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During this whirlwind of retail bankruptcies, while the pandemic rages on with no end in sight, it should be a field day for private equity firms, awash in cash, to swoop in like vultures to acquire these bankrupt retailers on the cheap. However, several experts in the space told me that many of them are holding their “powder” (not acquiring) because of the big unknown. That is, without some indication of when the pandemic will end, how it will end and when consumers will feel safe enough to return to physical shopping. What will the ultimate economic carnage look like, including the possibility that we are in for a depression and years of growing back? No one I talked to can predict these things, not even close. So, figuring out the risk/reward equation doesn’t exist because they cannot calculate the reward. Therefore, for those private equity firms and other acquiring interests, it’s all risk–the Las Vegas proposition.

Saving JC Penney

As the NY Post recently reported, Hudson Bay Company (owner of Saks Fifth Avenue), mall operators Simon and Brookfield Properties (teamed up together) and Sycamore Properties submitted bids to win an auction to buy JCPenney out of bankruptcy. And Sycamore appears close to winning with an offer of $1.75 billion. Hudson Bay Company offered $1.7 billion and the team of Simon and Brookfield offered $1.65 billion.

Sycamore will replace the JCP nameplate with their (owned) Belk brand in locations that do not overlap. Sycamore is not interested in keeping the remaining JCP locations and will liquidate them. With rights to the JCP brand Sycamore may eventually sell it.

If this were a poll, we would say its too close to call. But this is big business. And this is high finance. Hudson Bay Co. is all about real estate under the leadership of real estate mogul, Richard Baker. Simon/Brookfield are mall operators and simply out to save their butts by keeping leases, including the hundreds of smaller specialty stores from breaking their agreements that allow them to negotiate lower leases if anchor (JCP) tenants leave. And Hudson Bay? Forget about it. I have compared Richard Baker to Eddie Lampert (which flattered him by the way). They both default to real estate, their core DNA. Baker is brilliant at what he does best, but in no way will he turn JCP around.

A Tree Grows in Retail

Sycamore, on the other hand, will win the bid. They understand retail and have a retail game plan. Headed up by President Rob Sweeney (formerly head of Goldman Sach’s Global Retail and Consumer investment bank), Sycamore owns Talbot, Staples, The Limited and Belk. Regardless of the questionable shape these brands are in, their fate is in the hands of people who deeply understand the business. Accordingly, Sycamore has crafted a Belk/JCP plan that, at least sounds like a long-term strategy that might work. However, I do repeat, in my opinion even for Sycamore, the risk/reward equation is all risk. Belk is, and has been struggling. And in my opinion, JCP, was headed toward liquidation.

Grand Illusions

So, Sycamore’s plan as described by the Post, is to merge JCP with its 300-store Belk chain. Located mostly in the South, Belk has been struggling under new leadership for several years. A Post source said, “JCP is the lifeboat for Belk, which wants to compete with Macy’s nationally.”

Whoa! I have to digress here to comment on that comment. You must see this coming. Whoever that source is should realize that lifeboat could very well be another Titanic. And Macy’s is a whole other story. It could also turn out to be a Titanic. Those of you who have followed my articles might remember my opinion of Eddie “the magician” Lampert’s acquisition of both Sears and Kmart as having created two Titanics. Love to know who that source is.

Forgive the digression. I couldn’t help myself. And I would hope that source isn’t advising Sycamore. Sycamore’s plan according to the Post involves rebranding some 250 JCP stores to the Belk brand in markets where there is no overlap. JCP entered bankruptcy with 850 stores, stating they would close 154 stores permanently. The combined entity will be run by Lisa Harper, Belk’s CEO.

Ships AhoySo much for the Post’s source believing JCP will be the lifeboat. Sycamore is not interested in keeping JCP and will liquidate those JCP overlapped locations. Sycamore will then have the rights to the JCP brand and may eventually sell it, license it, save it for a rainy day.

Sycamore by a Mile

To repeat, in this current environment where everything about the future — particularly in retailing — is 100 percent unknown and unpredictable, the risk/reward equation is all risk. Any reward results would have to be based on the series of big “Ifs.” If this happens, maybe that will happen, so forth and so on.

For Sycamore, regardless of the long list of “Ifs”, they have a lead in the race over a real estate mogul and mall developers because Sycamore, at least, has a retail plan.

Good luck Sycamore. However, if you win the bid, your race for survival is just beginning.