Out of Miracles on 34th Street?

Macy’s being in the headlines is nothing new.

Amid all the decades of feel-good stories – the “Ladies’ Mile,” the move uptown to Herald Square with the biggest store in the world, the Thanksgiving Day parade, the iconic movie about its store Santa – are those ups and downs and palace intrigues that any big company is liable to go through in 158 years.

When co-owner Isidor Straus went down with the Titanic in 1912, he might have been only the first Macy’s executive to be undone by unseen icebergs. Terry Lundgren can probably relate.

Well-remembered in recent memory is Ed Finkelstein’s leveraged buyout in the 1980s, which led to R.H. Macy’s bankruptcy in the early 1990s and its merger with Federated Department Stores.

But Macy’s survived all of that, some would say emerging more strongly. And its acquisition of the entire May Co. operation in 2005, the ultimate in retailing chutzpah, produced a department store monolith at a time when many were saying the department store era was over.

They might have been right. Despite aggressive marketing and lots of upbeat headlines engineered by Lundgren, Macy’s struggled to maintain its 800-store empire. It closed lots of stores and, worse, it returned to the days when Macy’s shoppers went to the store armed with 25-percent-off coupons.

So the news that Macy’s was up for sale felt sadly inevitable. The more-recent news, that it might be acquisition fodder for Richard Baker and Toronto-based Hudson’s Bay Co., was a lot more unexpected.

I know that Baker is a swashbuckler, taking chances, interested in almost everything he lands on along the Monopoly board. But he also likes leveraged deals, and Macy’s already brings with it billions in debt.

If the day of the department store is indeed over – even as Lundgren insisted it was not – what is Baker’s play? What makes him think he can revive the old formula, ladened with real estate, much of it mall-based, filling all that square footage with merchandise people really want, at prices that make sense? He now has 90 stores. Why would he want 900?

Baker is said to like the equity value of real estate. (That, of course, is what Edward Lampert said in 2005 about the Sears-Kmart merger. He’s since sold much of that off, at maybe a nickel on the dollar.) And Baker has various partners with deep pockets – one of which is Indianapolis-based Simon Property Group.

One explanation being floated is that Baker would be acquiring all the Macy’s stores so no one could else could get their hands on them and present a challenge to his Saks Fifth Avenue and Lord & Taylor stores in the U.S., plus the Hudson’s Bays and Galeria Kaufhofs in Canada and overseas.

It’s the overseas component that is most intriguing. Department stores seem to be surviving in Europe – whether that’s because of differences in culture, or shopping habits, or just more of an appreciation for history.

The Bay Co. does win the history game. Macy’s may be at 158 anniversaries, but Hudson’s Bay is closing in on 350. That’s a lot more ups and downs.

As a journalist, writer, editor and commentator, Steve Kaufman has been watching the store design industry for 20-plus years. He has seen the business cycle through retailtainment, minimalism, category killers, big boxes, pop-ups, custom stores, global roll-outs, international sourcing, interactive kiosks, the emergence of China, the various definitions of “branding” and Amazon.com. He has reported on the rise of brand concept shops, the demise of brand concept shops and the resurgence of brand concept shops. He has been an eyewitness to the reality that nothing stays the same, except the retailer-shopper relationship.