Shopping bags in front of the Macy’s flagship store in the Herald Square district of New York, United States, Monday, November 13, 2023. U.S. holiday sales growth will slow this year due to economic headwinds such as rising interest rates, the National Retail Federation said.
Guan Bing | Bloomberg | Getty Images
Tony Spring is already racing against time to turn things around macy’s department store About.
Now the CEO will have two new faces on the department store retailer’s board of directors as the company weighs whether to bet on its own vision or sell the nearly 166-year-old retailer Activist investors.
The board appointments announced this week end a proxy battle with activist Arkhouse Management, part of a broader but so far unsuccessful effort by Arkhouse and fellow suitor Brigade Capital Management to acquire the iconic but troubled U.S. unit. Latest Advances Store Retailers.
“It takes away the stress of the here and now,” said Neil Saunders, managing director of research firm GlobalData. “But in a way you’re letting the wolf into the henhouse.”
Arkhouse made its first bid to buy Macy’s in December and take the company private at $21 a share. Macy’s rejected the offer, Ackerhouse raised his bid, and Macy’s rejected the offer. Arkhouse subsequently launched a proxy fight and nominated nine candidates to Macy’s 15-person board of directors.
For Macy’s, this week’s settlement — an agreement to appoint two of Arkhouse’s nine nominees to its board — could avoid a long and distracting and costly battle for shareholder support. For Arkhouse and Brigade, the move could help hand the keys to investors who are focused on real estate rather than retail, raising concerns that their acquisition could spell the end of Macy’s .
Both Macy’s and Ackerhouse struck a conciliatory tone in statements this week. But one thing is clear: Macy’s battle isn’t over yet.
Turn the tide
Other department store chains have faced challenges from activists in recent years, and even if those efforts fail to materialize, the pressure could bring sweeping changes.
Take Kohl’s, for example, where CEO Michelle Gass left the company to lead the denim maker Levi Strauss After a long struggle with Cole’s radicals. At the time, her predecessor at Levi’s, Chip Bergh, said activist investors helped her leave Kohl’s.
Even before Macy’s was hounded by activist investors, Spring faced an uphill battle.
The department store is renowned in the American retail industry, with its flagship store in the heart of New York City’s Herald Square, and the Macy’s parade on Thanksgiving morning attracting the attention of millions of households.
But by almost every metric, Macy’s has shrunk in size over the past decade. Its headcount, store count and stock price have all declined as the company has lost market share to competitors, including discount chains like TJ Maxx, big-box stores like Target, and online retailers and specialty stores.
Macy’s stock price hit a 10-year high of $72.80 in July 2015 and fell to a 10-year low of $4.81 in April 2020. It closed at $19.30 on Friday, with a market value of $5.29 billion that week.
Macy’s said in late February that it expected full-year net sales to be slightly down from the previous year. The company expects that on a self-owned and licensed basis (including third-party market sales), comparable sales after deducting the impact of store openings and store closures will decrease by approximately 1.5% to increase by 1.5% year-on-year.
Tony Spring attends the Bloomingdale’s Holiday Window Unveiling at Bloomingdale’s 59th Street store on November 19, 2013 in New York City.
Ben Hind | Getty Images
Spring, the former CEO of Macy’s high-end chain Bloomingdale’s, was tasked with turning the tide, becoming CEO in early February, about two weeks after the company announced it would cut jobs More than 2,300 people were employed and 5 stores were closed.
Earlier this year, Spring laid out his vision for the retailer and said it would close many of the company’s fledgling namesake stores and instead invest in better-performing stores. That includes Macy’s stores, where sales are strong, and two chains that are outperforming their namesake brands: high-end department store chain Bloomingdale’s and beauty chain Bluemercury.
While the company will press ahead with plans to open smaller Macy’s stores on high streets, the aggressive plan will see more than 150 stores – nearly a third of its namesake stores – close by early 2027, thereby That leaves the retailer with about 350 Macy’s stores.
The other two chains have far fewer stores.
Privatization
Meanwhile, the acquisitions of Arkhouse and Brigade could completely change the direction of the retailer.
As Macy’s adds new members to its board, Arkhouse and Brigade have begun conducting due diligence, a process that allows an acquirer to review the department store operator’s books to get a clearer picture of the company’s financial health and potential liabilities.
This itself has been a fierce battle with bidders who want more information to secure financial commitments for the proposed acquisition. Arkhouse claimed that Macy’s refused to cooperate with it, and Macy’s rejected Arkhouse’s claims that it did not provide financing for its proposed acquisition.
GlobalData’s Sanders said Macy’s future as a retailer could be at risk if Arkhouse succeeds in taking the company private. He said the activist investor, who has a background in real estate rather than retail, seemed more interested in extracting value from Macy’s major malls and flagship stores than investing in its business.
“This is going to become a lot like Sears,” he said. “It’s actually been a very long reckoning.”
Arkhouse said it plans to keep Macy’s stores open. Managing partner Gavriel Kahane told CNBC in March that the activist investor wanted to run Macy’s as a retailer while capturing value from its real estate.
“Our plan is not conditioned on closing stores. Fundamentally, that’s not part of our business plan at all,” he said. “In fact, we think this property is so valuable in large part because it’s occupied by Macy’s.”
Kahane said the activist investor wants Macy’s to be “a stable and growing company that can survive for decades, maybe even another 150 years.”
However, he believes that private companies are in a better position to achieve this than public companies: “We think this needs to happen behind the scenes, away from the public markets. We think the current management has really solved this problem to a large extent when you are so focused When executing in the short term, it’s virtually impossible to ensure your long-term viability.”
Ark of the Covenant House Bid increased last month at $24 a share and said it was backed by Fortress Investment Group and One Investment Management.
Saunders noted that the agency settlement could buy the retailer time to implement Spring’s turnaround strategy and work to increase the company’s value.
The two new directors who will join Macy’s board of directors bring strong backgrounds in retail and real estate. Richard Clark has worked in the real estate industry for nearly four decades, serving as Chairman and CEO of Brookfield Property Group, Brookfield Property Partners and Brookfield Office Properties. The second director, Richard Markee, was formerly CEO of Vitamin Shoppe and held senior positions at Toys R Us and Babies R Us. He currently serves on the board of directors of discount retailer Five Below.
While the two directors are independent and not affiliated with Arkhouse or Brigade, they will join the board’s seven-member Finance Committee, which is responsible for evaluating and making recommendations on the takeover bid and any other similar offers.
Arkhouse managing partners Kahane and Jonathon Blackwell said in a statement this week that the appointment of the two new directors “will ensure that our discussions continue to be constructive and that our proposals are taken seriously and expeditiously.”
For Macy’s, agreeing to two new directors won’t change the balance of the board. Patrick Gadson, an attorney and co-head of the shareholder advocacy practice at Vinson & Elkins, said this could be viewed as a victory for the retailer because it was nowhere near the totals raised by Arkhouse.
Still, the settlement allows Arkhouse to move forward as a critical and enduring active investor, said Gadson, who represents Preferred Apartment Communities. In that effort, Arkhouse ended up being outbid by another buyer.
He said Macy’s agreement lacked a non-disparagement clause and had “weak” standstill restrictions, or clauses that could temporarily halt activist activity and prevent activists from making critical comments. This means Arkhouse and Brigade still have room to shine in their campaigns.
“Shareholder activism is a performance-based skill,” Gadson said. “If the company is doing well, clearly beating expectations, then the performance itself is probably the remedy. If the company doesn’t do that, then there are all the governance changes and all the non-fundamental, non-operational gymnastics they can do.” I thought, None of this can save them. “
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