Dec 1, 2021 - Economy & Business

Department stores pushed to explore less being more

Major department store banners are likely to study splitting off their ecommerce businesses.

Illustration: Aïda Amer/Axios

Department stores and their investors are obsessed with one retail trend you won't see on the runway: Spinning off their e-commerce businesses.

Driving the news: Macy's is the latest chain to explore such a move.

Why it matters: Department stores were further behind other retailers in modernizing and, as a result, were the most cash starved.

State of play: Investors, particularly activists taking positions in depressed retail stocks, are pushing hard for companies to bolster their cash positions and reinvest in their transformations.

  • Despite Macy's roughly $25 share price in late September, a level not seen since before the pandemic, activist investor Jana Partners argued in early October that the retailer could double its valuation to about $14 billion by spinning off its e-commerce platform.

Catch-up quick: It all started in March when Hudson's Bay announced its luxury subsidiary Saks was splitting off its e-commerce business, subsequently raising hundreds of millions of dollars.

  • Then Macy's, the largest department store retailer in the U.S., disclosed its split review and the retention of AlixPartners after being pressured by Jana Partners. AlixPartners also advised Hudson's Bay.
  • Now, according to sources who asked for anonymity because they are close to such matters, all department stores will at least explore separating their digital platforms.

What we're watching: Likely e-commerce spin-out candidates include privately-held merchants Belk, J.C. Penney and Neiman Marcus, as well as publicly-held banners Dillard's and Nordstrom, the sources say.

  • Sycamore declined to comment on behalf of Belk, its portfolio company. Simon Property, the owner of J.C. Penney, and Nordstrom also did not provide a comment. Neiman Marcus and Dillard's did not respond to a request for comment.
  • Industry sources say the impetus for department stores splitting off their e-commerce units are the standalone valuations such businesses could achieve.

The capital raised can then be reinvested in digital capabilities and remaining stores.

  • And it will take a lot of cash to transform department stores — formerly known for hosting events from dinners to fashion shows and as places to discover new products — back into the kind of physical environments that capture shoppers' imaginations.
  • One of the sources pointed to Restoration Hardware as an example of how to reimagine a business.

The intrigue: Companies such as Authentic Brands Group have innovated by creating corporate structures in which the intellectual property is held by a parent entity, while the operations reside in a separate company with its own group of shareholders.

  • That structure may serve as a kind of prototype, said one source. The idea is for both businesses to remain connected and then to reunite at some point in the future.
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