As America’s largest department store, Macy’s has enormous influence over the retail sector at large—and as one of the industry’s biggest sellers of home products, what happens at the company will surely impact the home furnishings world in particular. Now, with a corporate raider trying to take over, a new CEO on the way in, and another round of layoffs and store closings just announced, the legacy retailer finds itself very much at a crossroads.
However the attempted takeover battle turns out—more on that in a minute—one thing is certain: The executive leading the defense will be Tony Spring, set to take over as CEO on February 1 from current president Jeff Gennette, who is retiring after seven years at the helm. Spring, who has been running the company’s upmarket Bloomingdale’s banner for the past 10 years, is a company lifer who previously led its home division.
Gennette’s scorecard is a mixed one. While he kept the giant company in the black and navigated the worst of the pandemic when its stores were closed, he largely failed in a proposed reinvention of the department store model. On his watch, the company has continued to lose market share across the retail spectrum to off-pricers, discounters and online sellers.
Meanwhile, Spring generally received high marks for his leadership at Bloomingdale’s—granted, a much smaller niche player than Macy’s. Like his predecessor and mentor Mike Gould, he walked the tightrope between merchandising excitement and profitability, largely beating upscale competitors like Saks, Neiman Marcus and Nordstrom.
He will need all of that acumen as he takes on his new job. On January 21, just days before the changeover, the company announced it was closing five stores and laying off about 2,350 people—3.5 percent of its workforce. The announcement came under Gennette’s watch so as not to taint Spring’s start, a pretty common practice for big public companies.
Still, it could serve as a harbinger of what’s to come. With 500 Macy’s-branded stores, 158 Blue Mercury locations, 34 Bloomingdale’s outposts, and about 30 off-price stores under the Macy’s Backstage and Bloomingdale’s Outlet banners, the company operates a large fleet. As secondary and marginal malls continue to deteriorate in shopper relevance, and older locations face tough corporate decisions on whether to reinvest in them, it’s likely the company will continue to trim its number of stores. By how much—and what it means for potential workforce reductions—is the question, but given the modest store-closing pace under Gennette, it’s unlikely we’ll see any dramatic increase in downsizing.
The wild card is the potential takeover battle. Two private equity investors, Arkhouse and Brigade Capital Management, made an unsolicited offer in December to buy Macy’s for $5.8 billion, which at the time represented a 32 percent premium over its stock price. The stock has since retreated from just under $21 a share to a little more than $18. Its market cap is down to just under $5 billion, which suggests Wall Street investors don’t believe a deal will come through.
That became clearer earlier this week, when Macy’s rejected the offer and in fact said it wanted nothing to do with the two potential suitors, declaring it wouldn’t release any additional financial information to them. Needless to say, Arkhouse and Brigade didn’t take this kindly and said they would continue to pursue a buyout, perhaps taking it straight to shareholders and bypassing the board.
The company said it doubted the two investors had enough funding to do the deal, particularly since the majority was coming from debt that would be layered onto Macy’s. This is a tactic we’ve seen many times in retail history—Toys R Us, Sears, JCPenney and Neiman Marcus, to name a few recent examples—and it has largely failed, with each of those retailers eventually filing for bankruptcy and some going out of business completely. Macy’s itself, in a former configuration, filed for bankruptcy in 1992 when a real estate investor bought it with debt and couldn’t keep it going. Retail businesses, for better or worse, generally don’t generate enough cash to pay down the massive debt levels needed in these kinds of takeover deals.
Arkhouse and Brigade may not be ready to back down and could up their offer. They could also attract other potential buyers, who might have different funding plans that Macy’s shareholders might find more attractive. The company’s stock is down 28 percent over the past five years, although it’s worth noting that competitors like Nordstrom and Kohl’s have done much worse, each off more than 60 percent during the same period.
Regardless of what happens with all these moving parts, 2024 promises to be a critical year for Macy’s. Getting its spring fashion assortment right and keeping its stores fresh will be nothing compared to the challenges presented by a potential takeover, change in leadership and downsizing. The biggest department store in the world could be in for the biggest fight of its 166-year life.
Warren Shoulberg is the former editor in chief for several leading B2B publications. He has been a guest lecturer at the Columbia University Graduate School of Business; received honors from the International Furnishings and Design Association and the Fashion Institute of Technology; and been cited by The Wall Street Journal, The New York Times, The Washington Post, CNN and other media as a leading industry expert. His Retail Watch columns offer deep industry insights on major markets and product categories.