In 2005, TPG and Waburg Partners picked up retailer Neiman Marcus for $5.1 billion. Yesterday, they sold the business to Ares Management and the Canada Pension Plan Investment Board for $6 billion. The purchase is the second big-name department store to be picked up by Canada in 2013. Earlier in the year, Saks Inc (NYSE:SKS) was acquired by the Hudson’s Bay Company. The buyout also adds to the midyear run of acquisitions that the retail space has seen. Saks, Neiman Marcus, True Religion Apparel, Inc. (NASDAQ:TRLG), and Billabong have all already exchanged hands or moved onto the sale table.
The more you buy, the more you save
All of this selling highlights a few key undercurrents in the retail space. First, weaker retailers are having a tough time, while high-end retailers are having a better run. The companies that have moved this year can be split into two groups: winners and losers. As it turns out, the winners are the companies that have been focusing on the quality at the high end, while the losers have been chasing trends.
The reason for the division between the two groups is the second issue driving this year’s acquisition push — the middle class is feeling the squeeze. A combination of unemployment, payroll growth, and taxes is giving consumers pause. The result is that weaker retail companies are suffering, especially if they focus on the middle.
Using Target Corporation (NYSE:TGT) as a gauge of middle class demand, it’s easy to see why companies are having issues. The company only managed to grow comparable-store sales by 1.2% over last year in its most recent quarter. That brought it to year-to-date comparable-sales growth to just 0.3%. The main drain on Target has been a fall in the number of transactions, which have declined 1.6% year to date.
