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The case for Macy's to sell itself

A customer enters a closing Macy's store

Photo: Justin Sullivan/Getty Images

There's a strong case for Macy's to launch a formal sale process while there's still something left to be sold.

Why it matters: Its latest reinvention tour is a rehash of old hits: smaller store footprints, more of a focus on luxury, digital integration, and more store closings.

By the numbers: Since pushing past $60 per share in 2015, Macy's stock has sunk in value, briefly re-surging in late 2021 to top $40 due to post-pandemic demand.

Catch up quick: Macy's has unveiled multi-year turnaround plans before but has continued to lose customers and sales due to poor execution.

  • In 2020, it planned to compete in off-price retail against the likes of TJ Maxx via its Backstage concept.
  • Now it wants to pivot to luxury, a struggling category already crowded with retailers.

Between the lines: When Macy's pressed Arkhouse Management and its partner Brigade Capital Management on their offer's lack of committed financing, it was indirectly saying it didn't think the pair of firms were serious bidders.

Yes, but: Arkhouse has shown it means business by increasing its offer, waging a proxy contest, and retaining white shoe advisers at no small expense.

What they're saying: Macy's said in a statement that the board "will carefully review and evaluate the latest proposal" and won't comment further until that's complete.

The caveat: It's still risky for banks to commit to providing syndicated debt, per sources.

Friction point: So far Macy's has stonewalled Arkhouse by appointing a new CEO and pitching an alternative plan to shareholders, with still no mention of a broader strategic review.

  • "We remain frustrated by the delay tactics adopted by Macy's Board of Directors (the "Board") and its continued refusal to engage with our credible buyer group," Arkhouse said.

Reality check: Kohl's received offers of well over $60 per share to buy it in early 2022.

  • Kohl's dragged out the process into the summer, by which time both the economic conditions to support a deal and the bidders evaporated.
  • By the fall of that year, Kohl's was once again under pressure from activists, who, at that point, called for the CEO to step down. Today its share price sits below $30.

The bottom line: Macy's still has value left in its real estate, which it can either use to attain a premium in a sale process or invest in another turnaround, though it must show strong evidence it can execute.

State of play: The American department store

A short history of the American department store demonstrates the challenges Macy's faces.

Flashback: Department stores became fixtures of life during the late 19th and early 20th centuries as the U.S. industrialized, catering to the needs of the newly affluent.

They began as urban palatial bazaars that sold a little bit of everything and became aspirational symbols to a rising middle class.

  • Then they followed the migration from cities to the suburbs, anchoring malls across America, a trend that continued as recently as the 1990s.
  • Along the way, these department stores shifted to largely focus on fashion and accessories.

Catch up quick: Beginning in the 1980s they were replaced by modernized versions of the format, namely Walmart and Target, as core customers shifted from aspiration to value.

  • Instead of pivoting, they doubled down on midpriced clothing. Remember the "Softer Side of Sears?"
  • But fashion bifurcated between the high and the low, a mix of fast fashion and discounted goods from TJX with luxury, a trend that gained steam in the 2000s.

Macy's stock snapshot

Data: Yahoo Finance; Chart: Axios Visuals
Data: Yahoo Finance; Chart: Axios Visuals

For nearly a decade, Macy's stock has steadily declined in price. Even with the recent bump up in response to Arkhouse and Brigade's sweetened offer, the retailer's shares remain at less than a third of their peak value.

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