Macy’s Multiplies

By Isabella Diez, Co-President

Macy’s has recently received a suggestion to separate their e-commerce operations from their physical retail stores, but the response has not been positive.

Saks Fifth Avenue, owned by Hudson’s Bay Company (HBC),  split into two companies earlier this year. This development resulted in keeping the e-commerce operations separate from brick and mortar.  Macy’s now is being influenced to do the same. 

Regarding Saks’ transition, Colorado State University Business School Professor Jonathan Zhang commented that, “The e-commerce side is now able to position themselves, to the investors and also to the employee pool, as a tech-focused company. They are able to make themselves appear more attractive and more modern. But to transform public perception of a brand, I’m not going to lie, takes time, and it is a challenge.”

An activist hedge fund, Jana Partners, has expressed their support for Macy to separate out e-commerce operations and believes that Macy’s e-commerce business is worth $16.8 billion. They indicate that these actions could boost Macy’s valuation. The current market capitalization of Macy’s is $11 billion, including their rise of 250% this past year. Macy’s has declined to comment on the suggestion of Jana Partners but following it, their shares experienced a 17.5% increase. 

It is believed that separating e-commerce operations will release value and increase the interest of shareholders. In addition, this undertaking will hopefully be favoured by big tech firms. 

“The market is willing to pay a big multiple on an e-commerce-oriented business,” said Michael Kollender, head of consumer and retail investment banking at Stifel. “So how do we unlock that value?”

This separation may have its short term benefits but in the long run, the e-commerce platform would require their distribution and logistics to be redone. Some experts do not agree with this business move. 

Co-head of Solomon Partners, a global consumer retail group, explained that, “It’s insane financial engineering. It’s impossible to separate the two. I’m not saying someone’s not going to try, and I’m not saying that someone’s not going to pay a lot of money for that. But at some point, it doesn’t work.”

Much of Macy’s success on their online selling platform is supported by their brick and mortar stores. Consumers are looking for a seamless shopping experience with both selling platforms. This is also a large part of Macy’s overall plan – to have flexibility between the two mediums. Consumers like the possibility of being able to return an online purchase in-store or having an online purchase delivered to a store. If Macy’s were to split their operations, these options would not be an possible for consumers. 

Macy’s has hired AlixPartners, a consulting firm, in order to review the current business structure of the company. Within the past year, Macy’s has closed a number of stores, primarily in outdated malls.

Many believe that separating Macy’s ecommerce from their retail operations is a step in the wrong direction but Jana Partners has expressed their enthusiasm and eagerness for moving ahead in this direction. 
Read more about The End of the Conglomerate Era Here.

Photo by Nick Sarvari on Unsplash

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