Macy's sees physical stores, ecommerce as one business

Against a backdrop of growth in digital sales, Macy’s announced that it will not spin off its ecommerce business into a separate company.

After facing pressure from an activist shareholder to spin out its digital business, Macy’s board of directors conducted a review of potential paths forward. Ultimately, it decided that an “integrated, omnichannel” Macy’s was the best path forward.

In making the decision, Macy’s cited “high separation costs and ongoing costs from operating separated businesses, as well as high execution risk for the business and the company’s customers.”

“We are more confident in our path forward as one integrated company. The Board’s review reaffirmed our conviction that we are pursuing a robust strategy, and it provided us with greater clarity on several initiatives that could be further accelerated to unlock additional value for our shareholders, which we are pursuing,” said Gennette. “Our team will continue our work to deliver an even bolder and brighter future for Macy’s, Inc. and all its stakeholders, including our shareholders, our colleagues and our customers.”

Macy’s began its review after activist shareholder Jana Holdings took a stake in Macy’s in October. CNBC reported at the time that Jana cited figures showing a digital business would be worth “a multiple” of its current business, which is valued at $7 billion. It would’ve followed fellow department store retailer Saks Fifth Avenue, which spun out Saks.com to form a $2 billion standalone company last year. Macy's even hired AlixPartners, the same firm used by Saks to conduct its fourth-month review. However, a move by Jana Holdings to cut its stake in Macy's last week preceded the latest announcement.

Macy’s will move forward by pursuing initiatives that “span digital, brand partners, private label, marketing and loyalty and the expansion of off-mall, small-format Market by Macy’s and Bloomie’s stores,” the company said. Macy's will also delay the further closure of its physical stores, with Genette citing changing consumer habits that could position the company's physical footprint to play a role in both online and IRL retail.

“Our stores are also fulfillment hubs supporting our digital operations through ‘buy online, pick up in store,’ curbside pickup and same day delivery,” he told analysts. “Keeping these cash positive stores open also helps us to fund the investments we're making to reposition our fleet over the next several years."

The company’s 2021 earnings reported Tuesday indicated the company’s digital sales increased 13% over 2020, 39% over 2019. Digital penetration was 35% of net sales, which was a 9% decline from 2020, but a 10% improvement over 2019.

When it comes to total sales, Macy’s beat Wall Street expectations to increase comparable sales 43% from 2020 and 3.1% from 2019. Notably, more than 70% of its sales were tied to its loyalty program for the fourth quarter.

The company has been in the midst of a transformation effort that began two years ago. This has included a shift to more ecommerce offerings as consumer shifts toward online retail were accelerated by the pandemic. In November, the company announced plans to launch a curated digital marketplace, powered by tech company Mirakl. It is expected to launch in the second half of 2022.

“Our team began the large-scale work of transforming Macy’s, Inc. two years ago when we launched the Polaris strategy, and today we believe the evidence is clear – our business is stronger, more agile, and financially healthier. We are more digitally led and customer centric and believe we are better positioned for long-term sustainable and profitable growth,” Gennette said. “Thanks to the hard work of our colleagues, successful execution of Polaris, and the strategic allocation of our capital, we believe we are well-positioned to successfully navigate the macro-economic headwinds we expect in 2022.”