Simone Del Rosario

The iconic department store, Macy’s, is facing off with an activist investor that thinks the real estate it sits on is more valuable than the company itself.

Activist investment firm Barington Capital and private equity firm Thor Equities say the company needs to cut spending, expand luxury brands and leverage that real estate portfolio.

The investors say the real estate Macy’s sits on is worth as much as $9 billion, nearly twice the company’s current valuation. They suggest Macy’s create a subsidiary, which would charge rent to the Macy’s parent company. That subsidiary could also sell space to developers to build things like hotels, apartments or offices.

The real estate development concept isn’t anything new. Back in 2021, Macy’s showed off a proposal to build a 900-foot skyscraper on top of its flagship Herald Square location.

Macy’s currently has 720 stores, including Bloomingdale’s and Bluemercury locations. They’ve closed more than 100 stores over the last decade, according to Barington’s deck.

Macy’s sales fell 2.4% in the third quarter. That earnings report was delayed as it dealt with the fallout of an employee hiding as much as $154 million in expenses.

Department stores have been decimated in recent years as e-commerce continues to claw at the share of retail sales. And off-price retailers like TJ Maxx and Ross are also taking a chunk of the business. Since 2000, department stores have seen their sales cut roughly in half.

As for Macy’s, its valuation has fallen by $15 billion over the last decade as its stock sank 70%. The struggles have made Macy’s the target of four activist investors in the past 10 years, according to CNBC. There was also a buyout offer almost exactly one year ago.

Macy’s responded to the latest pressure in a statement, saying:

“We will continue to act in the best interests of the Company and all Macy’s, Inc. shareholders and we look forward to engaging with our shareholders, including Barington and Thor, as we further advance our initiatives and execute toward our long-term goals.”

Simone Del Rosario
I want to bring in Doug Stevens, president and founder at retail profit. Doug, it’s right there in the name profit. So I’m going to ask you, can Macy’s innovate into the future, or do you think it’s destined to decline?

Doug Stephens
I think they missed their window of opportunity, frankly, for innovation. And I say that because at one point, Simone, I was actually quite close to that, that moment, or that, that window of opportunity, in fact, in 2017 I wrote a book called re engineering retail, and in that book, I actually used Macy’s as an example of a brand that could dramatically innovate within its category by really rethinking the whole purpose and meaning of what a department store is. And in that book, I actually pointed to another New York based business called Story New York City that at the time was using storytelling and experiential retail to really reinvent the idea of what shopping was and what a store was. And she, at the time, the entrepreneur that was building that business was her name was Rachel Schechtman, and she was engaging brands, large brands like Walmart, Proctor and Gamble and others, and saying, look for a month at a time, I can tell a story in my store about your brand. We can build that story out with all kinds of different experiences and content and really provide a rich perspective to the consumer on your products, your culture, etc. And she was doing some really amazing work at that and I was actually contacted by a board member at Macy’s and asked to come in and explain how Macy’s could engage in that level of of storytelling within the department store environment, basically turning it from a product offering into an experiential offering. And which I did, I went in, I had a full day of meetings with all their executives, right up to Jeff Jeanette at the time, who was running the company. And in the aftermath of that conversation, because I sort of laid out the math in the book of how Macy’s could actually be far more profitable if they started trading and experiences in the aftermath they bought story, and I thought, This is the moment where Macy’s is going to completely reinvent the whole idea of the department store. Unfortunately, they acquired story, and they gave Rachel Schekman about 1000 square feet to work with in one of their stores. And they said, Okay, well, you know, do something here. And it was kind of like, you know, a little gift shop sort of thing. My belief was that they should have given Rachel Schechtman an entire Macy’s store. And said, Show us what you can do with this, you know, here’s a blank palette they didn’t do that they didn’t have at the time. I sort of saw it as not having the courage to really disrupt themselves. And so I think here we are. You know, that was almost seven years ago now. Certainly things have not gotten better. There have not been any, you know, earth shattering developments at Macy’s to change either their shopping experience or even their basic offering. So I think they missed it. I think they missed the opportunity, and now they’re basically just taking the ship apart to see what the what the parts are worth

Simone Del Rosario
well, it’s not unlike what Barrington and Thor are proposing. What’s your read on on what these activist investors are saying? Yeah,

Doug Stephens
you know, I think, if anything, they may be the ones in the room that are being the most truthful with Macy’s. Because the fact of the matter is I don’t really think that Macy’s has had a retail strategy in decades. I don’t think that they have really engaged in exploring the customer experience, really making any systematic or structural changes or strategic changes to improve the experience that shoppers might have to, as I said, to try and break the mold of, you know, sort of the typical department store. And in many ways, I look at it very much as being similar, if not identical, to the place that Hudson’s Bay Company finds itself in, similar sort of player, you know, a stalwart in the department store category, again, not, not a brand that has engaged in any significant innovation. And I have felt, frankly, as I do with Macy’s, that for decades now, it, it really has been a real estate. Strategy, if anything, this is a real estate company. It’s a real estate holding company now, not a retailer, and so I think that these activist investors have simply called that out and said, Look, if you guys aren’t a retailer and you have these real estate holdings, then you need to start taking those holdings seriously and begin leveraging that where it ultimately leads to though, you know, I mean, look, you can only do so many stock buybacks and leverage your real estate holding so many times before. You know, the floor sort of falls out of that. So I don’t disagree with them, but I don’t know where it takes the company going forward? Yeah,

Simone Del Rosario
and unfortunately, that’s going to be my next question, because Macy’s as this stalwart, as you said, of a department store, it really reads a little bit like a relic, even, you know, we’re in the holiday season. You’re seeing all of these Macy’s advertisements, and I don’t see a lot of innovation over their business plan. Where is the future? Is there a future for department stores, especially with the rise of E commerce and other competitors?

Doug Stephens
I think there is. I still hold on to the belief that there is a place for the department store, but we have to stop calling them department stores. That’s a good first step. Look, if we look at this as a base case, what is a department store really? It is. It’s a space it’s in. Frankly, in most cases, it’s a significant space. Now, players in the department store category have looked at that space as a liability. You know, Macy’s right now, if they’ve been focusing on anything. They’ve been they’ve been focusing on building smaller stores, treating space as the enemy. I don’t look at it that way at all. I think the space is a luxury. Space is something that gives you the ability to really rethink, you know what? What is the business that we’re in? And to my mind, Macy’s should be in the experience business. There is nothing that they sell that I can’t buy somewhere else, and frankly, probably more conveniently and maybe even less expensively. So let’s take product off the table. They’re not going to win the war with product. They are, you know, not going to win the war with service. You know, Nordstrom has sort of locked that down and and other players. I mean, Amazon for Pete six is rated one of the highest customer service companies in America. So Macy’s isn’t going to pull that rug out from anyone’s feet, but what they do have is they have space, and they have brand relationships, relationships with vendors that could see them. Use that space to create one of a kind, in person, real life theater, and provide experiences that people could be a part of, you know. So maybe it’s not just about going to Macy’s to buy a new jacket, or, you know, a new shirt. Maybe it’s going to participate in an event that is all about style for the coming year. And you know, what’s cool, what’s trending? They have the space and the people and the resources to do that, but they’re not thinking like an experienced company right now, they’re still thinking like a merchant, and Lord knows, the world has enough merchants, and we don’t need Macy’s for it. Doug

Simone Del Rosario
Stevens, president and founder at retail profit. Thank you so much for your thoughts. Doug,

Doug Stephens
my pleasure. Simone, thanks for having me.