Why Hudson’s Bay Co. Might Buy Macy’s, Inc. Next Year

Hudson’s Bay Co. (TSX:HBC) thrives off of new acquisitions and has a record for obtaining distressed retail chains with huge real estate holdings. Could Macy’s, Inc. (NYSE:M) be next?

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Hudson’s Bay Co. (TSX:HBC) is a retail company that has turned around nicely over the past few years and become an example for how other retailers should evolve. In the process of that evolution, Hudson’s Bay has set a bit of a precedent in acquiring a number of other retailers and turning them around, too. The recipe has always been the same though–a distressed retailer with a glut of very valuable real estate.

As far as retailers with huge real estate findings, Macy’s, Inc. (NYSE:M) is one of the largest out there, and a purchase of the company by Hudson’s Bay might not entirely be too far off to consider. Here are a few reasons why.

1. Hudson’s Bay has experience acquiring big chains

Knowing which retailer(s) to acquire is only the first part of the puzzle. Hudson’s Bay has developed a certain knack for identifying those retailers and bargain scenarios that have valuable real estate.

A few years ago, Hudson’s Bay had nearly 200 stores of the failing Zellers brand on lease. The opportunity to offload these locations to Target Canada came, and the company took it and pocketed $1.8 billion. This move allowed the company the flexibility to start going down the acquisition path.

Lord & Taylor and Saks Fifth Ave. were both acquired shortly thereafter, and then earlier this year the German chain Kaufhof was also acquired in a deal worth over $3 billion. As far as large chains go, Macy’s has the market share and real estate to be a candidate for Hudson’s Bay should the option become available.

2. Hudson’s Bay knows the real value of real estate

Hudson’s Bay did a masterstroke of a deal when the Saks acquisition was made. The brand was purchased for under $3 billion, yet once the deal was finalized the company had Saks’ New York flagship location appraised at $3.7 billion, exceeding what was paid for the brand by $800 million.

Macy’s owns 900 stores across the U.S., encompassing both the Macy’s and Bloomingdale’s brands. The New York flagship location of Macy’s is estimated to be worth up to $5 billion alone.

While as unlikely as this type of transaction may seem, just keep in mind that the thought of Hudson’s Bay acquiring Lord and Taylor and Saks seemed almost as far-fetched.

3. Hudson’s Bay knows how to turn around a retailer

What Hudson’s Bay did in rejuvenating its brand is nothing short of stellar. The company has gone from being a strictly brick and mortar company with a bare-bones website to having a full online catalog with online sales growing at a record pace.

Some of those changes are underway inside the stores, too. The company realized that setting up a Saks location in the iconic Queen Street Bay location is better than having 150,000 square feet sparsely populated with products.

There’s something for Macy’s to learn in Hudson’s Bay’s transformation. With foot traffic dropping in many of Macy’s locations and closures already planned or in progress for some other locations, something needs to be done.

While Macy’s is realizing that online strategies are the route to reach today’s consumer, it may not be enough. Hudson’s Bay is the company that could take that strategy to the next level. In the most recent quarter, Hudson’s Bay reported consolidated sales growth of 34.1% over the same quarter in the prior year. Same-store-sales growth was also up by an impressive 12.9%. Digital sales increased by 36.3%.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Demetris Afxentiou has no position in any stocks mentioned.

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