Shopping bags in front of the Macy’s Inc. flagship store within the Herald Square area of Latest York, US, on Monday, Nov. 13, 2023. US holiday sales will grow at a slower pace this 12 months amid economic headwinds corresponding to higher rates of interest, the National Retail Federation said.Â
Bing Guan | Bloomberg | Getty Images
Tony Spring was already working against the clock to show Macy’s around.
Now, the CEO may have two fresh faces on the department store retailer’s board of directors because it weighs whether to bet on his vision or sell the nearly 166-year-old retailer to activist investors.
The board appointments, announced this week that put an end to a proxy fight with activist Arkhouse Management, are the most recent development in a broader, and up to now, unsuccessful effort by Arkhouse and fellow bidder Brigade Capital Management to accumulate the enduring but struggling American department store retailer.
“It stops the pressures within the here and now,” said Neil Saunders, managing director of research firm GlobalData. “But in a way, you are letting the wolf into the henhouse.”
Arkhouse first made a bid in December to purchase Macy’s and take the corporate private at $21 per share. Macy’s rejected the offer. Arkhouse later launched a proxy fight, declaring nine nominees to Macy’s 15-person board, and raised the bid to accumulate the corporate.
“The Macy’s, Inc. Board is continuous to have interaction with Arkhouse and Brigade regarding their proposal to accumulate the Company,” the corporate said in an announcement announcing the brand new independent directors. “The Board is open-minded about the very best path to create shareholder value and is committed to continuing to take actions that it believes are in the very best interests of the Company and all Macy’s, Inc. shareholders.”
For Macy’s, this week’s settlement — an agreement to call two of Arkhouse’s nine candidates to its board — could pause the distraction and high costs of a protracted campaign for shareholder support. For Arkhouse and Brigade, the move could help hand the keys to investors whose emphasis on real estate, not retail, has spurred fears that their acquisition could spell the top of Macy’s.
Each Macy’s and Arkhouse struck a conciliatory tone of their statements this week. But one thing is obvious: The battle at Macy’s just isn’t over.
Turning the tide
Other department store chains have faced challenges from activists in recent times, and even when those efforts fall short, the pressure can bring about sweeping changes.
With Kohl’s, for instance, CEO Michelle Gass left the corporate to guide denim maker Levi Strauss after a lengthy battle with Kohl’s activists. On the time, her predecessor at Levi, Chip Bergh, said activist investors helped drive her out of Kohl’s doors.
Even before Macy’s had activist investors respiration down its neck, Spring faced an uphill battle.
The department store — with its flagship store in the center of Latest York City’s Herald Square and its Macy’s Day parade that draws the eye of hundreds of thousands of families on Thanksgiving morning — holds a storied place in American retail.
But by nearly every metric, Macy’s has reduced in size over the past decade. Its worker count, store count and stock price have fallen as the corporate has lost market share to competitors, including off-price chains like T.J. Maxx, big-box stores like Goal, in addition to online retailers and specialty stores.
Macy’s shares, which hit a 10-year high of $72.80 in July 2015 and sank to a 10-year low of $4.81 in April 2020, closed at $19.30 on Friday, ending the week with a market value of $5.29 billion.
Macy’s said in late February that it expects net sales for the complete 12 months to be down barely from the prior 12 months. It anticipates comparable sales, which take out the impact of store openings and closures, to range from a decline of about 1.5% to a gain of 1.5% 12 months over 12 months on an owned-plus-licensed basis and including third-party marketplace sales.
Tony Spring, attends the Bloomingdale’s Holiday Window unveiling at Bloomingdale’s 59th Street Store on November 19, 2013 in Latest York City.Â
Ben Hider | Getty Images
Spring, the previous CEO of Macy’s higher-end Bloomingdale’s chain and the person tasked with turning the tide, stepped into the highest role in early February, about two weeks after the corporate announced it might cut greater than 2,300 jobs and shut five stores.
Spring laid out his vision for the retailer earlier this 12 months, saying it should shutter lots of the company’s fledging namesake stores and invest as a substitute in stores which have fared higher. That features Macy’s locations with stronger sales in addition to its two chains which have outperformed the namesake brand, higher-end department store chain Bloomingdale’s and sweetness chain Bluemercury.
And while it should press ahead with plans to open smaller versions of Macy’s stores in strip malls, the aggressive plan will close greater than 150 stores by early 2027 — nearly a 3rd of its namesake stores — leaving the retailer with roughly 350 Macy’s locations.
The shop counts of its other two chains are significantly smaller.
Take private
At the identical time, the buyout effort by Arkhouse and Brigade threatens to alter the retailer’s direction entirely.
Arkhouse and Brigade have begun conducting due diligence, a process that permits the suitors access to the department store operator’s books so it might get a clearer sense of the corporate’s funds and potential liabilities.
That in and of itself had been a hard-fought battle with the bidders, who wanted more information to secure funding commitments for the proposed acquisition. Arkhouse claims Macy’s refused to have interaction with it, and Macy’s rebuffed Arkhouse saying it did not have the financing for the takeover it proposed.
GlobalData’s Saunders said Macy’s future as a retailer might be in danger if Arkhouse succeeds in its efforts to take the corporate private. He said the activist investor has a background in real estate, not retail, and seems more keen on sucking the worth out of Macy’s prime mall and flagship locations than investing in its business.
“It’ll turn out to be a situation very like Sears,” he said. “A really long liquidation, in effect.”
Arkhouse, for its part, has said it plans to maintain Macy’s stores open. In an interview with CNBC in March, managing partner Gavriel Kahane said the activist investor desires to run Macy’s as a retailer, together with getting value out of its real estate.
“Our plan just isn’t conditioned on store closures. It just isn’t an element, fundamentally, of our marketing strategy in any respect,” he said. “The truth is, we expect the actual estate is so useful, largely, since it’s occupied by Macy’s.”
Kahane said the activist investor wants Macy’s to turn out to be “a stable and growing company that may live for many years, and potentially one other 150 years.”
But, he argued, a non-public company is healthier in a position to achieve that goal than a publicly traded one: “We expect that should occur backstage, away from the general public markets. We expect that current management has really been largely solving for the quarter and whenever you’re so focused on form of that near-term execution, it’s really almost unimaginable to make sure your long-term viability.”
Arkhouse raised its bid last month to $24 per share and said it had the backing of Fortress Investment Group and One Investment Management.
Saunders noted the proxy settlement could buy the retailer time to perform Spring’s turnaround strategy and take a look at to drive up the worth of the corporate.
The 2 latest directors who will join the Macy’s board will bring a deep background in retail and real estate. Richard Clark spent nearly 4 many years in the actual estate industry and was former chairman and CEO of Brookfield Property Group, Brookfield Property Partners and Brookfield Office Properties. The second director, Richard Markee, was former CEO of Vitamin Shoppe and held senior roles at Toys R Us and Babies R Us. He currently sits on the board of discount retailer Five Below.
While the 2 directors are independent, with no affiliation to either Arkhouse or Brigade, they’ll join the board’s seven-person finance committee, tasked with evaluating and making recommendations in regards to the acquisition bid and every other similar offers.
Arkhouse managing partners Kahane and Jonathon Blackwell said in an announcement this week that the appointments of the 2 latest directors “will be sure that our discussions proceed to be constructive and that our proposal is treated seriously and expeditiously.”
For Macy’s, agreeing to 2 latest directors won’t tip the balance on the board. That might be seen as a victory for the retailer, because it’s a far cry from the entire number proposed by Arkhouse, said Patrick Gadson, an attorney and co-head of the shareholder activism practice at Vinson & Elkins.
Still, the settlement allows Arkhouse to press ahead as a critical and protracted activist investor, said Gadson, who represented Preferred Apartment Communities, an actual estate investment trust that Arkhouse similarly targeted and made a bid to accumulate. Arkhouse was ultimately outbid by one other buyer in that effort.
The Macy’s agreement is missing a non-disparagement clause, he said, and has “thin” standstill restrictions, or terms that may temporarily halt activist activity and muzzle the activist from making critical comments. Meaning Arkhouse and Brigade could still have room to run of their campaign.
“Shareholder activism is a performance-based skill set,” Gadson said. “If the corporate performs well, exceeds expectations markedly, then in all likelihood the performance itself could be the treatment. If the corporate fails to do this, then they’ll do the entire governance changes and the entire nonfundamental, nonoperational gymnastics they’d like, none of it should save them.”
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Correction: This story has been updated to correct the timing and nature of Macy’s responses to take-private bids by Arkhouse Management and Brigade Capital Management.
