Shopping bags in front of Macy’s Inc. flagship store. in Herald Square, New York, U.S., on Monday, Nov. 13, 2023. U.S. holiday sales will grow at a slower pace this year amid economic headwinds such as higher interest rates, the National Retail Federation said.
Bing Guan | Bloomberg | Getty Images
Tony Spring was already working against time to turn around Macy’s about.
Now, the CEO will have two fresh faces on the department store retailer’s board as he weighs whether to gamble on his vision or sell the nearly 166-year-old retailer to activist investors.
The board appointments, announced this week and ending a proxy fight with activist Arkhouse Management, are the latest development in a wider and so far unsuccessful bid by Arkhouse and Brigade Capital Management to acquire the flagship but of afflicted American part. Retail.
“It stops the pressure here and now,” said Neil Saunders, chief executive of research firm GlobalData. “But you kind of let the wolf into the hen house.”
Arkhouse first made an offer in December to buy Macy’s and take the company private for $21 a share. Macy’s rejected the offer. Arkhouse later launched a proxy fight, putting nine candidates on Macy’s 15-person board of directors and launching the takeover bid for the company.
“The Macy’s, Inc. board continues to work with Arkhouse and Brigade on their proposal to acquire the Company,” the company said in a statement announcing the new independent directors. “The Board is open-minded about the best path to create shareholder value and is committed to continuing to take actions it believes are in the best interests of the Company and all shareholders of Macy’s, Inc..”
For Macy’s, this week’s settlement — an agreement to name two of Arkhouse’s nine candidates to the board — could end the distraction and high costs of a protracted campaign for shareholder support. For Arkhouse and Brigade, the move could help hand the keys to investors whose emphasis on real estate, not retail, has sparked fears that their acquisition could spell the end of Macy’s.
Both Macy’s and Arkhouse struck a conciliatory tone in their statements this week. But one thing is clear: The battle at Macy’s isn’t over.
Turning the tide
Other department store chains have faced challenges from activists in recent years, and even when those efforts fail, the pressure can bring about sweeping changes.
With Kohl’s, for example, CEO Michelle Gass left the company to lead the jeans maker Levi Strauss after a long battle with the Kol activists. At the time, her predecessor at Levi’s, Chip Bergh, said activist investors helped drive her out of Kohl’s doors.
Even before Macy’s had activist investors breathing down its neck, Spring faced an uphill battle.
The department store—with its flagship store in the heart of New York’s Herald Square and the Macy’s Day Parade that draws the attention of millions of families on Thanksgiving morning—holds a historic place in American retail.
But by almost every metric, Macy’s has gotten smaller over the past decade. Its headcount, store count and stock price fell as the company lost market share to competitors, including off-price chains like TJ Maxx, big-box stores like Target, as well as online retailers and specialty stores.
Macy’s shares, which hit a 10-year high of $72.80 in July 2015 and sank to a 10-year low of $4.81 in April 2020, closed at $19.30 on Friday, ending the week with a worth $5.29 billion.
Macy’s said in late February that it expects full-year net sales to be down slightly from a year earlier. It expects comparable sales, which strip out the impact of store openings and closings, to range from a decline of about 1.5% to a gain of 1.5% year-over-year on an owned and licensed basis and including sales in third-party marketplaces.
Tony Spring attends the unveiling of Bloomingdale’s Holiday Window at Bloomingdale’s 59th Street Store on November 19, 2013 in New York City.
Ben Hider | Getty Images
Spring, the former CEO of Macy’s higher-end Bloomingdale’s chain and the man tasked with turning the tide, took the top role in early February, about two weeks after the company announced it would cut more than 2,300 jobs and close five stores.
Spring laid out his vision for the retailer earlier this year, saying he would close many of the company’s fledgling namesake stores and instead invest in stores that did better. That includes Macy’s top-selling locations as well as its two namesake chains, higher-end department store chain Bloomingdale’s and beauty chain Bluemercury.
And while it will move forward with plans to open smaller versions of Macy’s stores in malls, the aggressive plan will close more than 150 stores by early 2027 — nearly a third of its namesake stores — leaving the retailer with about 350 locations Macy’s.
The number of stores of its other two chains is significantly smaller.
Get private
At the same time, the takeover bid by Arkhouse and Brigade threatens to completely change the direction of the retailer.
Arkhouse and Brigade have begun conducting due diligence, a process that allows suitors access to the department store operator’s books so they can get a clearer picture of the company’s finances and potential liabilities.
That in itself was an uphill battle with bidders, who wanted more information to secure financing commitments for the proposed takeover. Arkhouse claims Macy’s refused to deal with it, and Macy’s turned Arkhouse down saying it didn’t have the financing for the acquisition it proposed.
GlobalData’s Saunders said Macy’s future as a retailer could be in jeopardy if Arkhouse succeeds in its efforts to take the company private. He said the activist investor has a background in real estate, not retail, and seems more willing to squeeze value out of flagship malls and Macy’s flagships than invest in his business.
“It’s going to be a Sears-like situation,” he said. “A very long liquidation, essentially.”
Arkhouse, for its part, said it plans to keep Macy’s stores open. In an interview with CNBC in March, CEO Gavriel Kahane said the activist investor wants to run Macy’s as a retailer while leveraging its real estate holdings.
“Our plan is not dependent on closing stores. It’s not fundamentally part of our business plan,” he said. “In fact, we believe the properties are so valuable, in large part, because they are occupied by Macy’s.”
Kahane said the activist investor wants Macy’s to become “a stable and growing company that can live for decades and possibly another 150 years.”
But, he argued, a private company is better able to achieve that goal than a publicly traded one: “We think this needs to happen behind the scenes, away from the public markets. We think the current administration has really solved a lot quarter and when you’re so focused on such short-term execution, it’s really almost impossible to ensure your long-term sustainability.”
Arkhouse raised its bid last month at $24 per share and said it was backed by Fortress Investment Group and One Investment Management.
Sanders noted that the arbitration settlement could buy the retailer time to implement Spring’s turnaround strategy and try to raise the company’s value.
The two new directors joining the Macy’s board will bring a deep background in retail and real estate. Richard Clark spent nearly four decades in the real estate industry and was the former chairman and CEO of Brookfield Property Group, Brookfield Property Partners and Brookfield Office Properties. The second director, Richard Markee, was the former CEO of the Vitamin Shoppe and held senior roles at Toys R Us and Babies R Us. He currently sits on the board of discount retailer Five Below.
While the two directors are independent, with no connection to either Arkhouse or Brigade, they will sit on the board’s seven-member finance committee tasked with evaluating and making recommendations on the takeover offer and any other similar offers.
Arkhouse managing partners Kahane and Jonathon Blackwell said in a statement this week that the appointments of the two new directors “will ensure that our discussions continue to be constructive and that our proposal is taken seriously and swiftly.”
For Macy’s, the deal for two new directors will not tip the balance on the board. That could be seen as a win for the retailer, as it falls far short of the total number suggested by Arkhouse, said Patrick Gadson, an attorney and co-head of the shareholder activism practice at Vinson & Elkins.
But the settlement allows Arkhouse to move forward as a critical and persistent activist investor, said Gadson, who represented Preferred Apartment Communities, a real estate investment trust that Arkhouse similarly targeted and tried to acquire. Arkhouse was eventually outbid by another buyer in that effort.
Macy’s agreement lacks a non-disparagement clause, he said, and has “subtle” restrictions or terms that can temporarily halt activist activity and prevent the activist from making critical comments. This means that Arkhouse and Brigade could still have room to run in their campaign.
“Shareholder activism is a performance-based skill set,” Gadson said. “If the company is performing well, far exceeding expectations, then presumably the performance itself would be the cure. If the company fails to do that, then it can make all the governance changes and all the non-fundamental, dysfunctional gymnasiums” I would, none of this will save them.”
Correction: This story has been updated to correct the timing and nature of Macy’s responses to offers from Arkhouse and Brigade.