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SAKS SALE A BOON FOR BELK IN SOUTHEAST

BY DEBRA HAZEL

Saks Inc.’s decision to refocus its business on high-end retailing opened a door of opportunity for mid-range department store chain Belk. Last month Belk arranged to buy the Birmingham, Ala.-based department store conglomerate’s less posh McRae’s and Proffitt’s divisions for about $622 million.

McRae’s and Proffitt’s are part of the Saks department store group, which Saks split into Northern and Southern divisions to facilitate a quicker sale. The Northern portion, which contains regional nameplates Bergner’s, Boston Store, Carson Pirie Scott, Herberger’s and Younkers, still awaits a buyer.

Divide and conquer
“We believe it is appropriate to divide the Saks Fifth Avenue department store group businesses into distinct enterprises and permit each to have its own, focused future,” said Saks CEO R. Brad Martin.

The deal, which the companies expect to close in July, will bulk up Belk’s presence in the Southeast. The acquirer will now have a total of 275 stores in 14 states, doing some $3 billion in annual business. And Saks, which has been seeking to shed its regional department store brands for some time, will be able to redirect the proceeds to its well-performing luxury division, observers say.

Proffitt’s and McRae’s stores will be converted to the Belk nameplate next spring, says Steve Pernotto, executive vice president of human resources at Charlotte, N.C.-based Belk.

The deal’s aftermath
The biggest difference for shoppers will be an increase in customer service once the McRae’s and Proffitt’s stores convert to the Belk banner, Pernotto says. “We have free gift wrap, free alterations to people who own our charge card, and interest-free accounts,” he said.

For Belk, the largest privately held department store chain in the U.S., the deal reinforces its presence in the South while avoiding any significant overlap of units within the same regional malls, says Pernotto.

A scan of the National Research Bureau/Co-Star Group’s U.S. shopping center database reveals about 10 malls simultaneously anchored by Belk and either McRae’s or Proffitt’s. Of those, half are in North Carolina and have overlapping Belk and Proffitt’s stores. “There are a number of options” for those few situations where Belk has multiple locations at a center, Pernotto says.

Founded in 1888 as The New York Racket and touted as “the cheapest store on Earth,” Belk has been a standout among department stores for its solid sales growth in recent years, observers say. Belk same-store sales grew 4.2 percent last year, for example, while total sales grew 8 percent to $2.4 billion. By comparison, 2004 same-store sales at competitor Dillard’s fell by 1 percent, as did Dillard’s net sales, which dropped 1 percent to $7.5 billion.

Saks, meanwhile, will keep its Saks Fifth Avenue and Parisian divisions, as well as five McRae’s stores in Alabama, two of which will convert to the Parisian banner. The company has not yet decided about the other three McRae’s. But it has big plans for the Parisian division, Martin says, including a move into such markets as Memphis, Tenn., and Arkansas.

Saks is still seeking buyers not only for the 143-store Northern department store division but also for the Club Libby Lu specialty chain, which comprises 43 freestanding stores and 23 in-store boutiques.