Dive Brief:

• Macy's executives shot down the possibility of spinning off its e-commerce businesses into a stand-alone company after studying such a move with help from the consultancy AlixPartners.
• "In every scenario we considered, we found that the combination of our profitable digital platform with our national footprints will deliver greater value to shareholders than a separation of our digital and physical assets," Macy's CEO Jeff Gennette said on the company's fourth quarter earnings call.
• The decision on the spinoff follows a fourth quarter with Macy's comparable sales up 28.3% and digital sales up 12% year over year and up 36% from Q4 of 2019. Comps for the full year were up 43%. Digital sales grew by 13% from 2020, and digital penetration stood at 35%. 

Dive Insight:

When Macy's hired AlixPartners, which advised on the spinoff of Saks Fifth Avenue's digital unit, to help it review the possibility of spinning off its e-commerce operations into a stand-alone company, Gennette acknowledged "the significant value the market is assigning to pure e-commerce businesses."

Why investors value digital pure plays isn't always clear. In many cases, the e-commerce natives that receive generous valuations struggle to turn a profit or even show a path toward profitability. Whatever the reasons, investors are often willing to pay a premium for digital retailers, making a spinoff a way to bring in cash for legacy retail companies and their shareholders. 

But Macy's board and executives ultimately shot the idea down. The decision, given Macy's reasons for it, carries the potential to throw cold water on the idea as others contemplate similar moves. 

Specifically, Gennette pointed to execution risks to both the company's brands and its customers from a spinoff. "We determined that Macy's has a stronger future as a fully integrated business with Macy's and Bloomingdale's together, and assessing a broad range of brands, price points, and customers across digital and stores," Gennette said. 

As for the money a spinoff could bring in, Gennette said that, "we are not capital constrained to be able to invest in the business and the digital elements of our business." Put another way: Macy's doesn't need the money from a spinoff. Moreover, Gennette cited potential costs related to separating its businesses, including from separating its debt, as well as ongoing costs from a separation as a deterrent from doing it. 

As an Evercore analyst on the call put it after Gennette's original remarks on the decision not to separate, "[I]t doesn't sound like it was a close call at all."

Jana Partners, an activist investor group that called for Macy's to consider a spinoff, cut its stake in the retailer back in December. 

As it looks ahead, Macy's plans to keep investing in its digital business, including in its personalization tools and its third-party marketplace, announced last fall, executives said.

Gennette said that the marketplace would add sales beyond its $10 billion digital sales goal while increasing its SKU assortment and allowing the retailer to respond quickly to customer demand. Gennette added that the marketplace could attract new customers to Macy's digital store, which the company hopes will induce them into becoming regular customers.  

Also bringing in new customers is Macy's collaboration with the Toys R Us brand, which has an online element. Gennette said 25% of the Toys R Us shoppers were new customers to the Macy's brand, and 93% of those toy customers shopped other categories.

All told, Gennette said the company doubled its toy business in 2021 and expects to double it again this year. In the second half of this year, Macy's plans to open Toys R Us store-in-stores across its entire footprint.