Be careful what you wish for? (Or be smart and invest)
Many times in my various marketing courses I have used Scott Galloway’s The Four (Apple, Amazon, Google, Facebook) as a text to highlight what today’s winners in marketing did to become the world’s 5th largest country, combined; Galloway’s T Algorithm tells us what they have in common, and his New Algorithm of Value shows us why they will continue to grow.
In my lecture, using the numbers to illustrate their position vis a vis other famous companies, I compared market cap, debt etc. of the four in historical perspective with companies including Macy’s, Coach, Tiffany, Gap, Sears, Penneys, etc. The winners and losers, as it were.
And I said, repeatedly, only half joking, "Amazon could buy Macy's with pocket change." My investment in Amazon keeps getting better; my avoidance of Macy's keeps getting smarter.
So, when looking at Macy’s, whose name has equal or better name recognition with Amazon, it is shocking to see the difference in market cap. Imagine: With equal name recognition, Macy’s market cap today is a little more than 2 billion, Amazon’s is $1.5 trillion. A multiple of 750 Billion times.
Macy’s has a debt of $7.8 Billion to detract from the market cap, so its value is a net minus. Amazon’s debt is listed today as $78Billion, or .05 of its market cap. Cash for Amazon is listed at $49Billion; Macy’s is $685Million. Not mentioned, rarely mentioned when the vultures are circling, is that Macy’s real estate holdings are probably worth more than its market cap and debt combined.
So, however you value the deal, Amazon can buy Macy’s with chump change. Or, even better, their market cap increased by $548BILLION from its low point in March 2020, and $301Billion since its previous high in February 2020.
The above establishes clearly that, for Amazon, buying Macy’s is NO PROBLEM financially.
But SHOULD they?
From Bezos’ standpoint, first, at least these:
PRO- they are getting a brand name that has as much persona as any other in retail.
PRO- Herald Square location is the prime shopping location in the US, maybe in the world.
PRO- Real Estate value of Herald Square, if sold or rented out, has to beat any price Amazon would pay in a buyout. This doesn’t include real estate value of the balance of the Macy’s locations, many of which are in the heart of other cities in the US.
PRO- There is little inventory risk, as I am sure it would be included as a liability in any deal. Even if it isn’t.
PRO- Amazon/Macy’s could only enhance both brands and would give Amazon extra juice on their web site.
PRO- The Bloomingdale’s division gives Amazon entry into better goods that they have been salivating for. Amazon has not been able to develop anything worth buying for more than $20.
PRO- They (maybe) can add vendors who are not under the Amazon umbrella, such as Canada Goose.
From my standpoint:
PRO- Macy’s has done nothing but talk about rebuilding their brand; but still they exist in the nether world between luxury/designer (few of these will even sell to Macy’s) and mass market like Walmart, Target and TJX. They need a radical makeover, and management are frozen in their tracks, or don’t get what is needed. Amazon can and would do it. Nothing to lose.
(Macy’s needs to become a specialty brand store, and/or a department store in the original incarnation, which they were in the 60’s and 70’s)
PRO- Amazon name and products/other ecosystem components (like ordering from Alexa) can only make the stores not only more relevant, but more interesting. Amazon can build a unique shopping experience in the best location in the country and others across it.
PRO- Build a Whole Foods in the basement.
Are there any CONS to this transaction?
The only one is for the executives that will lose their fat undeserved bonuses and will have to deal with the reality of their failure.
What does Amazon have to lose? Is this out of their lane? NO. We know they need to strengthen their Brick & Mortar presence. And now, they will be able to inhabit non-food (and maybe food too) retail in every major mall and major city in the US.
IF, in the end, the name Macy’s is worth nothing more than a parade, Amazon will either make profit on the real estate sale or build something better in place of the stores that were there.
Above are the common sense retail marketing reasons; there are more which I will leave to the analysts.
This, friends, is the beginning of Amazon’s Omnichannel Opportunity.