Parisian Sale Kills Nameplate, Falls Short of Expectations

by MR Magazine Staff

NEW YORK – Belk Inc.’s plan to purchase the 38 Parisian stores from Saks Inc. means the end of the road for another department store nameplate and at least a temporary interruption in the escalating price of retail stores.

The $285 million price tag Belk Inc. has agreed to pay Saks Inc. for real estate, leases and inventory, as well as a headquarters building and distribution center in Alabama, is less than half the price most analysts were expecting.

“This is typical of what’s been going on with the department stores,” said one apparel executive, requesting anonymity. “When they can’t sell something, they mark it down.”

All units will be re-branded as Belk’s following the close of the transaction, expected during the third quarter.

The agreement also brings to an end Saks Inc.’s ongoing search for buyers of its department store properties, leaving it only luxury retailer Saks Fifth Avenue and some smaller assets, such as Libby Lu, among holdings that once included Proffitt’s and McRae’s, bought by Belk for $623 million last July. Its Northern Department Store Group (NDSG) was sold to Bon-Ton Stores for $1.2 billion in March.

Belk is the largest privately owned department store group in the country, and had 2006 revenues of nearly $3 billion. The addition of the Parisian stores will add another $723 million to Belk’s coffers, based on its 2006 revenues, and bring its store count to 315 units spanning 19 states.

Bon-Ton trails Belk in volume – its fiscal 2006 sales were $1.29 billion – but has been aggressively pursuing opportunities to expand via acquisition, most notably through its acquisition of Elder-Beerman in 2003 and its earlier purchase of Saks Inc. nameplates including Younkers, Bergner’s and Carson Pirie Scott.

Citigroup retail analyst Deborah Weinswig pointed out in a research note issued after Wednesday’s announcement that the purchase price represents about four-tenths of annual sales versus her earlier expectation that it would sell for a multiple of about one. Belk’s earlier purchase represented about 0.9-times-sales, and Bon-Ton about 0.5 times.

However, she wrote, “comparing the three transactions, it should be noted that Saks owned 70% of the real estate for Proffitt’s/McRae’s while it owned about 35% of the real estate for NDSG and Parisian.”  Saks management also pointed out that Parisian’s performance had trailed those of the Northern and Southern groups.

“The sale of our Parisian business is the next appropriate step in this process and one that will allow us to focus our time and resources on improving the operations of our core Saks Fifth Avenue business,” Saks chief executive Steve Sadove said in a statement.