Double mission for Macy's new chief: revitalize stores and prevent takeovers

As he prepares to take over as CEO of Macy's on Sunday, Tony Spring has a tall order: He must confront the existential crisis facing mall department stores to stay relevant in an increasingly e-mail world. commerce takes place.

But trying to infuse Macy's with new ideas and win over the next generation of young shoppers is proving to be a long-term effort, and some investors have already lost patience.

In December, an investor group submitted a bid that would take Macy's private at a valuation 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 submit their offer to shareholders.

The firms' offer puts even greater scrutiny on Mr. Spring when he takes over.

Mr. Spring, 58, spent his career at Macy's high-end retail group, Bloomingdale's. He started as an executive trainee in 1987 and rose to CEO in 2014. During his tenure, he helped revive Bloomingdale's cachet, bringing on hundreds of brands and emphasizing more attractive merchandise displays and a creative marketing strategy . He turned the chain into a “scrappy incubator” for ideas that were eventually transferred to Macy's stores.

Since March, Mr. Spring has been elected CEO 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.

“Tony has honestly done a better job than the Macy's organization at keeping their stores aligned with their customers and making the presentation sparkling, engaging and making people want to walk into the store and get ideas. said Allen Questrom, the former CEO of Federated Department Stores, as Macy's parent company was then known.

But bringing 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 focuses less on luxury goods. Macy's approximately 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 approximately 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 shoppers with higher incomes.

The past decade has seen significant consolidation in the department store industry, with the fall of Sears, Barneys and Lord & Taylor. Among other chains, Macy's broad store base poses a unique challenge, retail and real estate analysts say. Macy's is more dependent on malls and has had less success than Kohl's and Nordstrom in defining what sets it apart, said David Silverman, retail analyst at Fitch Ratings. Macy's is also facing increasing competition from discount chains such as TJ Maxx and Burlington.

“Macy's remains the most average department store,” Mr. Silverman said. “It is most exposed to competition from the low-priced channel. It is most exposed to traffic drops in many regional shopping centers.”

It has also struggled to win over Generation Z, a cohort that is gaining purchasing power and more accustomed to shopping by phone than in malls. The company has opened smaller stores in recent years, such as Bloomie's and Market by Macy's, with plans for more openings through 2025.

Department store operators have long been targets of so-called activist investors and private equity funds, which often aim to milk a retailer's real estate for cash in ways that might balk at traditional management. The money from real estate sales can be a quick way to pump up a company's stock, but it also leaves a retailer paying rent to the new property owners, and those payments can be heavy. become.

Arkhouse and Brigade have offered to buy the Macy's stock they don't already own for $21 per share, a 32 percent premium over the price before news of their offer broke. They say due diligence, based on the information they demand from Macy's, could allow them to bid even higher.

Macy's is questioning whether the investors have — or will be able to acquire — enough capital to finance the deal. In a letter 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 at Arkhouse, told Bloomberg that his investor group had “multiples” of Macy’s full value “in readily available funds to complete the transaction.”

The offer is “very undervalued for what the company is worth,” said Questrom, a former Federated Chief. But “if Macy's doesn't make progress in the future,” he warned, the offer will prove too expensive.

The bidders have not yet laid out their plan for Macy's, but many analysts say they believe the investors will try to cash in on the department store chain's real estate.

Perhaps the most infamous retail deal gone wrong is Sears, which billionaire Eddie Lampert bought and merged with Kmart, betting in part on the primary value of the latter's real estate. The company filed for bankruptcy protection in 2018 after debt payments left it short of cash and unable to invest in its stores.

Retailers have learned lessons from the Sears debacle, along with the bankruptcies at JC Penney and Toys “R” Us following the ownership changes. Nordstrom's founding family walked away from an attempt by private equity firm Leonard Green to buy the retailer in 2018. And Kohl's turned down two takeover bids in 2022.

But for shareholders the path has been bumpy. Over the past five years, shares of Nordstrom and Kohl's have fallen 60 percent, while shares of Macy's have fallen 28 percent.

With the retail industry continuing to struggle to adapt to rapidly changing retail trends, the question is “how do you manage that current trajectory most effectively for all stakeholders,” says Michael Dart, a retail strategist who has worked at private equity and consulting firms.

Macy's has said it will unveil its latest strategy in the near future. In the meantime, Mr. Spring has already begun to put his name to recent changes. In January, the company said in a memo to employees signed by both him and Mr. Gennette that it would cut about 2,300 jobs, or 13 percent of the company's workforce, as it sought to better align its resources with customer behavior and move more quickly to make decisions. It also said it would close five locations.

To some, store closures and job cuts sound like an old playbook, and potentially detrimental to the shopping experience. In early February 2020, Macy's announced a restructuring that focused on closing nearly a quarter of its stores over three years and cutting 2,000 jobs. Weeks later, the Covid pandemic caused stores to go dark. When stores reopened, said Azia Domingo, who has worked at Macy's stores for 21 years, the workforce became even thinner. Shoppers often complain on social media about how difficult it is to find store employees.

Ms. Domingo, a member of UFCW 3000, a union representing about 400 Macy's workers in Washington state, said recent corporate layoffs have caused some store workers to worry about their own jobs. She called the job losses “frightening and stressful” and said she hoped Mr. Spring would invest in stores and employee 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, brand-building and talent development skills.”

What Mr. Spring has learned in his decades at Bloomingdale will now be tested at a new level.

“He's a good merchant, and I think that always makes for a good leader,” said Liza Amlani, founder of Retail Strategy Group, which works with brands on their merchandising and planning strategies.

“I think this will translate well for Macy's,” Ms. Amlani said. “But that's not the only thing Macy's needs to fix.”