Macy's, a symbol of traditional brick-and-mortar retail, might be up for grabs, according to recent reports. Arkhouse Management and Brigade Capital Management have proposed a takeover offer valuing Macy's at a staggering 5.8 billion USD, with a price of 21 USD per share. This offer would present shareholders with a compelling premium of 32% over Macy's Friday closing price.
Investors seem to believe Macy's is undervalued on the public market, with its iconic real estate holdings, including New York City's flagship store, being highly sought after. Macy's lengthy tenure of underperforming stocks has rendered it an attractive target for such a deal.
However, it remains unclear whether Macy's leadership will enthusiastically embrace this proposal. Spokespeople for both Macy's and Arkhouse have declined to comment on the matter.
Macy's has been emblematic of department stores, providing consumers with a place to purchase clothing, fragrances, and other items since time immemorial. The modern Macy's was born in 2005, after the merger of Federated and May merchandising groups.
Despite decades of dominance, Macy's has been tardy to adapt to the digital age, lagging in e-commerce adoption and store transformation. However, the company has experimented with various strategies to revive its business, such as introducing new brands, smaller stores, and other initiatives. However, these efforts have not significantly altered Macy's long-term trajectory, with stocks plummeting 75% from their 2015 peak of 73 USD per share. In the wake of this decline, Macy's has shuttered nearly 300 stores, lost a third of its locations, and shed a third of its annual sales revenue of 3 billion USD.
The decline in department stores is not an isolated phenomenon. According to the Census Bureau, retail sales in department stores have halved since 2000, with this downturn contributing to the demise of retail giants such as Sears, Neiman Marcus, JCPenney, Lord & Taylor, and others.
Heightened competition from Amazon, luxury department stores, discount retailers, and online-focused brands like Shein and Temu, as well as the rise of fast-fashion giants, have put Macy's in a chokehold. The company has further been affected by the competition from discount stores like TJ Maxx and Burlington. To compound matters, Macy's substantial presence in shopping malls, which are undergoing their own transformations, has also added to its woes.
Despite this, some analysts contend that the takeover offer might be too low. In 2015, Starboard highlighted Macy's estimated 21 billion USD worth, while the flagship New York store alone was valued at 4 billion USD. Hudson's Bay, Saks' parent company, also pegged Macy's total worth at 14 billion USD in 2017.
Nonetheless, the acquisition could exacerbate Macy's existing challenges. Since the early 2000s, private equity firms and hedge funds have aggressively acquired ailing or underperforming retailers with the intent of privatizing them and improving their operations to ultimately sell for a profit. In such cases, short-term gains are often generated by selling off property and possibly divesting the e-commerce business. However, the future of Macy's core retail operations remains on shaky ground.
The weight of past bankruptcies among prominent retailers such as Lord & Taylor, Toys R Us, Payless, and Sears further dampens optimism.
In conclusion, Macy's faces significant challenges in adapting to the evolving retail landscape. The takeover offer from Arkhouse Management and Brigade Capital Management provides Macy's with a unique opportunity to restructure, renew, and revitalize its business. However, the legacy of prior acquisitions and the tough competition in the retail market remain worrysome. Regardless of the direction Macy's takes, market forces will continue to shape the future of traditional retailers, calling for innovative and resilient strategies to survive and prosper.
