In a precarious retail environment of rising inflation and consumer fear, the proposed sale of the Kohl’s department store chain has fallen through.
(AP) SILVER SPRING, MD — In a precarious retail environment of rising inflation and consumer fear, the proposed sale of the Kohl’s department store chain has fallen through.
Early this month, Franchise Group, the proprietor of Vitamin Shop and other retail establishments, and Kohl’s engaged in exclusive negotiations for a purchase that may be valued at as much as $8 billion.
Kohl’s Chairman Pete Boneparth stated, “Given the environment and market volatility, the Board felt that it simply was not prudent to continue pursuing a purchase.”
A prominent store pulled out of a possible sale for the second time this week as a result of deteriorating economic conditions. On Thursday, Walgreens said that it was giving up on trying to sell the UK operations of Boots.
According to Neil Saunders, managing director of GlobalData, “Kohl’s decision to end takeover talks with Franchise Group comes as no big surprise.” The current market environment is unfavorable for corporate dealmaking, as problems with financing and obtaining debt and cash all serve as roadblocks to completion.
Despite being committed to the purchase, Franchise Group “likely found it increasingly difficult to make the math match up against a backdrop of a deteriorating retail market,” according to Saunders.
At the opening bell, shares of Kohl’s Corp., a Wisconsin-based company, fell more than 20%.
Inflation has started to weaken Americans’ desire to shop as they once had, despite their ability to travel widely and their plenty of government stimulus checks, according to U.S. data released two weeks ago. The U.S. economy is growing less quickly, and potential acquisitions face increasingly difficult challenges due to rising interest rates, which make financing such transactions very expensive.
Even before the outbreak, Kohl’s had poor sales. In 2021, sales and profits recovered, but the department store is again contending with greater costs and a backlash from its budget-conscious customers who are becoming more frugal with their spending in light of rising prices for petrol, food, and pretty much everything else.
But the spending retreat goes further than that. The luxury furniture brand RH lowered its projections for the coming year on Thursday, blaming worsening macroeconomic conditions and rising mortgage rates, only weeks after outlining its outlook for investors.
After another disappointing sales quarter, Bed, Bath & Beyond’s CEO was fired the day prior.
Kohl’s announced on Friday that it now anticipates sales to be down in the high-single digits in the current quarter compared to 2021, underscoring the challenging situation for certain retailers. It had earlier predicted that sales would decline by the low single digits.
This comes after Kohl’s Corp. reduced its annual earnings and sales estimate following a dismal first quarter, less than two months ago. Sales at stores with at least a year of operation decreased by 5.2% from 2021 to 2022.
In 49 states, Kohl’s has more than 1,100 locations.
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