On Monday, Barington Capital, an activist investment firm, disclosed its stake in Macy’s, pressuring the beleaguered department store to implement significant changes. The recommendations from Barington include slashing expenditures, exploring the sale of luxury brands, and taking another look at its extensive real estate holdings. This move represents the fourth activist intervention in Macy’s affairs within the past decade, highlighting ongoing concerns over the company’s performance and strategic direction. Following the news, Macy’s shares experienced a slight uptick of approximately 3% in premarket trading, an indication that the market reacted positively to the potential for change.
This latest intervention is a collaborative effort with Thor Equities, a private equity firm focused on real estate investments in the retail sector. While the specifics of their stake remain undisclosed, Barington’s positioning echoes a familiar narrative for Macy’s: the need for reform in a challenging retail landscape. With the firm’s analysis suggesting that Macy’s could improve operational efficiency by reducing inventory, sales, and administrative expenses, it’s clear that the spotlight is firmly on how management allocates its resources.
Barington Capital’s critique of Macy’s is particularly pointed regarding capital expenditures. The firm noted that Macy’s management has invested close to $10 billion in capital projects, a figure that has evidently drained potential funds that could have been used for stock buybacks or dividends. Historically, Macy’s stock performance has lagged behind broader market indices such as the S&P 500 and the Retail Select benchmarks over the past decade, signaling a potential disconnect between spending and returns.
Interestingly, Barington drew parallels to Dillard’s, a smaller but more successful competitor in the department store sector, which has effectively managed capital allocation to its advantage. With a market capitalization exceeding $7 billion and an operational footprint of 273 stores across the U.S., Dillard’s serves as a case study that Macy’s might benefit from emulating.
In response to Barington’s proposals, Macy’s has reiterated its commitment to its existing strategy, dubbed the “Bold New Chapter.” This strategy entails the closure of approximately 150 underperforming stores, representing nearly a third of its locations, by early 2027. The goal is to redirect resources into maintaining and enhancing around 350 stronger stores and to further develop its upscale brands, including Bloomingdale’s and Bluemercury.
However, Barington is not satisfied with merely trimming down physical locations. The activist investor insists that Macy’s should augment its share repurchase programs and evaluate the potential sale of its lucrative Bluemercury and Bloomingdale’s brands. They further urge a reassessment of Macy’s real estate portfolio, with valuations ranging between $5 billion and $9 billion. A proposed strategy from Barington suggests creating a subsidiary that manages these real estate assets and potentially charges rent back to Macy’s, thereby enhancing cash flow through smarter asset management.
Macy’s struggles continue to mount as consumer preferences shift and e-commerce accelerates. Recent data revealed a 2.4% decline in sales for the quarter ending November 2, disappointing stakeholders and triggering concerns about the company’s ability to rebound in a rapidly evolving retail environment. This was compounded by the revelation of an internal audit that unveiled missing delivery expenses totaling $154 million—a significant accounting oversight that has led to increased scrutiny.
The stakes are high as Macy’s races to adapt its business model. Selling real estate as it closes stores can yield immediate cash flow but also raises critical questions about the long-term viability of its assets and brand presence. Asset sales in the most recent quarter generated $66 million, exceeding internal estimates, but what remains unclear is whether this will sustain the company through its ongoing transformations.
As Macy’s seeks to revitalize its fortunes, the dialogue between management and activist investors like Barington plays a crucial role. While the company remains adamant about its current strategic direction, the pressure to act decisively will likely intensify as competitive forces disrupt traditional retail dynamics. If Macy’s can successfully navigate these challenges by embracing the right changes, it may transform into a rejuvenated player in an increasingly competitive landscape. The careful balancing of innovation, cost management, and responsiveness to shareholder demands will be vital to Macy’s resurgence and future success.