SILVER SPRING, Md. — The potential sale of department store chain Kohl’s has plummeted in a fragile retail environment characterized by rising inflation and consumer anxiety.
Kohl’s entered exclusive talks earlier this month with Franchise Group, which owns the Vitamin Shop and other outlets, for a deal potentially worth around $8 billion.
“Given the environment and the volatility of the market, the board of directors determined that it was simply not prudent to pursue a deal,” Kohl Chairman Pete Boneparth said.
It was the second time this week that a major retailer pulled out of a potential sale due to deteriorating economic conditions. Walgreen’s said on Thursday it was giving up hopes of selling its Boots business in the UK.
“Kohl’s decision to end acquisition talks with Franchise Group comes as no big surprise,” said Neil Saunders, chief executive of GlobalData. “Current market conditions are not conducive to business transactions, with issues with funding and raising debt and capital all acting as impediments to closing.”
Saunders said while Franchise Group was serious about the offer, it “probably found it increasingly difficult to do the math amid a deteriorating retail environment.”
US data released two weeks ago showed inflation has begun to erode Americans’ willingness to shop as they once did, unable to travel much and overflowing with money from government stimulus checks. Economic growth in the United States is slowing and potential takeovers face increasingly strong headwinds from rising interest rates that make financing such deals much more expensive.
Kohl’s struggled with anemic sales before the pandemic. Sales and profits have rebounded in 2021, but the department store is now grappling with higher costs and a pullback from its price-conscious shoppers who are more cautious with their spending amid rising gas prices, food and just about everything else.
However, the drop in spending is broader than that. Just weeks after telling its investors what to expect for the year ahead, luxury furniture chain RH revised those expectations down on Thursday, citing deteriorating macroeconomic conditions and rising mortgage rates.
The day before, the CEO of Bed, Bath & Beyond had been ousted after another dismal quarter of sales.
Recalling the weak environment for some retailers, Kohl’s said on Friday it now expects sales to decline in the single digits in the current quarter compared to 2021. It had previously forecast sales to decline to a number at the bottom.
This comes less than two months after Kohl’s Corp. cut its full-year profit and sales forecast after a dismal first quarter. Sales at stores open for at least a year fell 5.2% from 2021.
Shares of Wisconsin-based Kohl’s Corp. fell 18% at the opening bell.
Kohl’s has more than 1,100 stores in 49 states.
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