by As he prepares to take the reins as CEO of Macy’s on Sunday, Tony Spring has a tough task: He must grapple with the existential crisis facing mall-based department stores as they try to remain relevant in an increasingly crowded world. e-commerce.
But trying to infuse Macy’s with new ideas and win over the next generation of young shoppers is shaping up to be a long-term effort, and some investors have already lost patience.
In December, a group of investors submitted a bid that would take Macy’s public at a value of $5.8 billion. The investors, Arkhouse Management and Brigade Capital Management, say that unless the retailer starts sharing non-public information with them, they may take their offer to shareholders.
The companies’ offer puts Spring under even greater scrutiny when he takes office.
Spring, 58, has spent her career at Bloomingdale’s, Macy’s luxury retail group. He started as an executive intern in 1987 and rose through the ranks to become CEO in 2014. During his tenure, he helped revive Bloomingdale’s prestige, adding hundreds of brands and emphasizing more attractive merchandise displays and a marketing strategy. creative marketing. He turned the chain into a “junk incubator” for ideas that were eventually brought to Macy’s stores.
Since March, Spring has been the elected chief executive of Macy’s Inc., which is the largest department store operator in the United States by revenue, once Bloomingdale’s and the Bluemercury cosmetics chain are included.
“I think Tony has done a better job, frankly, than the Macy’s organization of keeping his stores in tune with their customers and making the presentation bright, attractive and making people want to walk into the store to get ideas. ” said Allen Questrom, former CEO of Federated Department Stores, as Macy’s parent company was then known.
But achieving change at the corporate level will be a different task than running Bloomingdale’s.
Macy’s has a broader customer base than Bloomingdale’s and leans less toward luxury items. Macy’s roughly 560 stores are spread from its crown-jewel location in Manhattan’s Herald Square to moribund malls scattered across America’s smaller cities; Bloomingdale’s has about 60 locations. Half of Macy’s customers have a household income of $75,000 or less, while Bloomingdale’s, whose big brown bags have long been a status symbol, attracts higher-income shoppers.
In the last decade, there has been considerable consolidation in the department store sector with the decline of Sears, Barneys and Lord & Taylor. Of the remaining chains, Macy’s broad store base poses a unique challenge, retail and real estate analysts say. Macy’s relies more on malls and has been less successful than Kohl’s and Nordstrom in defining what sets it apart, said David Silverman, a retail analyst at Fitch Ratings. Macy’s also faces increasing competition from discount chains such as TJ Maxx and Burlington.
“Macy’s is still the most average department store,” Silverman said. “It is the most exposed to the competitive incursion of the reduced price channel. “It is the most exposed to the decline in traffic in many regional shopping centers.”
It has also struggled to win over Generation Z, a cohort that is reaching its purchasing power and is more accustomed to shopping over the phone than in malls. The company has been opening smaller format stores in recent years, such as Bloomie’s and Market by Macy’s, and plans more openings through 2025.
Department store operators have long been the target of so-called activist investors and private equity funds, which often seek to squeeze a retailer’s real estate for cash in ways that traditional management can resist. The cash raised from the sale of properties can be a quick way to inflate a company’s stock, but it also leaves the retailer paying rent to the new owners, and those payments can become onerous.
Arkhouse and Brigade have offered to buy the Macy’s shares they don’t already own for $21 each, a 32 percent premium to the price before news of their offer broke. They say the information-based due diligence they demand from Macy’s could allow them to bid even higher.
Macy’s has questioned whether investors have enough capital (or will be able to acquire it) to finance the deal. In a letter sent to Arkhouse and Brigade, the department store chain indicated it was open to other potential offers. The letter was signed by Jeff Gennette, Macy’s outgoing CEO.
Gavriel Kahane, managing partner of Arkhouse, he told Bloomberg that his investment group had “multiples” of Macy’s total value “in funds readily available to complete the transaction.”
The offer is “very undervalued relative to the value of the company,” said Questrom, the former federation chief. But “if Macy’s doesn’t move forward in the future,” he warned, the deal will prove too expensive.
The bidders have not laid out their plan for Macy’s, but many analysts say they believe investors would try to monetize the department store chain’s real estate.
The most notorious retail deal gone wrong may be Sears, which billionaire Eddie Lampert bought and merged with Kmart, betting in part on the latter’s prime real estate value. The company filed for bankruptcy in 2018, after its debt payments left it cashless and unable to invest in its stores.
Retailers have learned lessons from the Sears debacle, along with the bankruptcies of JC Penney and Toys “R” Us after ownership changes. Nordstrom’s founding family abandoned an attempt by private equity firm Leonard Green to buy the retailer in 2018. And Kohl’s rejected two takeover bids in 2022.
But for shareholders, the road has been difficult. Over the past five years, Nordstrom and Kohl’s shares have fallen 60 percent, while Macy’s shares have fallen 28 percent.
As the retail industry faces persistent difficulties in adapting to rapidly changing shopping trends, the question is “how can that current trajectory be managed most effectively for all stakeholders?” said Michael Dart, a retail strategist who He has worked in consulting and private equity firms.
Macy’s has said it will release its latest strategy in the near future. Meanwhile, Spring has already begun to associate its name with the recent changes. In January, in a memo to employees signed by both he and Gennette, the company said it would cut about 2,300 jobs, or 13 percent of its corporate workforce, as it sought to better align its resources with employee behavior. customers and to make decisions faster. He also said he would close five locations.
To some, store closures and job cuts sound like an old playbook and potentially detrimental to the in-store experience. In early February 2020, Macy’s announced a restructuring that focused on closing nearly a quarter of its stores over three years and eliminating 2,000 jobs. Weeks later, the Covid pandemic caused the stores to close. As stores reopened, said Azia Domingo, who has worked at Macy’s stores for 21 years, staffing was reduced even further. Shoppers often complain on social media about how difficult it is to find store workers.
Ms. Domingo, a member of UFCW 3000, a union that represents about 400 Macy’s workers in Washington state, said recent corporate layoffs had made some store employees worry about their own jobs. She called the job cuts “scary and stressful” and said she hoped Spring would invest in stores and workers’ salaries.
As he prepared to hand over the top job, Mr. Gennette praised Mr. Spring’s “clear vision, deep operational experience and strong leadership skills,” as well as his “innovative abilities to build brands and develop talent.”
What Spring learned during her decades at Bloomingdale’s will now be tested at a new level.
“He’s a good merchandiser and I think that always makes him a good leader,” said Liza Amlani, founder of Retail Strategy Group, which works with brands on their merchandising and planning strategies.
“I think that will translate well to Macy’s,” Amlani said. “But that’s not the only thing Macy’s has to figure out.”
