Dive Brief:
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Shares of department store retailer Macy’s got a 2.3% lift Monday when Greenlight Capital disclosed a stake in the retailer in a letter to investors, without specifying its size.
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In the letter, the fund argues that though the retailer has resisted calls to form a real estate investment trust, the company’s stock tumble could change that. “While it’s unlikely that management will reverse course on its own, it wouldn’t surprise us if a private equity firm teamed up with a REIT to buy the company and unlock the value privately,” the letter reads.
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But the letter also professes faith that the retailer will turn around. “We think a portion of the recent sales weakness was driven by unseasonably warm weather and a strong dollar impacting tourist business, which should set up for favorable comparisons in 2016,” the letter says.
Dive Insight:
This Greenlight investment puts that much more focus, and perhaps even pressure, on Macy’s to release value from its real estate holdings. The retailer has so far resisted pressure to form a REIT, though it has explored other ways to sell or otherwise capitalize on its vast and valuable property portfolio.
But it doesn’t do much for its retail strategy, and that is what Macy’s is in need of most.
The department store model, with a few exceptions (like Nordstrom) isn’t working and needs a fresh take.
"Department stores do have the ability (potential) to deliver a variety of rich shopping experiences to their target shoppers," Larry Negrich, Director, Business Development, TXT Retail, said in a recent Retail Wire discussion. "Realistically identifying the bases to target and sticking with merch and marketing that appeals to these bases seems to be the issue in many cases. Being everything to everyone in order to drive quick sales gains is a strategy hard to achieve in the short term, and distracting and disastrous in the long term. Tech definitely helps execution, but brand is power."
Macy’s isn’t exactly twiddling its thumbs. It’s been on the cutting edge of many retail technology innovations like beacons and omni-channel options like same-day delivery, and has entered the off-price discount space with its Backstage stores. But it also regularly resorts to discounts to draw in shoppers, which can be a margin-vacuuming and brand-damaging race to the bottom.