[Macy’s Would Be Worth More If It Shut Down and Sold Off Its Assets, Investors Say
Activist investment firm Barington Capital and private equity firm Thor Equities proposed that Macy’s shut down its business and sell off its assets to boost its stock price. The companies argue that Macy’s real estate, including its flagship store at Herald Square in New York City, is worth up to $9 billion on the open market, nearly double Macy’s closing market value of $4.7 billion.
The investors claim that Macy’s can squeeze more value out of its real estate by paying rent to a subsidiary controlling the property and selling space to developers to build on its land, such as hotels, apartments, or offices. The company owns 720 stores, including luxury department store Bloomingdale’s and beauty chain Bluemercury.
Macy’s has responded to the proposal, saying it is committed to “delivering sustainable, profitable growth and driving shareholder value.” The company believes its strategy, which includes closing underperforming stores and investing in its top 50 stores with better staffing and new merchandise, is the right approach.
However, investor groups have sometimes bought struggling or under-performing retailers in recent years, with the goal of taking them private, turning them around, and selling them for a profit. But the results have often led to closures, not salvation, for companies such as Sears and Toys “R” Us.
Mark Cohen, who retired as director of retail studies at Columbia Business School, said the investors are not interested in the long-term viability of the business. “The investors are not interested in long-term viability of the business,” he said. “Left to their own devices, these guys would strangle the company.”
The path laid out by Barington and Thor is similar to one followed by hedge fund operator Eddie Lampert after he purchased control of Sears and Kmart. He ended up selling off or developing much of their real estate and selling off many of their valuable brands, including Craftsman tools.
The results were not good. Stores were closed when they could no longer afford to pay rent to the separate company that now controlled their real estate. Sales plunged as the company was starved of the cash needed to invest in stores to make them attractive to shoppers. In 2018, the company filed for bankruptcy, and it has continued to struggle, closing most of its remaining stores.
Macy’s stock has dropped around 70% over the past decade, and it has struggled to compete with online retailers like Amazon, big box retailers like Walmart and Target, and discount clothing chains like TJ Maxx and Marshalls.
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