Macy’s shares plummeted and the retailer saw its steepest price decline since 2009, falling almost 15% Wednesday after a Q3 report that CEO Terry Lundgren admitted was “tough.”
The report that missed expectations, news of bloated inventory, and the retailer’s decision not to spin off its valuable properties into a real estate investment trust likely contributed to the share price slash.
The department store retailer could become a takeover target, Worldwide Enterprises CEO Jan Rogers Kniffen told CNBC Wednesday. “Somebody could take them out,” he said.
Macy’s Q3 report was “tough,” as Lundgren himself said Wednesday, but its timing is terrible as the holidays loom.
With bloated inventories and a delay, at the very least, in leveraging the value of its properties, the department store retailer is stumbling. Its low share price could invite a takeover, and that could put a REIT back on the table.
Once a retailer is looking at its real estate for salvation, though, it can be a distraction from its fundamental needs.
Indeed, Macy’s could pay a price with a REIT. It’s true that it would extract dollars, and the value of the real estate vs. the retail operations would be made clear. But it could hurt the retailer’s flexibility and it’s ability to close or remodel underperforming stores, writes Miriam Gottfried in the Wall Street Journal. According to Gottfried, a REIT would also force Macy's to spend money on lease payments that it could use to improve its retail business.
In fact, attention to stores is the real salvation of retail, according to L Brands CEO Leslie H. Wexner. That includes department stores like Macy’s, but Wexner said recently that he doesn’t believe that department stores will be up to the challenge.
“Department stores are dead. They just haven’t been buried yet,” he said. “Is that format obsolete? No, I don’t think so. But it will require tremendous imagination and creativity for them to completely reinvent themselves.”
Nordstrom, for one, seems to be taking a page from that playbook, with high-profile renovations to its flagship store and a few others.
While Kniffen sees a potential takeover move, other analysts see the retailer bouncing back, again, with the help of its real estate holdings.
“While we anticipate near-term weakness at Macy’s longer term we believe the company’s strategic initiatives will play out favorably, including the sale of some of its real estate,” Stifel Nicolaus analyst Richard Jaffe told the Wall Street Journal.