The Vultures Are Circling: Can Macy's Escape Or Will Activists Feast On Its Carcass?

Well, Macys (the solo retailer who's been anchoring the malls since the dawn of time), is back in the news. And no, it’s not because they sold out of Martha Stewart bedding sets or hid another $150 million in expenses. No, this time, shares popped over 2% yesterday right after activist investors Barington Capital Group and Thor Equities dropped what can only be described as the finance world’s version of a “makeover montage” proposal. Think less “department store relic” and more “real estate mogul in the making.” Yes, the plan is bold, borderline audacious, and has Wall Street gossiping louder than the millennial moms at your local church.

(Source: Giphy) 

Turns out, Macy’s is sitting on a literal goldmine. Who knew? Apparently, the company is sitting on  $5 billion to $9 billion worth of primo real estate, according to Thor Equities chairman Joseph Sitt. And by “primo,” I mean flagship locations like Herald Square in NYC—a.k.a the crown jewel of department stores. For this reason, activists want Macy’s to spin off its real estate into a separate entity, charge itself rent (we’re talking “landlord to yourself” here), and either redevelop or sell off properties for cold, hard cash. 

(Source: AP) 

Now while this seems spontaneous, this isn’t the first time Macy’s has put their tip into a real estate overhaul. But they’ve never really acted on them. Instead, Macy’s has spent nearly $10 billion over the past decade on things like store remodels, tech upgrades, and other “please notice me” projects—but now, these activists are saying the investments made by Macy’s have the ROI of a Blockbuster membership in 2023.

Naturally, this has Barrington and Thor pushing Macy’s to cut capital expenditures to just 1.5%-2% of sales (down from the current 4%) and use that extra cash to buy back $2-$3 billion worth of stock over the next three years. Translation: Forget store makeovers; let’s make the shareholders rich again.

(Source: Giphy) 

And because no activist investor proposal is complete without a side dish of “wrecking ball”, they’ve also suggested spinning off luxury brands Bloomingdale’s and Bluemercury. The thinking here? These high-end brands could shine brighter on their own, unshackled from Macy’s main department store biz, which—let’s face it—still gives off major “mall anchor on clearance” energy.

Which is why, this silver platter of activist advice could be one of the best things to happen to the company this year—especially since Macy’s has been on the struggle bus lately. For instance, the stock is down -14.83% YTD, its namesake stores are being annihilated, and oh yeah, there’s that tiny $154 million accounting scandal they uncovered last month.

(Source: CNN) 

However, Macy’s CEO Tony Spring, who just took over earlier this year, is sticking to his “Bold New Chapter” strategy. This includes closing 150 underperforming stores by 2027, pumping cash into Bloomingdale’s and Bluemercury, and betting big on smaller, more modern store formats. Activist investors, meanwhile, are saying “cool story, but your plan… well, sucks”. 

But, but, but… with that said, while the plan is ambitious, it’s also a logistical nightmare. For example, selling off real estate is only good until the market pulls a “WeWork” on everyone. Cutting spending is easier said than done, especially when you’re trying to stay relevant in a retail world dominated by Amazon and TikTok trends. And spinning off luxury brands? Risky AF. Sure it could unlock value, but it could also leave Macy’s core business looking like the sad, empty food court at your local mall.

(Source: Giphy) 

Yet, Barrington and Thor claim their strategy could boost Macy’s stock by 150%-200% over the next three years (yeah, and OU will win the SEC next year LOL—a.k.a. Wishful thinking friends). What’s actually funny though, is that Macy’s management isn’t exactly jumping on board. In a statement that might as well have been accompanied by an eye-roll emoji, the company said, “We remain confident in our Bold New Chapter strategy.” Translation: Macy’s is at a crossroads (again). 

On one side, you’ve got activist investors pushing for a leaner, meaner, real-estate-savvy machine. On the other, you’ve got management betting on a slow-and-steady turnaround. Now only time will tell which option they choose, but either way the real question is: Will Macy’s pull off a stunning comeback and cement its place as Wall Street’s next big redemption story? Or will it continue to fade into retail irrelevance, joining the ranks of Sears and JNCO jeans?

The answer: Who the hell knows. But in the meantime, keep an eye on this story as it continues to unfold and as always, stay safe and stay frosty, friends! Until next time…

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Stocks.News holds positions in Amazon as mentioned in the article.