MAY BUYS NINE STORES FROM SAKS INC.
Byline: Arnold J. Karr
NEW YORK — The May Department Stores Co. Tuesday unveiled something of a Southern strategy all its own when it agreed to acquire nine department stores in Tennessee, Louisiana and Florida from Saks Inc.
The transaction, expected to close on or before March 16, is expected to generate nearly $310 million in cash for Saks — about $237 million for stores and $72 million for inventory and customer accounts receivable. Saks said it would use the proceeds to reduce debt and, to a lesser extent, repurchase equity.
Five Proffitt’s units in the Nashville market will become part of May Co.’s Hecht’s division. Three stores in Louisiana — two Parisian stores in Lafayette and Baton Rouge, La., and a McRae’s also in Baton Rouge — will be merged into the Foley’s division. The Parisian store in Orlando, Fla., will become a Lord & Taylor store. All four markets, as well as the state of Tennessee, are new for May Co., noted Gene Kahn, the company’s president and chief executive officer, in a statement.
According to Saks, these nine stores collectively occupy nearly 1.7 million square feet of space and generate annual sales of $210 million. While they drop Saks’s department store unit count to 243 from 252, they will push May Co.’s to 438, exclusive of 13 department store openings planned for this year and the 123 David’s Bridal stores acquired last year.
The eight Tennessee and Louisiana stores will close for approximately ten days following consummation of the transaction as May Co. installs data systems and trains associates. “May will offer to employ the store executives and sales associates at these stores,” the company said in its statement.
However, the Orlando store will be closed for expansion and renovation and reopened as an L&T unit in early 2002. “May looks forward to store executives and sales associates at the Orlando store reapplying to the company for employment,” the statement noted.
The deal bolsters what already represents a substantial commitment by Lord & Taylor, based here, to the entire state of Florida. Like the Orlando store, a unit in Boca Raton is being expanded and remodeled, and stores in Tampa and West Palm Beach are slated to open this fall. May Co. noted that it will have nine units in the state by spring 2002, “competing in most of the state’s major markets.”
The recent histories of the nine units covered by the agreement could serve as an allegory for the recent history of department store retailing. For eight of the nine stores, the move to May Co. will mark its fourth corporate owner in three years. All but the McRae’s in Baton Rouge were part of Mercantile Stores before its acquisition by Dillard’s in 1998. Saks Inc. — still operating as Tennessee-based Proffitt’s in the days before its merger with Saks in 1998 — acquired the stores from Dillard’s later that same year.
In a statement, Saks chairman and ceo R. Brad Martin was quick to dispel speculation that the proposed sales marked a retreat from the affected markets or from department store retailing in general. “The price we are able to obtain for these assets demonstrates the substantial value embedded in the DSG [department store group] store portfolio,” he said. “By investing these proceeds in our own securities, we clearly recognize and monetize some of this value.
“Our traditional department store franchise in Tennessee is the clear market leader throughout the eastern part of the state — including Knoxville, Chattanooga and Tri-Cities — with 12 Proffitt’s stores in this region,” he said. “This presence is well complemented by our three Parisian specialty department stores located in the premier shopping destinations of Nashville, Chattanooga and Knoxville.
“We will be focusing our resources on our stores in these important markets.”
Additionally, Martin noted Parisian’s “strong presence” in Nashville, where it has “enjoyed substantial sales growth over the past three years,” and said that the company is “considering locations for the possible entry of a Saks Fifth Avenue store in the Nashville market.” He also cited McRae’s strength in Baton Rouge, where it has a 160,000-square-foot store in the Mall of Louisiana, in addition to the Cortana Mall unit being sold.
Shares of Saks closed at $13.27 Tuesday, up 87 cents or 7 percent, in New York Stock Exchange trading. May Co. closed off 10 cents at $36.89.