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Second Activist Investor Thinks Macy’s Can Out-Saks Saks

Crypto and EVs—that’s what a new activist investor wants to see from Macy’s Inc.

The storied department store retailer is facing new calls for change from a second investor with a track record of agitating for corporate change—though private equity’s meddling in retail has yielded mixed results.

On Thursday, NuOrion Adivsors urged Macy’s CEO Jeff Gennette to adopt a number of progressive, traffic-driving initiatives. “We believe that Macy’s has the digital footprint and landmark stores needed to be a World-Class New Age retailer,” Guy Phillips, a managing member at the New York City private equity fund, wrote in his letter to Gennette.

What’s more, though Saks did the clicks-versus-bricks split first, NuOrion thinks Macy’s can do it better.

“We believe that Macy’s is better positioned than Saks to execute a digital transformation,” Phillips wrote. The board is putting Macy’s digital business at significant risk if it does not adapt to the fast changing environment. Macys.com needs to have competitive access to capital, the ability to attract additional top talent, and the agility of modern online fashion to best serve its customers.”

Macy’s stand to gain from showcasing electric vehicles from big-name makers like Tesla and Rivian on the first floor at major flagships in Herald Square, San Francisco’s Union Square and other landmark stores, NuOrion said.

The retailer should also leverage its “massive parking footprint to build an EV charging network,” it added, noting EV charging provider Atom Power’s plan to add more than 1,000 power-up points in New York City.

“We believe that direct association with EV companies will drive enormous traffic to Macy’s stores,” Phillips said.

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NuOrion homed in on another hot topic—cryptocurrency. The company believes Macy’s should take a cue from Starbucks and Whole Foods and partner with crypto platforms to start accepting digital currencies like Bitcoin and Ethereum. But the digital transformation plans don’t stop there. NuOrion last month urged the fashion seller to give “immediate consideration to a possible path that would unlock the value of Macy’s digital business,” Phillips wrote, echoing Jana Partners’s call for Macy’s to prioritize its growing e-commerce business.

 

 

Macy’s shares to over $75 a share. Shares of Macy’s have been trading in the $30-$31 a share range.

A Macy’s spokesman did not return a request for comment by press time.

The other two strategies include an immediate announcement that Macy’s will be partnering with various Crypto currency platforms to allow for digital payments, not unlike the options at Starbucks and Whole Foods. In addition, to power up its digital transformation, NuOrion said the company’s board should evaluate taking on a strategic investment from outside investors. It cited the deal struck by Hudson’s Bay Co. in which it secured a $500 million investment from Insight Partners for Saks.com as a recent example. That investment has garnered much attention since it resulted in a split up of the brick-and-mortar operation from its dot-com business, and because the dot-com operation is planning an initial public offering. The IPO is expected to give Saks.com a $6 billion valuation, up from the $2 billion valuation at the time of Insight Partners’ investment in March 2021.

Phillips ended his letter to Gennette by noting that “inaction is the highest risk strategy for the board and its shareholders.”

Activist investors’ interference in retail tends to not have happy endings. William Ackman’s hedge fund Pershing Square Capital Management failed in high stakes battle to wrest control of Target’s board in 2009. Under CEO Brian Cornell, however, the retailer has thrived through in tech investments, successful private-label revamps and introductions, and same- or next-day delivery.

Moreover, Ackman’s involvement in J.C. Penney was nothing short of a disaster. He exerted enough influence to get the board to hire former Apple executive Ron Johnson to transform store layout the layout and other critical parts of the experience. While the idea was novel and potentially had merit, the company never conducted a pilot test and instead barreled right into making significant changes that alienated their core customers, many of whom were gone for good. After Ackman sold off his investment, J.C. Penney faced an uphill battle regaining customers and restarting e-commerce, which had essentially shut down under Johnson’s tenure. Penney’s struggled under high debt and eventually filed for Chapter 11 bankruptcy. Penney’s operating company was acquired out of bankruptcy by a consortium led by Simon Property Group.

Edward Lampert’s foray into retail via his hedge fund ESL Investments similarly accelerated Sears and Kmart’s ongoing downfall. Lampert acquired Kmart out of bankruptcy, then orchestrated a merger with the former Sears, Roebuck & Co. to create Sears Holdings Corp. After years of clever financial engineering—all at the expense of the retail operation—Sears collapsed into Chapter 11. Although Lampert was able to buy back Sears, now owned by the Lampert-controlled Transform Holdings, the company is now a shell of its former self and it’s still periodically closing the few stores it has left.

Walter Loeb, a former retail executive and retail analyst and now a consultant, doesn’t “think private equity investments are good for retail.”

“Private equity does not have experience in the retail field,” he told Sourcing Journal. These companies “do not know the seasonality cycle nor the mix of merchandise that goes into retail. If they could stay as a passive investor, that would be okay. But if they insist on being active, that would be a detriment to the retailer.”

Loeb is not a fan of splitting up the physical store operations from the dot-com business. He believes these arrangements contain too many pitfalls, even with hundreds of operating agreements in place, that could eventually  jeopardize the physical store network that Loeb sees as visual and indispensable showcases for the retail brand.

But he does see merit in NuOrion’s EV cars and charging stations suggestion.

“There is such a demand to reduce gas usage and move towards clean air that it’s become an important concern right now for many people,” said Loeb, who believes “EV cars are going to be the future of automobiles in the U.S.”

Though it might take years for vehicles powered with renewable energy to truly take over, Loeb believes the “ability to show them at a nearby Macy’s will be a tremendous attraction for young people who want to see what an EV car looks like, as well as touch it and feel it and think about it some more.” In his opinion, Macy’s shouldn’t give up more than half of its main-floor space to showcasing EVs.

Deloitte’s report last year on EV cars noted that the sale of electric batteries and plug-in hybrid electric cars tipped over the 2 million mark for the first time in 2019, even before the Covid-19 pandemic shook up the automobile industry. And the report indicated that the global EV market will see a pattern of continued growth that is expected to continue this decade.