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WHAT DOES BUYER HAVE IN STORE FOR LIMITED?

By Kerri Linden

Limited Brands is drawing analysts for selling its Limited Stores and Limited Express chains last month, which represents the final steps of a strategy to refocus from apparel to the beauty and body lines.“This is one of the best examples of asset reallocation in history,” said Howard Davidowitz, chairman of Davidowitz & Associates, a New York City-based investment firm. “[CEO Leslie] Wexner has decided to reorient the brand. He is now basically in the beauty and body care business.”

The 251-unit Limited Stores chain was acquired last month by Sun Capital Partners, a Boca Raton, Fla.-based private equity firm that will contribute $50 million in equity and hold a 75 percent stake. Sun Capital says it will also arrange for an additional $75 million in credit to be put toward the stores. Limited Brands is taking a $43 million loss on the deal.

What will become of the Limited Stores units under the new ownership? Davidowitz speculates that within two years Sun Capital will either take the Limited in a new and successful direction or that the chain will be liquidated. “This is a risky proposition with a low chance of success,” he said. “There’s a 50 percent chance the chain will not exist in a few years. Apparel is the most volatile business — you’re a hero today and a bum tomorrow.”

The private equity firm has kept Linda Heasley and Avra Myers, the co-presidents, in control, which Davidowitz sees as a mistake. “Retail is very talent-intensive,” he said. “With the same CEO, it doesn’t work. The competition is fierce, and turnaround is possible, but new people are needed.”

The company’s mall-based stores average less than 6,000 square feet and are all leased in shopping centers. Britt Beemer, chairman of Charleston, S.C.-based America’s Research Group, says this could hurt Sun Capital’s chances of any turnaround. “Sun Capital will have to decide what their store strategy should be,” Beemer said. “Forty-five percent of under-40 women are now shopping at lifestyle centers. Being in a mall will make getting that customer much more difficult.”

Further, Sun Capital will be up against ownership clauses in the chain’s leases, no real estate value that can be liquidated in the future and a chain of stores that not many would be willing to buy should Sun Capital be inclined to sell, Davidowitz says.

But there are those who see an upside. “Limited still has some stores in fabulous shopping centers, and some landlords might want that space back,” said Jim Bieri, president and CEO of the Detroit-based Bieri Co. “From a real estate play, an independent party has more of an ability to be flexible with the landlords. The Limited has long-standing relationships with the developers. Sun Capital could get out of the worst centers and keep the best as one possibility.”