Activist investor takes a stake in Macy's e-commerce business

One activist shareholder has taken a stake in Macy's Inc. and is urging the famed retailer to spin off its fast-growing e-commerce business, according to people familiar with the matter.

Jana Partners LLC sent a letter to the company board Wednesday, prodding it to separate the online unit, which has about $8 billion in annual revenue, the people said.

Macy s, the biggest store rival for Saks Fifth Avenue, plans to separate its e-commerce business from its store operations as part of a deal that includes an additional investment. Jana is eyeing a similar arrangement, and the Macy's e-commerce business has already drawn interest from firms that can invest in it in conjunction with a spinoff, some of the people said.

Covid- 19 - Pandemic which also owned the more upscale Bloomingdale s brand was hit hard last year by Macy s, which was temporarily forced to close physical stores and add new furniture brands. Online sales, meanwhile, surged across the industry as more customers eschew crowded locations and shop from home.

That trend has been years in the making as shoppers abandon traditional mainstays in department stores – retail s important mainstay — in favor of e-commerce. While consumers have returned to malls and online stores this year as vaccination rates increased, many have also returned to physical shopping routines they adopted during the pandemic.

That, in turn, has strengthened a major push by retailers like Walmart Inc. to pair e-commerce platforms with brick-and-mortar stores where online orders can be fulfilled and where shoppers can see products up close and pick up and return digital orders in some cases. E-commerce giant Amazon.com Inc. recently announced plans to open several large retail locations that will operate similarly to department stores, part of an effort to expand its sales of clothing and household items.

Jana believes a stand-alone e-commerce company would be worth a multiple of Macy s current market value, valued at $7 billion Thursday. The retailer s market cap is down from more than $20 billion in 2015 over the same period.

While Macy's shares are significantly down in the past several years, the valuation of online-only retailers such as Farfetch Ltd. and Mytheresa have soared. Macy shares have rallied since bottoming out in 2020 – partly on the back of hopes for continued digital sales growth — and now trade for about five times their level then. The stock closed at $23.11 Thursday, up nearly 3% since the Wall Street Journal reported on Jana's stake in the stock.

Jana hinted at its interest in Macy s at the 13 D Monitor Active-Passive Investor Summit in New York last week, suggesting that the retailer should separate out its e-commerce business, but didn t say it had a stake or offer other details.

It isn t clear how Macy would respond to Jana s advance.

Macy's chief executive officer Jeff Gennette has stressed that the company aims to provide a seamless experience between its website and stores. He said at a September conference that almost 70% of Macy s customers shop in multiple ways. We just believe that sales and mobile are the same or all our website is stronger together than anyone is alone, he said.

Gennette said he expects the company s digital sales to reach $10 billion within three years. Macy s had total revenue of $18 billion in the fiscal year ended January 2021, down from about $25 billion in the prior fiscal year. The company predicts revenue of nearly $24 billion for the current fiscal year and a return to profitability. This week it added two new board members: CEO of Zipcar and co-founder of Michaels Cos.

Earlier this year, Hudson Bay Co. said it was wiping Saks.com to try to capitalize on the surge in online shopping during the pandemic. A financial move, the two businesses are still integrated from customers perspective. Venture capital firm Saks.com said it would invest $500 million for a minority stake in Insight Partners, valuing the business at $2 billion.

This is at least the third time Macy s has faced an activist investor in recent years. But in the sign of how much the pandemic and e-commerce have reshaped retail, investors previously called for the company to unlock the value of its real estate holdings.

In 2015, Starboard Value LP took a stake in Macy s and called on the company to spin off its real estate which included hundreds of stores in major malls as well as in city centers. Macy rejected the idea and instead promised to find joint venture partners for its Real Estate. The retailer has unveiled plans to redevelop some spaces and build an office tower atop its flagship Herald Square store in New York City.

Macy s rival Kohl s Corp. also faced activist pressure early this year when a group of investors attempted to take control of its board. They called for Kohl s to take a range of actions including adding directors with retail experience. The two sides in the following came to a deal for adding three directors.

Barry Rosenstein was founded by New York-based Jana in 2001. It has agitated at companies including Whole Foods Market Inc. later sold to Amazon and Callaway Golf Co.