Activist investor pushes Macy’s to expand Bloomingdale’s business, create real-estate unit

Activist investor Barington Capital on Monday revealed a stake in Macy’s and pushed the retailer to consider options for its Bloomingdale’s and Bluemercury businesses and create a separate real estate unit within the company.

Macy’s shares jumped 4% Monday morning.

The exact size of Barington’s hold in Macy’s is unclear. Barington partnered with real estate firm Thor Equities on its investment, according to a presentation for Macy’s shareholders.

The investment firms are pushing the 150-year-plus department chain to pursue strategic expansion paths for its Bloomingdale’s and Bluemercury brands, which they believe would trade at a higher multiple on their own.

Barington and Thor are also asking Macy’s to create a separate real-estate unit within the company. They estimate Macy’s real estate alone is worth between $5 billion and $9 billion – more than Macy’s current market value.

The activist investors have pushed Macy’s to reduce capital expenditures to between 1.5% and 2% of total sales, down from around 4% currently, as well as repurchase a minimum of $2 billion to $3 billion in stock over the next three years.

The firms also asked Macy’s to add Barington and Thor representatives to its boards.

Macy’s has pursued a number of strategic revival plans over the years, but “the one constant of all these ineffective actions has been Macy’s reliance on spending enormous amounts of the Company’s cash flows on capital expenditure projects,” the firms said in a statement.

Unfortunately, Macy’s capital expenditures have resulted in “limited” improvements to operations, Barington and Thor said.

Macy’s said it remains confident in its store revamp strategy moving forward and looks forward to “engaging with our shareholders, including Barington and Thor.”

Barington did not immediately respond to a request for comment.

Macy’s had a $4.6 billion market value as of Friday. The retailer’s stock has fallen 16.9% so far this year as of Friday.

The iconic department store chain has fended off several activist investors over the past few years. 

It added two new independent directors to its board in April to end a proxy fight with Arkhouse Management, which was encroaching on a board takeover.

Then in July, Macy’s terminated talks with Arkhouse and Brigade Capital management, which were pursuing a $6.9 billion acquisition to take the company private.

In 2021, investment firm Jana Partners bought a stake in Macy’s and urged the retailer to create a separate e-commerce business.

Starboard Value in 2015 prodded the chain to spin-off its real estate assets, including its flagship Herald Square storefront.

Macy’s CEO Tony Spring, the former Bloomingdale’s chief who took the helm in February, has been working to turn around the company’s downtrodden sales. His “A Bold New Chapter” plan includes closing underperforming locations and revamping existing stores by making them less cluttered with more sales associates on-hand to help customers.

Barington and Thor said they see “early promise” in Spring’s plan, specifically the store closures, and called for further cost-cutting measures. The company currently boasts 479 Macy’s locations, 164 Bluemercury stores and 33 Bloomingdale’s stores, as well as outlet stores, according to its website.

“We seek to be value-added stockholders at Macy’s that can bring fresh perspectives to the Company,” Barington chairman James Mitarotonda and Thor chairman Joseph Sitt said in a statement. “We believe that operating improvements at Macy’s, coupled with our recommendations for aggressive share repurchases and structural changes to the business, could lead to a 150% to 200% total return for Macy’s stockholders over the next three years.”

Barington suggested Macy’s should take notes from Dillard’s for a “successful model in capital allocation.”

Since fiscal year 2018, Dillard has paid out 60% of its total cash sources to shareholders compared to Macy’s 25%, Mitarotonda said. Dillard’s shareholders have seen a total return of more than 788% on their shares versus Macy’s 12% losses, he added.

Mitarotonda – who started his career working in operations positions at Bloomingdale’s – founded Barington Capital in 2000. The activist investor successfully pushed for changes at L Brands, which split up its Victoria’s Secret and Bath & Body Works brands in 2021, and Hanesbrands.

Thor Equities was founded in 1986 and owns assets across the US, Europe and Latin America, according to its website.

Last month, Macy’s delayed its quarterly earnings release after it said a rogue employee hid as much as $154 million in expenses over the past few years. The company is set to report earnings and update investors on its investigation into the accounting disaster on Wednesday.