Shares of Macy’s Inc. saw an active day of trading Wednesday following a report that activist investor Jana Partners urged the retailer to spin off its e-commerce business.
Jana believes that splitting up physical and digital could boost the share price of Macy’s, which in February said it expects to reach $10 billion in online sales by 2023. Last year, digital sales drove 53 percent of the retailer’s overall volume. Using those figures, separating the e-commerce unit from store operations could unlock a far higher valuation for the former as a standalone entity. Jana seems to believe that Macy’s online business could be worth as much at $14 billion, according to Bloomberg.
Shares of Macy’s ended Wednesday’s trading session up 1.2 percent to close at $22.56. Over 26.9 million shares changed hands, versus an average three-month volume of 17.1 million shares.
Neither representatives for Macy’s Inc. nor Jana Partners could be reached for comment by press time.
The idea of decoupling brick and mortar from digital seems to be on the industry’s mind.
Hudson’s Bay Co. (HBC), parent of luxury banner Saks Fifth Avenue, broke out the e-commerce business into a standalone firm known as Saks. Under the arrangement, Saks will retain ownership and control of the Saks Fifth Avenue intellectual property, including the brand and visual identity. HBC retains a majority ownership in Saks. The 40-store fleet became a standalone operation known as SFA. While wholly-owned by HBC, the two separate units work together to create a “seamless customer experience.”
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Splitting up stores from e-commerce should be a “no-go” proposition, according to Walter Loeb, a former retail executive turned retail analyst, and a consultant since his retirement from Wall Street.
“The store and branding [have] to have a unified image for what the nameplate stands for. By splitting up the store and e-commerce operations, you will create two organizations that are not necessarily going to be on the same path,” Loeb said.
Essentially, what Loeb is saying is that the two firms, each with its own CEO, eventually will end up having its own agenda. Then there’s the problem with the merchandising and buying teams. One—most likely the e-commerce entity—becomes the dominant of the two and ends up controlling what is bought for the business. The store operation potentially could be limited to buying from the e-commerce unit to merchandize the stores. Then you have another concern over order fulfillment, and even which entity is booking a sale if an item is bought online, returned to the store and then is later sold from the store.
“I do not see e-commerce standing on its own feet—it can’t by definition. Merchants develop and innovate on product design. They’re not e-commerce operators,” Loeb said. In this scenario, stores are unlikely to survive alongside a more dominant e-commerce business. The store, even if there are fewer doors, has to serve as flagships or beacons for the banner, representing both visually and in physical format what the nameplate stands for. The primary job of the e-commerce business is to support the store operations, Loeb said. That could be through providing additional ways to interact with consumers. And e-commerce could be another tool in facilitating an easier shopping experience, such as buy online and pick up in-store (BOPIS) or research online and buy in-store (ROBIS).
Only time will tell if more retailers end up on the same spin-off path. While activists might be looking at e-commerce as the next trigger for more profits if they are successful, there’s a chance—because many don’t really understand retail—that they end up on the wrong side of the bet. Macy’s can say it’s already been there and done that.
This isn’t the first time Macy’s has had to deal with an activist’s demands. The retailer in 2015 was the target of activist Starboard Value LP, which wanted to divide the retailer and its real-estate holdings. Starboard’s CEO Jeff Smith had valued the retailer’s real estate at $21 billion at the time. But apparently Macy’s was taking too much time in evaluating what the best real estate strategy should be for the company going forward. As reporting requirements became public, it was learned that Starboard had thrown in the proverbial towel, selling it entire stake in Macy’s by March 2017.
Meanwhile, Macy’s is making some changes ahead of the holiday season. A redesigned mobile app that will be available on Oct. 15. Macy’s also has planned special events through Macy’s Live, its livestream shopping experience where customers can interact with hosts and Macy’s stylists via chat, and get real-time reviews and recommendations. Following the broadcasts, the shows will be archived for watching and shopping on-demand.
The retailer, in partnership with Clothes4Souls, will donate one new coat for every eligible coat purchase in-store or online on Oct. 9-10. And for anyone shopping for independently certified brands and products, the retailer will have a one-stop shop online featuring its full range of environmentally conscious products that are either responsibly made or packaged. Macy’s will also provide 3D design services in-store and via a mobile device that allows shoppers to shop for new home furnishings to see how it looks before they buy. The 3D design tool will be available at over 400 Macy’s doors and on macys.com.