Starboard frustration mounts after investing in Macy's 'too early'
Jeff Smith, founder and CEO of activist hedge fund Starboard Value LP, told Bloomberg TV that the firm bought into Macy’s “too early” and is growing impatient with the department store retailer.
“We are not big fans of wait and see. There is value there. How and when it gets unlocked is still open,” Smith said, stating that Starboard is looking into “unlocking value” from Macy's real estate, and that there’s now a board member and an executive with real estate chops at the retailer.
Starboard disclosed a major stake in the retailer in July 2015 and has since advocated for a spinoff of the department store’s real estate (which it estimates to be worth at least least $21 billion), similar to moves made by Sears Holdings Corp. and Saks Fifth Avenue parent Hudson Bay Co.
Macy's has been facing pressure to reduce its footprint from activist investor Starboard for more than a year, and the hedge fund is impatiently waiting to see action. The Securities and Exchange Commission in July this year dialed up the pressure for Macy’s to make its real estate monetization effort official, writing the company a letter suggesting that investors would be better served if it listed real estate sales as gains in a separate line on income statements, rather than as expense reductions.
Experts have told Retail Dive that Macy’s has too many stores and is likely to end up shuttering even more than the 100 it has planned for closure by early next year. While shuttering stores may be good for Macy’s (and Starboard’s) investors at least in the short term, it is not necessarily good for its long-term growth, or appreciated by customers.
Investors expectations for double-digit returns can leave retail companies little wiggle room to thrive, retail futurist Doug Stephens, author of The Retail Revival: Re-Imagining Business for the New Age of Consumerism and the Retail Prophet blog, told Retail Dive.
“The notion of building a business that really is a great business that serves a defined customer set — I think we have lost sight of that,” Stephens said earlier this year. “We’re seduced by this notion if I’m an investor and I'm not getting double digits I’m not happy. When did 5% growth become a bad thing? It’s greed on the part of markets and the companies, and leads smart people away from making good decisions.”
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