Belk faces challenging retail market as it mulls sale

Customers wait in line to take part in Belk’s Charity Day sale at SouthPark mall on Nov. 9, 2013. A sale of the company would mean Belk follows the long march of other family-owned department stores, including Marshall Fields and Hecht’s, that were sold to bigger companies.
Customers wait in line to take part in Belk’s Charity Day sale at SouthPark mall on Nov. 9, 2013. A sale of the company would mean Belk follows the long march of other family-owned department stores, including Marshall Fields and Hecht’s, that were sold to bigger companies. CHARLOTTE OBSERVER FILE PHOTO

As it contemplates a possible sale, Charlotte-based Belk Inc. is facing the same economic and technology challenges as other retailers, plus the difficulties of maintaining a long-running family business, experts said Friday.

Belk, which employs more than 1,300 at its corporate offices, said this week that it’s begun a monthslong strategic planning process to weigh options for its future and has hired investment bank Goldman Sachs to assist.

The iconic Charlotte retailer is now run by a third generation of Belk family members, but its next generation of leadership is not clear. That could play into the company’s decision to sell, two people familiar with Belk’s operations said.

“It’s impossible to talk about a family business without talking about the human angle,” said Howard Davidowitz, chairman of retail consulting and investment banking firm Davidowitz & Associates Inc. “They are the business.”

While Belk’s sales have kept growing over the years, their expenses have increased faster, resulting in thinner margins. Last year, the company’s profits declined 8 percent from 2013.

“They have this margin squeeze, and it’s only going to get worse because people are moving online,” said Steven Cox, a marketing professor with Queens University of Charlotte. “Their competitors are ahead in terms of website design and so on. They’re not in a terrible position because their revenues are continuing to grow year-over-year, but they’re just late.”

Until late 2008, the company’s website offered only gift cards, gift registries and a small selection of home goods. Belk has sought to boost its online presence since then, hiring dozens of technology workers and investing $150 million to overhaul its website and IT systems.

The retailer has had some successes and some missteps.

While its online sales have grown rapidly – by about 43 percent last year – they still represent only a small portion of Belk’s revenue. In fiscal 2014, the last full year available, online sales made up 4.8 percent of the company’s total revenue.

And Belk’s website went down for hours during Black Friday and Thanksgiving 2013, some of the year’s busiest shopping days, overloaded with high volume.

To focus resources on e-commerce, as well as to trim expenses, Belk, like other competitors including Sears, J.C. Penney and Macy’s, has been closing underperforming stores. Belk currently operates 297 stores, down from 311 in 2007.

At the same time, Belk has been aggressively spending on “strategic initiatives” including store remodelings, as well as opening bigger stores in new markets such as Dallas. In an earnings report last month, Belk said its recent drop in annual earnings was driven by the more than $79 million spent on store expansion and remodeling projects last year.

“The company embarked on a very ambitious, transformational change on a huge scale, for their size. When you do that, the risks are substantial,” Davidowitz said.

Family-run business

The Belk’s leadership has stayed within the family through its 127 years, but that could change with a sale.

The current leaders are CEO Tim Belk, 60, and his brother Johnny Belk, 56, who is president and chief operating officer. A third brother, McKay Belk, 58, retired as vice chairman in January 2012 but remains a director.

No other Belks are listed among the top management at the company, and two people familiar with the company told the Observer there doesn’t appear to be a fourth generation of Belks being groomed to run the company.

A Belk spokesman declined to comment on the family’s next generation of leaders.

Another challenge for the company is its complicated ownership structure.

Most of Belk’s 41.2 million shares of stock are still owned by the Belk family. Securities filings show Katie Belk Morris, who heads the company’s foundation, as the largest shareholder. Other major holders include Sarah Belk Gambrell, who is founder William Henry Belk’s daughter, CEO Tim Belk and COO Johnny Belk. Some of the family’s ownership is held in different entities, of which they are trustees.

By selling or finding an investor, the company could help family members who are looking to cash out, said one of the people familiar with the company. Currently, the company’s shares trade over the counter but not on a major exchange such as the New York Stock Exchange, where it would be easier to buy and sell the company’s stock.

Other longtime family-led Charlotte businesses have also changed hands recently. A little more than two months ago, shareholders of Matthews-based Family Dollar approved a sale to Virginia-based Dollar Tree, and last year grocer Harris Teeter was sold to Cincinnati-based Kroger.

Belk is expecting to approach competitors Macy’s, Bon-Ton Stores and Nordstrom, as well as large private equity firms to gauge their interest in a sale. New York-based investment bank Goldman Sachs will be guiding that process. That’s a change from the past when Belk hired hometown banks Wachovia and Bank of America to advise it on the purchase of stores from retailer Saks.

After successfully navigating the company through the recession, management may have determined now is a good time for a sale.

“Tim has been the CEO for 11 years,” the person familiar with the company said. “They have done a really nice job. If they’re going to extract value now, they’re going to get a lot of money for it.” Staff writer Ely Portillo contributed

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Belks running Belk

Here’s a look at the three generations of Belk leadership.

▪ William Henry Belk founded the first store in 1888. His brother John M. Belk soon joined him in business.

▪ William Henry Belk’s sons, John Belk and his brother Tom Belk, took over leadership of the company in 1954. During their time in charge, the unified Belk company was created from a maze of more than 100 separate operating entities and stores that had been assembled over the decades. John Belk also served as Charlotte’s mayor from 1969 to 1977.

▪ John Belk retired as chairman and CEO in 2004. His nephew Tim Belk became chairman and CEO. Tim Belk’s brother Johnny Belk became president and chief operating officer, while a third brother, McKay Belk, became president and chief merchandising officer. McKay Belk retired in 2012 but remains on the company’s board of directors. Ely Portillo