarter, a stark contrast to the performance at places like Walmart WMT -1%, Home Depot HD -0.4%, and most especially Target TGT -0.1%, where Target’s same-store sales were up an insane flipt-the-script 24%.”

 

I agree with his statement that the other retailers listed above have found greater relevance during the pandemic, while Kohls has not, and was, as with all the other Pandemic victims, searching for relevance even before the Pandemic started having an influence on retail sales.

 

If you can’t find relevance, what do you do? Chapter 11 is one solution that many have resorted to (although I find it puzzling that Kohls couldn’t come up with a solution to this problem), tantamount to saying, I give up, can’t find relevance anywhere (how hard did you look? Are you the right management to be looking?).

 

Kohls has taken the approach that partnering up with the Big Kahuna of retail, Amazon, is one way to solve the problem since it will drive traffic into their stores. There is one giant flaw to this business logic: Even if you drive customers into your stores who are intending to return goods to Amazon, that is only a good thing if they stop and buy something from you. The above numbers indicate that this has not been the case.

 

So, failing to reinvent yourself with relevant merchandise, and in an image customers clearly understand (like TJX and unlike Sears and JC Penney), looking to Amazon is not a bad idea.

 

Except that the future relationship as Walton envisions it (a sex partner), is not advantageous to Kohls because it is not a relationship of equals; what Kohls needs is a rabbi- or a daddy.

 

From Amazon’s standpoint, the deal that Walton proposes makes no sense. Why go to the expense of retrofitting 1158 stores with Amazon Go when you could buy the whole company and do what you want with it (like expanding the Whole Foods or Amazon Grocery network, which Amazon desperately needs to do to keep their edge with Walmart). Amazon’s one weakness in their competition with WM is their lack of Brick & Mortar; buying Kohls would put a huge dent in that problem.

 

Amazon also wants to increase their share of Apparel Business. Kohls is a way to do that.

 

I am betting that will happen. And I put my money where my mouth is- I bought (some) Kohl’s stock, which is trading at about 34% of its 52-week high, on the premise that Amazon will take my suggestion and buy the whole shooting match. Check out the numbers:

 

Kohls market cap: $3.22Billion

Kohls share price today: $20.22

Kohls share price 52 Week high: $59.28

Kohls revenue: $17.29Billion

Kohls LT Debt: $3.38 Billion

Kohls Liabilities: $2.73Billion

 

Some numbers about Amazon, which you really didn’t need to know to agree with me:
Amazon Market Cap: $1.66Trillion

Amazon Share Price today: $3353

Amazon Cash on Hand: $71.39Billion

 

(All numbers from Seeking Alpha www.seekingalpha.com )

 

IF Amazon offered $25/share (which is 25% higher than today’s share price) for Kohls stock, the 157millon shares outstanding would add up to a buy price of $3.925 billion. Pocket change?

At that share price, a .25% increase would furnish enough money to buy Kohls at the above price. Do I need to say more?

 

Most importantly, buying the whole Kohls Corporation makes abundant sense for Amazon, as I pointed out above, rather than strictly putting Amazon Go into some Kohls stores which may or may not drive the traffic that Amazon wants.

 

I agree with Chris Walton that a relationship with Amazon may be the best or only saving grace for Kohls at this point. I don’t agree that an Amazon Go partnership is “going all the way.” Buying Kohls is.

 

Those of you who read my blog www.isourcerer.com will remember I recently (June 24, 2020) wrote an article suggesting that Amazon buy Macys. I am not just crazily spending Amazon’s money (as if- but I would spend it wisely, you can guarantee. Macy’s and Kohl’s are different market targets. I would envision Amazon buying both. Which would I buy first, if I were Jeff Bezos? Kohls.

 

 

Chapter 11 Bankruptcy: Pardon or Stay of Execution? EXPANDED EDITION

 Chapter 11 Bankruptcy: Pardon or Stay of Execution? Expanded Edition

(The original version of this article was the most popular in the shortest time during the more than 3 year history of this blog- below is an expanded edition of the same post for your enjoyment!)

 

What is Bankruptcy?

 

Per Investopedia:

 

Bankruptcy is a legal proceeding involving a person or business that is unable to repay their outstanding debts. The bankruptcy process begins with a petition filed by the debtor, which is most common, or on behalf of creditors, which is less common. All of the debtor's assets are measured and evaluated, and the assets may be used to repay a portion of outstanding debt.

 

So, in my simple terms, a company that owes more to its suppliers, landlords, employees, etc. than its sales will repay can file Chapter 11 to protect it from these debts- temporarily. Temporarily should mean that the company can stay open and earn revenue while it figures out how to pay these debts.

 

IF you owe more than you take in, there are only two ways to change that situation: 1. Generate more sales; and 2. Borrow more to pay the debts.

 

Can you actually “emerge” from Bankruptcy and not go back?

 

what you couldn’t before you filed; In case 2, if you don’t accomplish case 1, all you are doing is like the song, Sixteen Tons: “Another day older and deeper in debt.”

 

There is case after case of companies filing bankruptcy and being so overwhelmed with the debt service that they have to do the only thing possible: File Chapter 7 which may allow discharge of debt and liquidation of assets.

 

There are fewer cases of companies that have emerged from bankruptcy (and stayed viable, not returning to bankruptcy) to become profitable enterprises. Those that did have had to rejuvenate their offering, or venture into blue oceans. Examples of this are Apple (near bankruptcy in 1997 and saved by Microsoft, yes, it’s true), Marvel Entertainment, bankrupt in 1996, now owned by Disney and wildly popular. (Investopedia)

 

In the apparel industry, fewer still have emerged and stayed out. One example was Wet Seal, which ventured into plus sizing to save itself. Many others, such as Toys R Us and Sears were too choked by debt and too lost as to what to do.

Below is a graphic of Chapter 11 filings in 2020:

 

IF we view Bankruptcy as a disease, the main cause is the loss of relevance. Either someone took the company’s relevance while it was asleep, or it just forgot to evolve, or both. Great companies survive all manner of financial downturns, some may become even more relevant during it (there are many cases of this during the Pandemic, starting with Amazon, Walmart, Best Buy, etc.). IN summary, there are five main causes for retail bankruptcy in general:

 

1.     Loss of Relevance- The retailer was successful or iconic in a former period, and failed to maintain its relevance in today’s e-commerce driven world; Loss of relevance can occur because either the retailer fails to change, OR is disrupted by other companies taking its business away by offering;

a.     A more attractive value proposition and/or

b.     A superior customer experience which includes friction-free purchasing

 

2.    Failure to Evolve with the Customer:

a.     The influencer groups and the social imperative today have changed from years ago- if the company stands on its brand and does not evolve, it becomes a dinosaur with extinction as the inevitable consequence.

b.     The customer’s view of value is changing with the dominance of e-commerce. Beyond ecommerce, Omnichannel shopping has become ubiquitous; Walmart, Amazon, Target are aggressively balancing their online and Brick & Mortar offerings, with great success.

 

3.     Brands lose significance in favor of retailers:

a.     In today’s world, a retailer is a brand, along with any private brands they bring along. Amazon, Costco, Trader Joes, Target, LIDL, Walmart all are prime examples of retail branding. As a consequence, self-standing brands lose the loyalty and respect of customers that they used to have.

 

4.     The Polarization of Retail and loss of significance of the Great Moderate Middle:

a.     There are two dominant value perceptions on the part of customers today:

                                               i.     The Value of an Item Determines its Price- This is attributable to customers who are willing to spend money for quality, sustainability, beautiful material, longevity, etc. Common amongst customers who shop for designer or high-end brands;

                                             ii.     The Price of an Item Determines its Value- For these customers, the lower the price the higher the value; e.g., if I get something for $10 it is inherently a greater value than if I paid $20 for it or something like it. Common perception of Dollar Tree, Walmart, TJX etc. shoppers.

 

5.    Management Lost Their Way or Never Found It:

a.     Always: The Fish Stinks From the Head

b.     More often than not, in cases of Chapter 11, Management has no Clue as to what to do to save the company; or

c.     It is hamstrung by lenders who want to cut costs and not invest in the company they lent to;

d.     They are hired from outside, because the company has failed to build succession leading all the way back to when they were successful and they need to find a patch.

The above graphic is taken from an online article entitled, “Here’s A List Of 113 Bankruptcies In The Retail Apocalypse And Why They Failed”. If you go through the list, you can see that all of the failures touch upon all or some of the Five Reasons I listed above.

 

Among the examples is my favorite case, Brooks Brothers, which has been a dominant name in menswear, especially shirts, for as long as I can remember (that’s a while!), lost its way as a brand leader with poor merchandising, including a discount brand, Red Fleece, which was housed in the same physical location (how confusing is that about a brand?) and transitioned its value proposition to the Price Mode, thus losing its core customer. The article says about BB:

 

Storied menswear brand Brooks Brothers has grappled with evolving its brand in recent years, as more casual dress styles have become the norm. After it filed for bankruptcy in July, retail management firm Authentic Brands Group and mall landlord Simon Property Group won the bid to buy out the brand by offering a zero-interest loan.

 

Ouch. A realtor and a “retail management” firm. What chance do you think that BB has to really reinvent itself and invest in rebranding?

 

Finally, as I have said in other articles, for companies like JCrew, JC Penney, Ascena and more, COVID-19 is not the cause of death. It is the executioner. Chapter 11 is merely a stay of execution. Why? Tell me, as in the case of Wet Seal, who reinvented themselves in Plus Sizes, what plans for improving its relevance via product mix and customer base, have you heard from the latest list of casualties?

 

 

One retailer who, in my view, has a very good chance to emerge from bankruptcy is Neiman Marcus. Clearly, they are making efforts to get closer to their customer and personalize their offering; IF they match these efforts with great and sustainable investment dressing, they will have completed their task and should be able to generate the income necessary to pay down and back the debt. I have said this a few times, most recently in my last article, “What is the Future of Retail?”

As a former department store retailer, I believe I am right. Let’s see.

 

The bottom line is that Chapter 11, for most, is just a stay of execution. Companies who found themselves in the position to have to resort to Chapter 11 Bankruptcy filing, were usually lost as to their relevance in the marketplace. What is the answer for those companies: Use the Brand Name or Store Name good will and retool, revitalize; strip anything that didn’t work and reinvent themselves. In most cases, as with Sears and JCrew, the Brand has value; it just needs to be applied to the current market.