What Is Macy’s Thinking?

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Just as Macy’s announced impressive earnings, which pushed its stock price up 21 percent, a boardroom drama intensified, spurred by an activist investor. The proposal on the table seems astonishing: Split Macy’s multibillion-dollar ecommerce business from its 600-store brick-and-mortar business to release “trapped” shareholder value. This demand was delivered in a letter to the board by Jana Partners after it acquired an unknown stake in the company.

Bifurcated Business

The idea of Macy’s spinning off their ecommerce business shows how investor goals can undermine a retailer’s growth trajectory. Many of today’s successful retail startups praise their investors for patience and autonomy. Privately owned groups look at a range of objectives, including innovation to assess business health. Yet Macy’s investor appears to be pushing for a restructuring that could jeopardize Macy’s near-term and long-term success.

[callout]It wasn’t that long ago that Macy’s senior team was almost apologetic for their slow start into ecommerce. Once things started moving along, former CEO, Terry J. Lundgren, boasted at many NRF conferences that their omnichannel strategy was key to future growth.[/callout]

There was precedent for this maneuver. Earlier this year, privately held Hudson Bay Company split its 40 Saks Fifth Avenue stores from its online unit to form two separate businesses.

In doing so, it sold a $500 million minority equity stake to a private investor, Insight Partners.

The move was controversial, although HBC insisted the Saks brand experience would not change. But how could this be? Every other prominent retailer aims to integrate their online to in-store shopper journey.

Industry thought leaders have long critiqued the organizational siloes that wall off ecommerce teams from their counterpoints running the brick-and-mortar business. Often the online teams and innovation labs are located in separate cities, justified by where top digital talent resides.

Macy’s in the Rear-View Mirror

It wasn’t that long ago that Macy’s senior team was almost apologetic for their slow start into ecommerce. Once things started moving along, former CEO, Terry J. Lundgren, boasted at many NRF conferences that their omnichannel strategy was key to future growth. After overcoming its early inertia, Macy’s has proved to be an innovator on several fronts:

  • Serving shoppers when, where, and how they want to purchase
  • Appealing to younger shoppers who are harder to attract, given today’s myriad of choices
  • Capturing data to personalize offers and enhance loyalty rewards
  • Utilizing physical stores to fulfill online orders, thereby reducing drastic end-of-season markdowns

They also experimented with some engaging technologies that may have been a little too early. Remember Macy’s Backstage Pass with QR codes that brought the Tommy Hilfiger shirt thread count to life? Tests like these may not have been game-changing, but the learnings informed omnichannel strategies.

Haven’t We Seen this Movie Before?

In 2005, hedge fund prodigy Eddie Lampert inserted himself into retail by orchestrating the merger of K-Mart and Sears. Referred to as an “asset stripper,” he claimed real estate holdings, not same-store sales, were the true metric for valuation of the business. Sales continued to fall year after year and the legendary brand filed for bankruptcy in 2018. The last store in Illinois shut its doors a week ago.

Lampert sold off the Sears portfolio one limb at a time, while Amazon redefined the future and continued to innovate new formats such as Amazon Go’s cashless urban convenience stores. What seemed like a novelty just two years ago became an asset in the Covid-19 touchless environment. Amazon is predicated on capturing purchase data wherever their customers go. With more physical stores (such as Amazon Fresh) that compete with traditional formats, they can utilize hyper-local geofencing tools to identify customers entering the parking lot, moving through their store, and checking out. They can also link the in-home experience through voice commerce interactive devices.

The Fork in the Road

As Macy’s works with management consulting firm Alix Partners to assess the ecommerce spinoff proposal, how will they evaluate this new business model? Are they doing what’s best for a handful of large shareholders — or are they positioning the business to serve customers?

By separating the channels, they will certainly have to contemplate a future without the ability to stitch together each contact point of the shopper journey. If Macy’s aim is to truly serve shoppers, personalization, localization and insightful data analytics may have to take a back seat. Honestly, how can this serve customers who are calling the shots and expect to be catered to as the single point of sale, when where and however they want to be served? This approach puts profits before people, which seems the antithesis of Macy’s current slogan: Believe.



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