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Kohl’s Racing Against the Clock in Takeover Talks

Time is running out on the three weeks Kohl’s and Franchise Group have to exclusively negotiate a deal, and reports suggest the Vitamin Shoppe owner wants to pay less to take over the department store chain.

Retail’s fortunes have rapidly declined since Kohl’s agreed to Franchise Group’s $60-a-share offer valuing the Menomonee Falls, Wisc. company at $7.4 billion. Though the duo on June 6 said they’d set aside 21 days to hammer out a firm agreement, Walmart and Target‘s first-quarter earnings misses sent shockwaves through the sector, rattling investors and sparking new questions about where consumer spending is going.

Kohl’s own first quarter report showed sales falling 4.4 percent to $3.72 billion, as it spent more money on freight, and women’s sportswear, casual and career wear declined 1 percent. Kohl’s has been furiously working to become a leader in active apparel even as people are starting to dress up again. It’s also packing away late-arriving fleece and cold-weather products for next season, hoping consumers will still want to buy year-old styles. And now it’s grappling with a gaping hole in the chief merchant role after Doug Howe decamped to become DSW president and Designer Brands executive vice president.

“Kohl’s is the latest retailer to feel the pinch of changing consumer behavior,” said David Silverman, senior director at credit ratings firm Fitch Ratings, who believes shoppers will be spending much less this year on home goods and other consumer products partly as a result of inflation.

“Kohl’s saw weakness in the home category, which has performed well through the pandemic but now challenged by difficult comparisons and budget diversion to services,” he said. Fitch is keeping an eye on the retailer’s bloated inventory—up 40 percent over last year in markdown-prone categories like apparel.

Retail sales have a rough road ahead as consumers pay more for basics like fuel and food. The preliminary University of Michigan Index of Consumer Sentiment for June tumbled to 50.2 from May’s 58.4, a drop from 85.5 a year ago and the lowest reading since data collection began in 1978. The more widely tracked Consumer Confidence Index from The Conference Board is due Tuesday.

CNBC was first to report on Wednesday that Franchise Group could be looking at lowering its offer closer to $50 a share. It said the Buddy’s Home Furnishings owner isn’t sure if buying Kohl’s is the best use of its capital.

Kohl’s and Franchise did not respond to a request for comment. Their exclusivity agreement expires this weekend.