Macy’s, the renowned department store chain, is currently under pressure to alter its strategic approach following calls from activist investors. Barington Capital Group and Thor Equities have recently voiced concerns over Macy’s capital allocation strategies, urging the company to consider significant changes. These investors propose that adopting a new direction could enhance the store’s financial performance amidst the challenges it faces. Additionally, the investors are suggesting changes not only in capital allocation but also in how Macy’s manages its real estate and luxury brands.
In recent years, the department store sector has been subjected to various proposals from investors urging modernization and efficiency. Macy’s, specifically, has faced repeated calls to reevaluate its operational strategies. Historically, companies in this sector have seen mixed outcomes when implementing similar changes, making the current situation at Macy’s particularly noteworthy. As the retail landscape evolves, the need for adaptive strategies becomes increasingly apparent. Considering these past developments, the present call for change by Barington and Thor emphasizes the necessity for Macy’s to reposition itself strategically.
What Do the Activists Propose?
Barington’s James Mitarotonda and Thor’s Joseph Sitt have highlighted the potential benefits of restructuring. They emphasize that refining Macy’s real estate strategies, alongside operating improvements, could yield substantial returns for shareholders.
“We seek to be value-added stockholders at Macy’s that can bring fresh perspectives,”
they stated, suggesting the formation of a real estate subsidiary and exploring strategic alternatives for Bloomingdale’s and Bluemercury. The proposal also includes reducing capital expenditures to a minimal percentage of total sales.
How Is Macy’s Responding?
In response, Macy’s has reiterated its commitment to driving sustainable growth and enhancing shareholder value. The company pointed out its ongoing “Bold New Chapter” initiative, which involves closing underperforming stores while investing in promising locations. Macy’s stated,
“We will continue to act in the best interests of the Company and all Macy’s Inc. shareholders.”
The company remains open to discussions with Barington and Thor as it refines its long-term goals.
Macy’s shares have experienced a decline of over 18% over the last year, signaling the urgency for action. The investors believe that with strategic changes, there is potential for a substantial increase in shareholder returns. Barington and Thor are advocating for aggressive share repurchases, estimating a return of up to 200% within three years. This highlights the critical need for Macy’s to consider the proposed strategies to regain market confidence.
The department store chain currently operates 60 Bloomingdale’s locations and 164 Bluemercury stores. Barington and Thor see these brands as having higher growth potential, suggesting that strategic alternatives could unlock further value. Macy’s is also being encouraged to consider a major stock repurchase plan, potentially ranging between $2 and $3 billion.
While Macy’s navigates these challenges, the involvement of activist investors underscores the importance of adaptability in today’s retail market. As the company evaluates its strategies, the focus remains on ensuring profitability and shareholder value. Navigating these pressures will determine Macy’s ability to sustain its market position in an evolving landscape. Observers will be keenly watching how Macy’s balances these investor demands with its corporate objectives.
