Simon property Group (Simon Property Group) and Brookfield Asset Management (Brookfield Asset Management) have reportedly pooled resources to buy Kohl’s, a veteran US department store, for $68 a share, valuing the store at about $8.6 billion.
Simon and Brookfield have worked together before-acquiring Kohl’s ‘s rival J.C. Penney and fast fashion retailer Forever 21 in 2020, and buying teenage retailer Aeropostale in 2016, rescuing these companies from bankruptcy.
Simon Group and Brookfield have a wealth of successful experience in acquiring and managing retail brands.
Simon Group co-operates a strong retail brand portfolio as a partner of Sparc Group.
Sparc Group works with Authentic Brands Group, a brand management company, to run a number of brands, including Aeropostale,Forever 21 Magi Lucky Brand and Brooks Brothers.
Brookfield announced two years ago that it aims to spend $5 billion to revitalize troubled retailers, with a focus on those with normalized revenues of $250 million or more.
“on the face of it, the offer will be more attractive than other bids on the table, if only because Simon and Brookfield will continue to run Kohl’s as a retailer and bring some of their retail and operational expertise to Kohl’s ‘s business,” GlobalData managing director Neil Saunders said in an email comment.
David Simon, chief executive of Simon Real Estate, has previously touted these investments as an opportunity to save retailers who would otherwise fade out of the market.
Observers also pointed out that the move saved stores that would have been closed, thus avoiding leaving gaps in shopping malls that have become increasingly difficult to fill in recent years.
In this case, the acquisition will allow an entity to manage both the J.C. Penney Store and the Kohl’s Store, using synergies that will help achieve the $1 billion spending cuts proposed by the Kohl’s Store, according to the Washington Post.
“these savings are likely to occur at the back end, with a focus on operations and logistics,” Neil Sanders said.
“since the stores of the two chains do not have much overlap in the location, it allows Simon Group and Brookfield to further expand their retail business in many areas that are not covered by the JC Penney store.
But Neil Sanders also warned, “the two companies are different retailers, so they need to create their personalized positioning.” Merging the purchasing and marketing departments of the two stores is pointless and would be a strategic mistake, “he said.”
It also highlights that merging the two troubled department stores into one to create larger retailers will not magically change the fate of the two stores.
Nick Egelanian, president of retail development company SiteWorks, points out that Kohl’s stores are mainly located in roadside shopping malls, so real estate investment trusts that invest in these malls may be interested in expanding their presence in these locations, and they will certainly benefit from the relocation of Kohl’s stores and fill the vacant space in their indoor shopping malls.
But he also hopes that Simon and Brookfield will consider divesting the e-commerce of Kohl’s stores to better cash out investors’ high valuations of department stores.
In December, hedge fund engine Engine Capital said the digital value of the Kohl’s store alone was conservatively estimated at $12.4 billion, about 40 per cent higher than the value of its entire business.
“it all depends on the value of these businesses to them,” Nick Eglanian said of Simon and Brookfield. “from a long-term investment point of view, they are not strategic investors. They are making short-to medium-term tactical investments.