In a bold move signaling renewed interest in corporate governance, Barington Capital has publicly disclosed its position in Macy’s Inc., joining forces with Thor Equities to advocate for transformative changes within the storied retailer. This seeks to address persistent performance issues that have plagued Macy’s over the years. Barington’s proposal to cut spending, explore selling luxury brands, and reassess the company’s real estate holdings is informally part of a broader effort, as this marks the fourth activist push targeting Macy’s in the last decade. This latest initiative underscores an escalating concern among investors regarding the long-term viability of Macy’s business model in today’s rapidly changing retail landscape.
Following the announcement, Macy’s shares experienced a modest uptick of approximately 3% in premarket trading, reflecting the markets’ cautious optimism in response to the proposed changes. However, the opacity regarding the exact size of Barington’s stake introduces an element of uncertainty into the investor narrative, prompting speculation about the depth of their commitment to Macy’s revitalization.
Barington Capital has been vocal about its belief that Macy’s operations could benefit significantly from tighter inventory management and reduced overhead costs. Through a detailed presentation, the firm highlighted that while Macy’s is generating cash, its recent investment strategy has raised eyebrows. With nearly $10 billion allocated to capital expenditures, Barington argues that the company has neglected essential shareholder practices such as stock buybacks and dividend distributions.
Pointing towards Dillard’s—an example of a more nimble department store operator with a market cap surpassing $7 billion—Barington suggests that effective capital allocation could pave the way for Macy’s eventual resurgence. By illustrating a comparative analysis with Dillard’s, which has managed to navigate the retail challenges more adeptly, Barington reinforces its argument for a reevaluation of Macy’s financial strategy.
In response to Barington’s assertions, Macy’s has firmly reiterated its commitment to the “Bold New Chapter” strategy, encompassing the closure of underperforming stores while investing in profitable segments. In early 2022, the company announced plans to shutter nearly a third of its namesake stores by 2027, signifying a decisive pivot in its operational strategy. Moreover, Macy’s intends to focus on enhancing the remaining 350 locations, investing in high-performing brands such as Bloomingdale’s and Bluemercury.
Yet, as the retail environment continues to shift, with online shopping dynamics and changing consumer behavior at the forefront, the effectiveness of Macy’s current strategy comes into question. The company aims to engage more proactively with stakeholders, including Barington and Thor, thus illustrating an openness to collaborate, even as it asserts confidence in its long-term vision.
One of the critical components of Barington’s strategy involves leveraging Macy’s real estate portfolio, which the firm estimates could be valued between $5 billion and $9 billion. With many Macy’s locations strategically situated in key malls across the United States, the potential for monetization through asset sales presents an enticing opportunity for immediate cash flow relief. The proposal for creating a separate subsidiary to manage these real estate holdings reflects a sophisticated approach to maximizing value while ensuring that Macy’s core operations remain operationally agile.
Furthermore, the company has acknowledged recent asset sale gains, totaling $66 million and exceeding prior expectations, emphasizing the potential as they contemplate which locations to divest further. Simultaneously, Macy’s has begun to isolate and report on the sales performance of stores slated to remain open beyond 2027, a move designed to present a more accurate picture of ongoing operational performance.
Macy’s current predicament, highlighted by declining sales that plummeted 2.4% to $4.74 billion in the last quarter, raises pressing questions about the effectiveness of its existing strategies. With comparable sales for owned and licensed businesses down by 1.3%, investors and analysts alike are watching closely as the company navigates significant challenges, compounded by operational mismanagement resulting in undisclosed delivery expenses.
It is clear that a consortium of activist investors, spearheaded by Barington Capital and Thor Equities, can inject fresh perspectives and urgency into Macy’s response to contemporary retail challenges. As stakeholders await further updates and insights by December 11, the dialogue between management and investors promises to be critical in steering Macy’s toward a stable and profitable future amid ongoing turbulence in the retail sector. Only time will tell if these interventions can translate into meaningful change within this beloved American brand.