Belk Inc. said Thursday its retention of Goldman, Sachs & Co. is part of an open-ended, five-year strategic planning process, but market sources are already playing “The Match Game” by speculating over prospective buyers or merger partners.

This story first appeared in the April 3, 2015 issue of WWD. Subscribe Today.

Macy’s Inc. and Dillard’s Inc. might have too many overlapping locations to make sense and Hudson’s Bay Co., owner of Saks Fifth Avenue and Lord & Taylor, “has plenty on the table already,” said one source.

There is also a lot of talk about private equity jumping into any possible bidding for the Charlotte, N.C.-based Belk. “But it’s not a fixer-upper; it’s a very well-run company that doesn’t lend itself to being bought, optimized and sold,” said Antony Karabus, chief executive officer of the HRC Advisory unit of Hilco Global. “The third generation of family management under [ceo] Tim Belk has been very forward-thinking, looking to create value for shareholders with big investments in omnichannel, infrastructure and the differentiated marketing and merchandising strategy of its “Modern. Southern. Style.” campaign.

The Bon-Ton Stores Inc., which itself expanded through acquisitions in the last decade and had sales of $2.76 billion but a loss of $7 million last year, is struggling to return to profitability. Still, one department store executive said its regional reach across the Middle Atlantic and Midwest “would be a perfect fit” with Belk’s Southern presence and pedigree.

“There is no geographical overlap and they are so similar in terms of the type of customers they appeal to,” the source said. “They’re very middle market. They have similar matrixes. All the major vendors at Belk are major vendors at Bon-Ton.”

Belk has distinguished itself through disciplined management that has generated excellent profits and lots of cash, despite major investments in infrastructure, e-commerce and both the building and renovation of flagships.

Last year, Belk’s sales rose 1.8 percent to $4.11 billion, even as investments in stores, e-commerce and infrastructure reduced net income by 7.8 percent to $146.1 million. Fourth-quarter profits grew 8.4 percent to $104.4 million while quarterly sales rose 5 percent to $1.39 billion, with comparable sales up 4.8 percent and half of that increase coming from a 42.2 percent rise in online sales.

“That’s a pretty good track record in a retail environment you’d have to be generous to call ‘choppy,’” said one retail source.

But even with sales growth, the challenge of keeping up with the competition in an increasingly tough retail environment is formidable.

“Macy’s and Nordstrom are big competition and Kohl’s appears to be coming back,” said one former retailer who’s now engaged in retail consulting, “and Penney’s would still be a challenge if not for its detour a few years ago. You know the members of the Belk family like to go to work in a place that has their name on it, but you do wonder if they’re thinking that maybe it’s time to harvest what they’ve planted, or at least take some money off the table.”

Gilbert Harrison, chairman of Financo, commented, “The Belks have done an outstanding job competing in a difficult environment where the large players dominate the retail landscape. There are a host of companies that certainly we believe would be proud to partner with them. Today, to survive in this world, you need volume, and the quickest way to get volume is to buy.”

Sources mentioned the possibility of an overseas buyer establishing a U.S. beachhead with Belk. They also pointed to less conventional strategic alternatives, all facing obstacles, such as a public offering; the acquisition of another retailer, possibly one deeply involved in e-commerce or a smaller regional operation like Stage Stores Inc., or the sale of its real estate assets to a real estate investment trust, as retailers such as Hudson’s Bay Co. and Sears Holdings Corp. have recently explored.

Belk owns about a quarter of its fleet of 297 stores stretched across 16 Southeastern states, owns buildings under ground leases for another quarter and leases slightly more than half.

When Belk confirmed Thursday that it had retained Goldman, as Reuters had reported earlier in the day, the retailer noted that its five-year plan would be assembled as it competed in a “rapidly changing industry. We are coming off a successful fourth quarter, have a strong financial position and are enthusiastic about our future. We also believe that we have an obligation to consider whether there are alternatives to our current plans that would provide a better return for our shareholders.

“As such, we are performing due diligence for our stockholders,” the company said, “to carefully explore all options for our future.”

One retail consultant noted, “When I think about Belk, what really strikes me is the combination of their respect for the past as well as their respect for the future. They’ve never resisted the changes in retailing and new management under Tim Belk brought a very solid modern view of the retailing to a business with more than a 125-year-old heritage.”

Tim and his brothers John and H.W. McKay Belk are the sons of Thomas Belk, former president of the company and the son of William Henry Belk, who founded the company in 1888.

“I never thought they’d sell the company, and I’m still not sure they’re going to,” the retail source said. “But you don’t get involved with the people at Goldman unless you’re serious.”

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