Macy’s turnaround plan won’t recapture the old magic

Tony Spring’s first month as Macy’s newly installed chief executive has been nothing short of a baptism of fire.

Activist investors are circling. Arkhouse Management has launched a proxy fight to take control of the board after Macy’s rejected its unsolicited $5.8bn take-private offer. 

Meanwhile, the storied US department store operator — whose name was once synonymous with retail magic — continues to lose relevance among shoppers. Its $23.9bn of revenue in 2023 is about 15 per cent lower than a decade ago. Full-year net income of $105mn ranks among the lowest in two decades. Only 2009 and 2020 were worse.

Spring’s solution — yet another restructuring effort — is unlikely to placate Arkhouse or excite shareholders. The plan, dubbed “A Bold New Chapter”, will see Macy’s close 150, or 30 per cent, of its namesake stores. It will also accelerate the expansion of its more upmarket Bloomingdale’s and Bluemercury chains, invest in smaller format stores and sell off some of its real estate holdings. This is neither bold nor particularly new.

Macy’s central problem remains the same as 10 years ago: the products it sells and the environments in which it sells them fail to appeal, in particular, to younger consumers. Its ecommerce strategy needs a revamp. It is squeezed by luxury retailers on one side and discount chains such as TJ Maxx on the other. It struggles to set itself apart.

Almost all leading brands that Macy’s carries want to sell directly to consumers these days. Even its highly lucrative credit card business — which according to one analyst estimate accounted for almost half of group operating income in 2022 — is looking wobbly amid rising delinquency and a proposed rule that could cap the amount of late fees credit cards can charge consumers.  

But going private would not be a panacea either. Suitors who are knocking at Macy’s doors have little interest in fixing its retail business. They just want to get their hands on its vast real estate holdings.

Macy’s owns hundreds of its stores. Analysts think the property portfolio could be worth anywhere between $6bn to $12bn, with Macy’s flagship Herald Square store in New York City the crown jewel. That compares with Macy’s market valuation of $5.3bn. 

Arkhouse has not revealed its plans for Macy’s. Past activists wanted to sell real estate and lease it back. Such a move would unlock immediate gains for any new owners. But it would also leave Macy’s exposed to rising rent payments and limit its ability to reinvest in the core retail business. Sears, which filed for bankruptcy in 2018, is a reminder of the strategy’s pitfalls.

Macy’s is right to reject Arkhouse’s take-private offer. But the new boss has yet to give shareholders much reason to agree.