Its almost over for Clover - sale of Philadelphia, Pennsylvania stores

Discount Store News, March 4, 1996 by Richard Halverson

PHILADELPHIA -- Dickering over Clover is coming down to the wire for serious players, and the results will probably be known by the end of March, real estate sources said.

Speculation that Clover is about to be sold is intensifying now that Kimco Realty Corp., which has brokered several discount store sales, is taking a look at its numbers. Kimco, based in New Hyde Park, N.Y., signed a confidentiality agreement last month with Clover parent Strawbridge & Clothier, a Philadelphia department store chain of 13 stares. Kimco also declined comment, but a spokesman said . an announcement could be on the wires as early as March7. Target--which disclosed at a shopping center conference in January that it plans to enter the Philadelphia market--figures prominently in that speculation as the buyer of as many as 10 of Clover's larger stores. Spokeswoman Gail Dorn said that as a routine matter, it declines to comment on speculation.

Wal-Mart also is interested in four of the Clover stores including the 151,000-sq.-ft. Cottman Avenue store in Philadelphia, an area real estate broker said. Wal-Mart has been cherry-picking the best sites and is offering the most money per store. But it has turned down several sites and it isn't willing to take the whole chain, as would Kimco, or perhaps even Target itself, said the broker, who requested anonymity.

Kohl's, a promotional department store operator based in Menomonee Falls, Wis., is a likely buyer for smaller Clover stores, said analyst Todd Slater, UBS Securities, New York. The units match the 80,000-sq.-ft. footprint it prefers. Kohl's recently opened its first Pennsylvania store in Erie, Slater said, and it likes to open in Contiguous markets when it enters a state.

Within Philadelphia real estate circles and among New York stock analysts, it is an article of faith that May Department Stores will buy the department store division of Strawbridge & Clothier, but it isn't interested in Clover's 27 stores.

Enter Kimco, which last month-brokered the sale and leaseback of 16 Venture stores. Kimco also has a history with Target. In 1988, it brokered the sale of 30 Richway discount stores in the southern division of Cold Circle (formerly a Federated chain) to Target, giving the discounter a southern foothold on the East Coast. Kimco had purchased all of the Gold Circle chain's 75 stores, then sold and/or leased the 30 to Target, Kimco cfo Lou Petra said.

Last October, Strawbridge & Clothier, in effect, put it self on the block by hiring a New York firm, Peter J. Solomon Co, to explore its options. Strawbridge & Clothier became all but doomed as an independent company when May bought out of bankruptcy 14 former John Wanamaker stores in Philadelphia. Strawbridge & Clothier, in conjunction with Federated, also had bid on the properties.

Considered the best department store operator in the country, May would give Strawbridge & Clothier the most intense competition it has faced to date. May is clearing the decks for further department store acquisitions by spinning off its Payless ShoeSource division to shareholders, much as it spun off Venture in the late '80s.

What is beyond question is that Wall Street looks favorably upon Strawbridge & Clothier these days for reasons other than sales and profits.

On Oct. 27, 1995, Strawbridge stock stood at $14.13. By Feb. 20, 1996, its share price had soared almost 90% to $26.75. Yet sales for the first nine months of '95 slipped to $642.7 million from $657.8 million for the first three quarters of '94.

Slater projects a $6 million net loss for '95, compared to a net profit of $20 million in '94.

Clover accounts for an estimated 45% of corporate sales which Strawbridge & Clothier declines to break out.

Slater recommended a buy of Strawbridge & Clothier stock when its price stood at $18 because of a pending sale.

Kimco moves fast, Slater said, and wouldn't buy the Clover stores unless it had buyers waiting in-the wings. It brokered the Venture store sale and leaseback in two weeks, he said.

Target is a likely buyer for five to 10 of the larger Clover stores, he said. Clover stores average 80,000 sq. ft., but the first five stores it opened when it was founded in 1971 ran about 95,000 sq. ft. to 100,000 sq. ft., including stores in Cinnaminson, Marlton and Blackwood, N.J.

Target now is talking to landlords to see which of the other Clover units could either be enlarged to its specifications or demolished and rebuilt, said the Philadelphia market real-estate developer and broker, and could he in the bidding for the whole chain.

Clover occupies terrific real estate, Slater said, and has maintained it well, in keeping with its upscale market position as a department store offspring--identical to Target's. Last year, Clover opened a store in downtown Philadelphia covering 104,100 sq. ft. On two floors of a former Stern's department store and a 95,000 sq. ft. unit on the Concord Pike, north of Wilmington Del.

Although Target today usually prefers to build its stores from scratch, it grew from other acquisitions in the '80s Slater pointed out. In addition to Richway, it also purchased the Fed Mart and Gemco stores in California and the Ayr-Way units in Indiana, Slater said.