Breaking News
Close
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Macy's reliance on stores for e-commerce weighs on mulled split

Stock Markets Dec 03, 2021 11:12
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: People wait in line at Macy's before Black Friday sales in the Manhattan borough of New York City, New York, U.S., November 26, 2021. REUTERS/Jeenah Moon

By Svea Herbst-Bayliss and Anirban Sen

(Reuters) - Macy's Inc (NYSE:M) is grappling with how to make its e-commerce business a standalone company without losing customers who rely on its department stores to pick up or return items they bought online, according to people familiar with the deliberations.

The 163-year-old retailer said last month that it had asked consulting firm AlixPartners to review its business structure after Jana Partners urged it to separate its e-commerce arm.

The activist hedge fund said in October that the e-commerce business could be worth $14 billion on its own, more than Macy's entire market capitalization of about $8 billion.

AlixPartners also advised HBC, the owner of Saks Fifth Avenue, on the separation earlier this year of its e-commerce business from its department stores.

Macy's views a similar separation as more challenging because of its large store footprint and its online customers' reliance on it, the sources said.

Macy's has close to 800 stores. It has said its online sales are two to three times higher per capita in regions where the stores are located, because of the convenience for customers of picking up and returning items at the stores.

Saks, on the other hand, has only about 40 stores, and the privately held company's e-commerce business generates annual revenue of less than $1 billion. That is a fraction of Macy's e-commerce revenue, which is set to exceed $8 billion this year, according to Morningstar analysts.

A separated Macy's online business will need to have extensive commercial agreements with the company holding the department stores. They would have to govern everything from merchandise distribution and storage to promotions and marketing, in order to provide Macy's customers a seamless experience in-store and online, the sources said.

Such agreements will need to withstand the test of time as the company holding the department stores downsizes further, shutting down locations on which the e-commerce business relies, the sources added.

"The introduction of numerous service agreements to compensate stores would likely lower profitability," Cowen analysts said in a note last month.

Macy's did not respond to requests for comment.

The duplication of functions now housed under one roof, such as logistics and administration, would add to the costs, the sources said.

Macy's has been going in the opposite direction with its "Polaris" strategy launched last year, which envisions $1.5 billion in annual cost reductions through the synergies of brick-and-mortar retail with e-commerce by the end of 2022.

In a letter to Macy's in October, Jana suggested that a benefit of separation could be a cash infusion in the online business that would help hire top talent and invest in new technology, the sources said. It pointed to the case of Saks, which attracted a $500 million investment from private equity firm Insight Venture Partners at a $2 billion valuation for its online business.

The Macy's review is also exploring this possibility, according to the sources.

"Our objective is to light a fire under this company that has an incredible brand," said Guy Phillips, managing member at NuOrion Advisors, a Macy's investor that is also pushing the company to make changes.

Macy's has not provided a timeline for completion of the business review.

While Jana applauded Macy's decision to launch the review, it has not ruled out a challenge to the company's board. It will have the opportunity to nominate directors early next year should it decide the company has not made enough progress.

PASSING ON COSTS TO CUSTOMERS

This is not the first time Macy's faces calls for a breakup. It fended off demands from activist hedge fund Starboard Value LP six years ago to sell its real estate and then lease it back for its stores. It has subsequently trimmed its property portfolio and entered into a partnership with Brookfield Asset Management to cash in on some of it.

Department stores have enjoyed a sales rebound in recent months as Americans splurge on perfumes, dresses and formal wear following COVID-19 pandemic lockdowns. But their profitability has suffered amid shipping logjams, labor shortages and inflationary pressure.

Macy's has fared much better than most retailers thanks to its ability to pass on some of the additional costs to customers. Its shares are up 143% year-to-date, compared with an 18% rise in the S&P 500 retailing index.

Macy's said last month it expects a 1% rise in gross margins from pre-pandemic 2019 levels. It also raised its full-year sales and profit outlook and expects full-year net sales of $24.12 billion to $24.28 billion, compared with $23.55 billion to $23.95 billion previously.

Macy's reliance on stores for e-commerce weighs on mulled split
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Our Apps
DOWNLOAD APPApp store
Investing.com
© 2007-2022 Fusion Media Limited. All Rights Reserved.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
  • Sign up for FREE and get:
  • Real-Time Alerts
  • Advanced Portfolio Features
  • Personalized Charts
  • Fully-Synced App
Continue with Google
or
Sign up with Email