In a bold move signaling a potential shift in strategy, Barington Capital Group is urging Macy’s Inc. to make significant changes aimed at boosting its stock price. The activist investor firm has suggested several measures, including cutting capital expenditures, forming a separate real estate group, and exploring strategic alternatives for its Bloomingdale’s and Bluemercury chains. This call for action comes amidst ongoing challenges faced by the retail giant, which is struggling to adapt to a rapidly changing retail landscape.
Barington Capital Group’s recent presentation outlines its vision for Macy’s future, as it emphasizes the necessity of reducing operational costs. The firm acknowledges some initial success in the retailer’s ongoing strategy to close underperforming stores, but they stress the need for more substantial cost reductions to ensure consistent revenue growth and profitability improvements. Specifically, Barington recommends cutting spending to between 1.5% and 2% of sales, a significant reduction from the current 4%. This approach underscores their commitment to achieving a healthier store base that could foster long-term financial stability.
The urgency for these changes has been heightened by Macy’s stock performance. Since the announcement of its turnaround plan earlier this year, shares have plummeted nearly 15%. Nonetheless, there was a slight recovery with a 3.9% increase in stock value last Monday, after Barington’s proposals became public. Despite these challenges, Macy’s management remains confident in their current strategy and expresses eagerness to engage with the investors.
However, the retail landscape has not been kind to Macy’s. The shift towards e-commerce has led to reduced foot traffic in malls and traditional department stores, compelling Macy’s to plan the closure of 150 locations by 2026. Concurrently, the retailer is set to expand its high-end Bloomingdale’s and Bluemercury stores. This dual strategy aims to streamline operations while also capitalizing on the growing demand for luxury retail experiences.
Adding to the turmoil, Macy’s disclosed a troubling issue in November regarding a plot by an employee who allegedly concealed millions in expenses, prompting a delay in the company’s quarterly earnings report. The company affirmed it will provide its earnings by December 11, yet this incident reflects a level of internal turmoil that complicates investor confidence further.
Barington advocates for the formation of a real estate subsidiary as a strategic pivot. This new entity would encompass all of Macy’s owned and leased properties, including stores and distribution centers. Under this structure, Macy’s would pay rent to its newly created subsidiary, which Barington estimates could unlock significant value. The group values Macy’s real estate holdings, including the flagship property at Herald Square in Manhattan, between $5 billion and $9 billion. Such an initiative could potentially enhance shareholder returns and reinforce Macy’s financial position.
In this context, Barington is also pushing for an aggressive stock buyback program of up to $3 billion over the next three years. This move could help support the stock price amidst the company’s ongoing struggles and perceived vulnerabilities.
The pressure on Macy’s management is evident. Newly appointed CEO Tony Spring faces the daunting task of addressing these challenges effectively while consolidating his leadership amidst competing investor interests. Earlier this year, Spring was confronted with a similar activist challenge that forced Macy’s to terminate discussions with Arkhouse Management Co. and Brigade Capital Management. This highlights the increasing pressure on the company’s leadership to not only propose a comprehensive turnaround plan but also to demonstrate tangible results quickly.
As Macy’s navigates this treacherous terrain, the company’s strategic decisions will be under intense scrutiny from stakeholders. The proposed reforms by Barington Capital Group could potentially serve as a catalyst for significant changes within the organization. If implemented effectively, these strategies might not only streamline operations but also enhance shareholder value in an increasingly competitive retail environment.
The economic landscape for retailers continues to evolve, and Macy’s ability to adapt could very well dictate its future in an industry that shows no signs of slowing down. As Barington Capital and other investors push for reform, comprehensive changes must echo both a response to market pressures and an innovative approach to retailing and real estate management.
Macy’s must rise to the occasion if it hopes to reclaim its position as a leading player in the retail sector. Without embracing a strategic re-evaluation, the potential for long-term growth may remain elusive.
