Why is Canadian chain Hudson's Bay making a play for Macy’s?

Following a disappointing performance over the holiday season, Macy's, once a star of the US retail world, closed hundreds of stores in January. Now it is said to have received a takeover offer from Hudson’s Bay, a Canadian department store.

In a move aimed at pushing deeper into the US market, Hudson’s Bay, owner of Saks Fifth Avenue and Lord & Taylor, approached the US department-store chain about a potential buyout, The Wall Street Journal reported on Friday. While the talks are still in the preliminary stages, experts say the deal could shed some light on the future of the 158-year-old company.

"It would be a transformative deal for Hudson’s Bay,'' Neil Saunders, managing director of retail analysis firm Global Data, told USA Today on Friday. "However, it would also saddle the group with an enormous amount of debt and would mean it is taking on the gargantuan challenge of turning around an ailing player."

Neither Hudson’s Bay nor Macy’s confirmed the deal, but the news came at a moment when Macy’s is hard at working trying to overhaul its operations. The country’s biggest department store saw a 2.1 percent decrease in its store sales in November and December and announced its plan to eliminate more than 100,000 jobs and close 68 stores by the middle of 2017.

Macy’s problem is not unique: Facing a swift change in consumers’ shopping habits, Sears and Kohl’s are also said to be poised to cut staff and close stores.

“Most significantly, structural but related problems include the continued rise of the off-price channel and shifting millennial shopping habits,” Cowen Group’s Oliver Chen told Barron’s. “We believe shoppers are transitioning away from shop-in-shop brand models – there’s no more loyalty – towards curated assortments, which does not bode well for the similarity of all Macy’s stores.”

But considering Macy’s $7.5-billion debt, some analysts suggest that this could be a risky deal for Hudson’s Bay and that the company might have eyes bigger than its stomach.

"[Hudson’s Bay] would be diving deeper into a market that is in the midst of tectonic changes. As long as they can adapt to the changes, they can make a big success of their Macy’s acquisition,” Richard Kestenbaum, co-founder and partner of Triangle Capital, wrote in a piece on Forbes. “But if they become rigid in their culture or fail to adapt to the marketplace as it continues to change, it can go wrong in a big and disastrous way for their customers, employees and investors.”

Yet, for Hudson’s Bay, the attractions of Macy’s, an established company famous for its sponsorship of the annual Thanksgiving Day parade, are still huge. The Toronto-based company’s $1.4-billion market value is a fraction of Macy’s $13.4-billion market capitalization. Hudson’s Bay could use Macy’s existing foothold in the United States to save on administrative costs and gain more negotiating power with its vendors.

Meanwhile, analysts say the changing of hands could also be beneficial for Macy’s. The chain store has been attempting to catch up with the online retail business, with moves like offering same-day deliveries to 17 cities. Kestenbaum said the potential shake up, while does not guarantee a success, could help to make Macy's employees more attuned to the market.

“In a lot of ways, [Macy’s] scale has become a disadvantage. It is much harder to change the culture in a big company, there are too many established practices that need to be changed and too many people who are used to doing things in ways that don’t work well anymore,” he wrote. “They are an enormous company and companies as established as Macy’s can’t change without a major catalyst.... One of the only things that can facilitate that kind of cultural change is a new owner.”

This report includes materials from Reuters.