Death of a Mall
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
If you thought the house on the hill in 'Psycho' was creepy you should visit a dead mall. There’s one near me with only two stores open in the 600,000 sq. ft. facility. Located on a busy thoroughfare locally called, ‘The Golden Mile’ where making a left turn can take two full songs on the radio it should have been thriving. Instead, it’s an object lesson in the importance of good anchor stores.
Last time I visited there was one department store left, a Hallmark and two ‘popup stores’. One looked like a hoarder was throwing an indoor yard sale and the other was a Girl Scout troop used book sale fundraiser. In the middle of the day, this mall is hushed and actually menacing. Stephen King or those college kids who made ‘The Blair Witch Project’ would have a field day.
This was once a mall where the President did his Christmas shopping en route to Camp David. Forty years ago it was a high-concept enclosed mall, busy and buzzing, until just a few years ago when its second anchor, Bon-Ton, left.
Mere miles away its main competition has a 95% occupancy rate with three anchor stores and 77 other specialty stores. It’s not a high-end mall with Apple, Inc (NASDAQ: AAPL) stores or a Nordstrom, Inc (NYSE: JWN) but it’s bustling. And what is holding it together? In a word, Macy’s Inc (NYSE: M). A mall has to have a performing anchor, the big shoulders that can carry the small retail specialty shops.
The September 17 issue of Time Magazine also mentioned several other valuable stores that malls seek to anchor or attract shoppers like the Holy Grail of retail, an Apple store, which increases mall profits by $12 a square foot. Consider the average mall is over 700,000 feet and you're talking millions per year. An Apple store is maybe the size of the Macy's cosmetics section but as Apple is the most successful retailer ever and this is not hyperbole, Apple stores generate more profit per square foot than any other retailer.
Having a prosperous anchor is practically a public service because you can go to a site like deadmalls.com and look up a hundred or so malls that are barely on life support and realize that thousands of jobs are gone forever. A strong anchor or two can help the smaller shops weather recessionary trends and keep employees.
Macy’s was exactly what was needed to ring the death knell for the competing mall. While Bon-Ton was there that mall had a chance but Bon-Ton was still competing with Macy's across town. Could the two stores have competed for long? How do they compare as stocks? And what about Nordstrom?
Macy’s is a Monster
Macy’s is just dollars away from its 52 week high of $42.17. Macy’s, of course, is much bigger and better known than Bon-Ton. Macy’s was founded in 1820 and operates 840 Macy’s and Bloomingdale’s stores and 7 Bloomingdale’s outlets as well as two ecommerce sites, macys.com and bloomingdales.com. Macy’s has 171,000 employees. That’s a lot of jobs.
You know of the Macy’s Thanksgiving parade, Miracle on 34th Street, even Auntie Mame worked at Macy’s. It’s part of the American cultural landscape. It’s up 57.75% over 52 weeks. It has a P/E of 12.56 lower than the industry average of 21.22. Plus, it has a yield of 2% at a sustainable payout rate of 19%.
Capable CEO Terry Lundgren is the ‘anchor’ CEO of Macy’s and owns 399,619 shares and has been working in retail since college days. Institutions like Macy’s as well and own 90.60% of the float. Its debt ratio is 1.52.
Why is Bon-Ton Rising From the Dead
The Bon-Ton Stores (NASDAQ: BONT) rose 10% intraday on September 11 for a 52 week high and has risen from $9.70 to $14.39 (intraday) in only five trading days. This humongous move started on September 5 when KeyBanc analyst Kevin Yruma upgraded the stock to buy citing the turnaround strategies of new CEO Brendan Hoffman. Hoffman executed the revival of moribund Lord & Taylor and is already seeing some success with Bon-Ton. August comps were up 2.2%.
Bon-Ton still has a negative EPS of $1.62 but has a yield of 1.60%. Bon-Ton operates 272 stores in 23 states, mostly in the Northeast, Midwest and upper Great Plains. The company was founded in 1898. As well as the Bon-Ton Stores they also own the Elder-Beerman, Carson Pirie Scott and Parisian stores.
Bon-Ton had been languishing for years but CEO Hoffman is trying some strategies that have worked well for Macy’s: emphasizing cosmetics and footwear and promoting with coupons, coupons, coupons. Hoffman also eliminated the Chief Operating Officer position. He admitted the company had tried to attract younger shoppers only to alienate their older loyal customer base and said that strategy will change to try to embrace both kinds of shoppers.
The company lowered guidance in August and cited that Q2 disappointment was due to off-price sales to bring in traffic. It reports again on November 15.
Shorts will probably renew their pressure on this name after this spectacular price rise. In mid-August the short share of the float was already 47.80%. After moving from a 52 week low of $2.23 to over $14.00 on Tuesday, upside is likely limited for the short term.
As for Nordstrom, it's a wonderful retailer, very classy and just about at a 52 week high. It has its outlet Nordstrom rack stores and has a 1.90% yield Nordstrom's P/E is a little higher at 18.30 than Macy's but still under that industry average. Nordstrom is a very good tenant for a high-end mall but Macy's has the Bloomingdale's and the regular Macy's department stores and has more breadth and reach than Nordstrom. Surprisingly, Nordstrom has fewer stores than Bon-Ton with only 231 stores of which 110 are the outlet Rack stores. That said, there's no better customer service or better place to find the most fashionable ladies' shoes. Yes, we all know how the ladies love their shoes.
I’m sure you can guess that I’m going to recommend Macy’s as the best choice. A five day move like Bon-Ton has seen is extremely unstable for the stock price of a company with a huge debt ratio and negative EPS. Bon–Ton CEO Hoffman is going to need time to make the turnaround pay off. Macy’s is already the ‘strong shoulders’ that malls want and need.
leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Lululemon Athletica. Motley Fool newsletter services recommend Apple and Lululemon Athletica. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.