When Charlotte-based Belk announced more than two months ago that it was considering selling itself, the department store chain ushered in a period of uncertainty for employees, shoppers and its headquarters city.
That uncertainty could end in one of three ways, analysts say: Through acquisition by a private equity company, a sale to another department store chain or keeping the company in family hands.
Interviews with 10 analysts and industry insiders show that most see a sale to private equity as the likeliest outcome. When a private equity firm makes an acquisition, it looks to make a company more profitable – either holding on to it, readying it for possible resale, or grooming it to go public.
Belk said in April it had hired Goldman Sachs, the New York investment bank, to help it weigh options, and that the analysis would take several months. For now, neither Belk nor Goldman are commenting publicly on scenarios for the 127-year-old retailer.
Digital Access for only $0.99
For the most comprehensive local coverage, subscribe today.
“Goldman has a lot of work to do, (and) there are a tremendous amount of moving parts,” said Howard Davidowitz, chairman of retail consulting and investment banking firm Davidowitz & Associates Inc.
Details to be worked out about the deal, Davidowitz said, include due diligence by the potential buyer and the structure, terms and cost of the acquisition. Other details include determining whether any stores will close and who will remain in leadership positions.
From its roots in Monroe, Belk has grown to 297 stores in 16 states and is one of the Charlotte region’s largest employers. Its name is all over town: It adorns a freeway, uptown theater and college football bowl game. Its former CEO, the late John Belk, was a longtime Charlotte mayor, and family members have headed the Charlotte Chamber.
Chamber president Bob Morgan says Belk has always been a “steadfast supporter” of Charlotte’s growth and development.
“Business is business, and Belk will do what they have to do,” he said. “We obviously will hope they remain an important part of Charlotte for a long, long time. What those specifics look like, time will tell.”
If it decides to sell, Belk will join a handful of other family-led Charlotte businesses to recently shift ownership.
Federal regulators are expected to approve the sale of Matthews-based Family Dollar to rival Dollar Tree in early July. Last year, hometown grocer Harris Teeter was sold to Cincinnati-based Kroger. Ahead of the acquisition, Harris Teeter’s Facebook page was inundated with thousands of comments imploring Kroger not to change Harris Teeter.
Belk is the biggest family-owned department store chain in the U.S. and one of the last remaining of its kind. Analysts say the department store industry has been undergoing a sea change over the last two decades as larger companies acquire regional chains, which struggle to keep up with consumer and technology trends.
Some of those smaller chains include Charlotte-based Ivey’s, which was bought by Dillard’s, as well as Chicago-based Marshall Fields, Arlington, Va.-based Hecht’s and Indianapolis-based L.S. Ayres – all of which were bought by Macy’s or a related company.
“The graveyard of failed or dead retailers is huge,” said Robert Spector, a retail industry historian. “Some are just meant to last a certain time, and others have more staying power.”
Also changing the landscape: Online shopping. It’s especially challenging for regional chains like Belk that compete with national giants. Belk’s online sales have been growing rapidly (last quarter they rose 36.7 percent over 2014), but they still represent a relatively small portion of its overall revenue.
One former Belk corporate employee said department stores need to expand nationally if they wish to survive long-term, and that e-commerce effectively makes a chain national since merchandise can be ordered from anywhere. But brand recognition could be an issue, he said.
So the company that prides itself on its “Modern. Southern. Style.” brand may have boxed itself in with its regional identity, the person said, and that may make potential buyers skeptical of the chain’s growth potential. The former employee spoke on condition of anonymity to protect business relationships.
Here’s what could happen under each of the three scenarios:
1. Private Equity
An offer from a private equity firm likely would be an all-cash deal and the most lucrative option presented to Belk, Davidowitz said.
With a private equity buyer, he and others say, shoppers likely wouldn’t notice much change. Belk has a good reputation, so any buyer would be smart to preserve the name, said Marshal Cohen, chief industry analyst at the NPD Group.
But a private equity firm would likely identify cost-cutting opportunities, such as closing under-performing stores, to make Belk more profitable, said Andy Stout, managing director of investments at Simply Money.
Any job cuts from a private equity takeover, Stout said, would therefore mostly be in store closures or consolidations rather than in corporate functions.
He wouldn’t speculate on how many stores might close, or their locations. Like most retailers, Belk doesn’t disclose results for individual stores.
Many of Belk’s stores are in smaller markets, reflecting the chain’s small-town roots. The former Belk employee said the bustling SouthPark store is atypical, with sales figures that “couldn’t be more different” than most others in the chain.
2. Bought by a rival
When it comes to other department stores as potential acquirers of Belk, the name that seems to come up most often is Macy’s, the nation’s largest department store chain.
The Cincinnati-based retailer has, over the decades, acquired or merged with dozens of regional chains – including St. Louis-based Famous-Barr and Philadelphia-based Strawbridge’s – to become a $32 billion retail giant.
“We continue to see the good grow and do better and lead the (retail) consolidation and the lesser players to do poorly, donate market share and eventually become casualties,” said Richard Jaffe, an analyst at Stifel Nicolaus. “That’s why Macy’s has 800 stores and 82 other brands don’t exist.”
Macy’s, Davidowitz said, could probably afford to pay cash for an acquisition like Belk, which has a market cap of $2.5 billion. Macy’s reported full-year sales of $28.1 billion in 2014, and Belk posted full-year sales of $4.1 billion.
But if Belk is acquired by a rival department store, Davidowitz said, it’s possible there could be “a wipeout” of jobs and “huge changes” in the way the company works. Because it’s bigger, Macy’s, for example, has much more power with certain suppliers, Davidowitz said. It also has different technologies and distribution methods.
“Macy’s would centralize the functions that happen at the current Belk home office. That would be the most dramatic in terms of people and everything else,” Davidowitz said. Belk’s 1,700 full-time Charlotte employees include about 1,300 at its corporate offices.
But here’s why analysts see an acquisition by Macy’s as less likely than a private equity buyer: Macy’s already has a huge footprint. Together with its other banners including Bloomingdales and Blue Mercury, Macy’s operates about 885 stores in 45 states, the District of Columbia, Guam and Puerto Rico.
Macy’s would have to decide what to do about Belk stores that operate in malls where Macy’s also has a presence. For example, SouthPark, North Lake and Carolina Place malls all have Macy’s and Belk stores.
And in any case, Macy’s may already operate too many brick-and-mortar stores, in an era when so much growth is online. “Their optimal store fleet is probably one-third of what it currently is,” said Marie Driscoll, CEO and chief consultant at Driscoll Advisors, a retail industry consulting firm.
A few other department store names who compete with Belk have been mentioned as possible buyers, though analysts generally dismiss them as less likely than Macy’s.
Davidowitz said Pennsylvania-based Bon-Ton, which recently reported a first-quarter loss, has to deal with its own pressing issues first. And Dillard’s is “languishing,” Stout said: The Arkansas chain recently reported a slump in quarterly profit and is facing pressure from investors to spin off retail assets.
Several analysts dismissed the notion of an acquisition by Seattle-based Nordstrom, which is thriving and whose consumer base is considered more high-end than Belk’s.
3. Staying in the family
And while it’s less likely, it’s also possible the Belks opt out of selling the company to keep it in family hands.
Belk, whose stock is owned mostly by the Belk family, traces its roots to 1888 when William Henry Belk opened his first store in Monroe. After him came his son John M. Belk, who headed the company and served four terms as Charlotte’s mayor, the longest-serving until Pat McCrory.
A third generation of Belks, including CEO Tim Belk and his brother and Chief Operating Officer John Belk, now leads the company.
If ownership remained with Belk, Davidowitz said, it’s possible some family members could decide to buy out others. Leadership would arrive at this path if they couldn’t reach a deal or find a buyer that was worth the trouble of selling.
“If the Belks stay in, I think the people who stay in will believe in the path they’re on,” Davidowitz said. “I don’t think they’ll see a tremendous need for dramatic cost-cutting.”
If Belk is acquired, it wouldn’t be the first time a major Charlotte department store was sold.
In 1990, Ivey’s, which had 23 stores and was owned by the holding company Batus, was sold to Dillard’s. The Arkansas chain closed the 90-year-old retailer’s last uptown store that year. Shoppers considered Ivey’s a high-end destination and would travel miles to shop there. The retailer started losing customers to suburban malls in the 1960s and 1970s.
The purchase displaced hundreds of Ivey’s workers, some who retired, others who went to work for competitors like Belk. The uptown Ivey’s Tryon Street building is now filled with luxury townhomes.
When Macy’s takes over
When Macy’s, then called Federated Department Stores, took over the Chicago department store Marshall Field’s in 2005, it started slashing jobs at Marshall Field’s corporate headquarters and the rest of the U.S. as well as gradually changing Marshall Field’s stores into Macy’s.
By fall 2006, Federated had re-bannered all Marshall Field’s stores, angering loyalists, including some who protested in front of the landmark Marshall Field’s on State Street in Chicago. A few frustrated shareholders even condemned Macy’s CEO Terry Lundgren at a meeting in 2008 for his decision to end the Marshall Field’s chain.
Some analysts have compared Belk’s customer loyalty to that of Marshall Field’s.
Macy’s takeovers don’t always go that way. The company, still called Federated Department Stores, bought the Bon Marché chain in Seattle in the early 1990s, and in 2003 started transitioning the names of stores, first renaming them Bon-Macy’s.
“You don’t want to shock your customer. you want to bring them along in the transition in a pace they feel comfortable with,” retail historian Robert Spector said.