An offer by a pair of investment firms to take Macy’s private has shareholders excited, but the offer could spell trouble for the fashion industry as a whole, analysts and industry observers say.

At a bid of about $21 per share, real estate firm Arkhouse Management and asset manager Brigade Capital value Macy’s at $5.8 billion — a 21 percent premium on its closing stock price from last week. The Wall Street Journal first reported the news Sunday afternoon, citing people familiar with the matter. A spokesperson for Macy’s declined to comment.

On Monday, Macy’s shares rose 19 percent to close just below the offer price. But the day’s gains may be a sign that investors are hoping for a bidding war, rather than betting on the deal to go through: Macy’s real estate assets alone are worth between $7.5 billion to $11.6 billion, according to Cowen estimates. The Journal also reported that Arkhouse and Brigade would be willing to raise their price if necessary.

More troubling, however, is the question of what Macy’s future would look like if its board were to accept the offer. While Macy’s, like other department stores, has struggled to compete with fast fashion and online retailers in recent years, it remains one of the world’s biggest sellers of apparel, an anchor to hundreds of shopping malls and is a major distribution channel for brands ranging from Calvin Klein to Michael Kors to Estée Lauder. Typical post-buyout moves, such as store closures and layoffs, could result in a smaller, leaner, less-relevant retailer.

“There are a lot of moving parts to Macy’s, and if the buyers intend to spin off the real estate and move the business to mostly online, then Macy’s would lose a lot of its magic,” said Rebecca Duval, retail analyst BlueFin Research.

Why is Macy’s in play?

Given Arkhouse’s expertise in real estate, the firm is likely more interested in the land Macy’s stores sit on rather than the merchandise inside. Other retail buyouts have seen the new owners sell off the most valuable properties and lease back other locations to the brand. Macy’s has some iconic real estate, including its 1 million-square-foot store in Manhattan’s Herald Square and Bloomingdale’s in Midtown.

Such a scenario would almost certainly result in a significant scaling back of Macy’s brick-and-mortar operations (there are nearly 500 Macy’s stores, plus over 200 Bloomingdale’s and Bluemercury locations).

“If you buy a retailer to play financial games with it, to monetise the assets while you as an investor group makes returns, what you’re left with is a company that has all of the problems it had before but now with increased costs because the properties it used to own it now has to pay rent on,” said Neil Saunders, managing director, retail, at GlobalData.

There is a history of real estate firms operating clothing retailers. Simon Property Group, a mall operator, invested in Forever 21, Brooks Brothers and other fallen retailers with Authentic Brands Group. Forever 21 in particular has thrived; the formerly bankrupt fast-fashion brand is teaming up with Shein and operates over 500 stores. The worst case scenario is what happened with Sears and Kmart. Under its hedge fund owner and chief executive Eddie Lampert, the department store was slowly stripped of valuable assets, including Craftsmen Tools, while stores fell into disrepair. The chains, which once operated over 3,500 stores, filed for bankruptcy in 2018 and has about a dozen locations remaining.

Cowen analyst Oliver Chen raised this spectre in a note published Monday, saying the deal could mean the “disassembly of Macy’s as we know it today.”

What’s the case for the acquisition?

Unlike Sears or Forever 21, Macy’s isn’t in need of an immediate rescue, though it has seen better days. In the third quarter, sales fell 7 percent compared with a year earlier, to $5 billion. However, in recent months, the retailer has made progress in improving its inventory position and boosting margins In the third quarter; Macy’s inventory turnover on a trailing 12-month basis was up 16 percent compared to 2019. Duval pointed to an increase in third-party vendors with more favourable terms and positive momentum in its private label business and small-format stores as reassuring signals.

“They’re finding ways to reinvent themselves,” Duval added. “The market is tough right now, but it’s clear Macy’s is running its business effectively.”

Going private could grant Macy’s more time, and more flexibility to continue its turnaround. But if its new owners have other ideas for their new asset — or conclude it’s beyond saving — watch out.

“Macy’s has been in perpetual decline for many years, so there is an argument to say, ‘Why bother?’” Saunders said. “Why not just sell off the bits and monetise as much as you can for investors and let Macy’s fail? It’s a sad conclusion to reach but it’s not an unreasonable premise for an investment thesis.”