Jana Partners takes stake in Macy’s, calls for ecommerce spin-off

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An activist shareholder took a stake in Macy’s Inc.

M 2.85%

and is urging the notorious retailer to part ways with its fast-growing e-commerce business, according to people familiar with the matter.

Jana Partners LLC sent a letter to the company’s board on Wednesday urging them to separate the online unit, which generates around $ 8 billion in annual revenue, the people said.

Saks Fifth Avenue, Macy’s biggest department store rival, plans to separate its e-commerce business from its store operations under a deal that includes an additional investment. Jana is considering a similar arrangement, and Macy’s e-commerce business has already attracted interest from companies that could invest in it in conjunction with a spin-off, some people said.

New York-based Macy’s, which also owns the more upscale brand Bloomingdale’s, was hit hard along with other department store brands last year by the Covid-19 pandemic which caused it to temporarily close stores. physical stores. Online sales, meanwhile, have grown across the industry as more customers shy away from crowded places and shop at home.

This has accelerated a trend that has been brewing for years as shoppers move away from department stores – the traditional mainstay of retail – in favor of e-commerce. As consumers returned to malls and physical stores this year as vaccination rates increased, many also stuck with the online shopping routines they adopted during the pandemic.

This, in turn, has bolstered a major push from retailers like Walmart Inc.

pair e-commerce platforms with physical stores where online orders can be fulfilled and where shoppers can view products up close and in some cases pick up and return digital orders. The e-commerce giant Amazon.com Inc.

recently announced plans to open several large retail stores that will function as department stores, as part of an effort to increase sales of clothing and housewares.

Jana believes a standalone e-commerce business would be worth a multiple of Macy’s current market value, which stood at around $ 7 billion on Thursday. The retailer’s market capitalization is down from more than $ 20 billion in 2015.

While Macy’s shares have fallen significantly in recent years, the valuations of online-only retailers such as Farfetch Ltd.

and Mytheresa soared. Macy’s shares have rallied from the 2020 low, in part on hopes of continued growth in digital sales, and are now trading at around five times their then level. The stock closed at $ 23.11 on Thursday, up nearly 3% after the Wall Street Journal reported Jana’s participation.

Jana hinted at her interest in Macy’s at the 13D Monitor Active-Passive Investor Summit in New York last week, suggesting that the retailer should separate its e-commerce business, although Jana did not say he had one. participation or offered no further details.

It’s unclear how Macy’s would react to Jana’s advance.

Macy’s CEO Jeff Gennette stressed that the company aims to provide a seamless experience between its website and its stores. He told a conference in September that nearly 70% of Macy’s customers buy in more than one way. “We just believe that stores, mobiles and our website are just stronger together than anyone else alone,” he said.

Mr. Gennette said he expects the company’s digital sales to reach $ 10 billion within three years. For the holiday quarter that ended in January 2021, digital represented 44% of net sales.

Macy’s had total sales of $ 18 billion in the fiscal year ended January 2021, up from about $ 25 billion in the previous fiscal year. The company forecasts nearly $ 24 billion in revenue for the current fiscal year and a return to profitability. Last week he added two new members to the board: Michaels Cos CEO. and a Zipcar framework.

Earlier this year, the Hudson’s Bay Company said it was parting ways with Saks.com in an attempt to take advantage of the increase in online shopping during the pandemic. (A financial move, the two companies are still integrated from a customer perspective.) Venture capital firm Insight Partners said it would invest $ 500 million for a minority stake in Saks.com, valuing the company to $ 2 billion.

This is at least the third time that Macy’s has faced a campaign from an activist investor in recent years. But a sign of how much the pandemic and e-commerce have reshaped retailing, investors have previously asked the company to unleash the value of its real estate holdings.

In 2015, Starboard Value LP took a stake in Macy’s and asked the company to part with its real estate, which included hundreds of stores in suburban malls as well as in city centers. Macy’s rejected the idea and instead promised to find joint venture partners for its real estate. The retailer has unveiled plans to redevelop some spaces and build an office tower atop its flagship Herald Square store in New York City.

Kohl’s rival Macy’s Corp.

also faced pressure from activists earlier this year, when a group of investors attempted to take control of its board of directors. They asked Kohl’s to take a series of steps, including adding more directors with retail experience. The two parties then reached an agreement to add three directors.

Based in New York City, Jana was founded in 2001 by Barry Rosenstein. He waved at companies such as Whole Foods Market Inc., later sold to Amazon, and Callaway Golf Co.

Write to Dana Cimilluca at [email protected] and Cara Lombardo at [email protected]

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