Should Macy’s de-omnify?

Discussion
Photo: Macy’s
Nov 22, 2021

This article was co-written with Gwen Morrison.

On the heels of Macy’s exuberant earnings report last week, which pushed its stock price up 21 percent overnight to a 230 percent gain for the year to date, a boardroom drama has intensified, spurred by an activist investor.

The proposal on the table seems astonishing to us: Split Macy’s multibillion-dollar e-commerce business from its 600-store brick-and-mortar business to release trapped shareholder value. Macy’s announced last Thursday that it has retained consulting firm AlixPartners to evaluate the proposal.

The demand to “de-omnify” Macy’s had been delivered in a letter to the board by Jana Partners (the activist investor) on October 13 after it acquired an unknown stake in the company.

There was an important precedent for this maneuver. On March 5, privately held Hudson’s Bay Company (HBC) split its 40 Saks Fifth Avenue stores from its digital unit into two separate businesses. In doing so, it sold a $500 million minority equity stake to a private investor, Insight Partners. The move was controversial — although HBC insisted Saks brand experience would not change for shoppers.

Macy’s has worked hard to establish its omnichannel business model and it has led the industry in online apparel sales. It is also a public company — a key difference when compared to HBC.

Should Macy’s de-omnify?
Photo: Macy’s

Industry thought leaders have long critiqued the organizational silos that kept retail ecommerce teams walled off from their counterparts in merchandising, marketing and operations. Many digital innovation labs were even located in separate cities. In early years, retailers including Macy’s missed out on sharing the insights and analytics that would have added momentum to their business as Amazon was accelerating.

After overcoming early inertia, Macy’s has proved to be an innovator on several omnichannel fronts:

  • Appealing to younger shoppers who are harder to attract;
  • Capturing both store and digital data to personalize offers and enhance loyalty rewards;
  • Using physical stores to fulfill online orders, thereby reducing markdowns.

As Macy’s explores separating its e-commerce business, it contemplates a future in which its stores lose the ability to stitch each point of the shopper journey into a unified data picture. If shoppers want the brand to know them and serve them in any number of situations, why would any retailer de-omnify and break the connection?

We believe Jana Partners’ intent once again reveals how investor goals can risk undermining the connection between a brand and its shoppers. Macy’s should tread carefully.

DISCUSSION QUESTIONS: Should Macy’s seriously consider splitting its digital business from its store business? What might be the consequences for the brand if the proposal goes forward?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Separating their channels would be a short term play to make a small group of investors very wealthy at the cost of driving the business under - much like Sears. "
"Perhaps in this new era, PE companies can latch on to de-omnify as a basis for getting their value out of a retailer, while slowly destroying the ongoing business."
"Have any of these “activist investors” (aka rich people) thought about what this would mean for customers? How idiotic. Will we ever be able to appease the ultra-wealthy?"

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34 Comments on "Should Macy’s de-omnify?"


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Paula Rosenblum
BrainTrust

Why won’t these people go away? It’s a ridiculous idea, and “it puts Macy’s brand and the customer experience at risk.” One wonders if the end game is to sell the Herald Square building and other prime real estate from the store side of the business – which will wither under increased expenses and lost sales.

Chris Buecker
BrainTrust

Today, the (retail) world is omnichannel. To split the e-commerce business from its brick-and-mortar stores would not make sense at all.

Bob Amster
BrainTrust

This appears to be another case of “how do I get the most money out of my investment” with little or no regard for the whole business, its iconic name, or the consumer. If the value is in the real estate, then you continue to run a strong online business and begin shedding store real estate until you are left with no stores, or the most profitable stores. The outcome is not certain.

David Naumann
BrainTrust

Good points Bob! What is driving this business decision: maximizing stock prices or optimizing customer satisfaction? What we don’t know about this potential decision is how it will impact the operational execution and coordination of the physical and digital businesses. It will be imperative that there is a seamless execution of omnichannel transactions, otherwise it will deteriorate customer satisfaction and jeopardize revenues for both physical and digital.

Joel Goldstein
BrainTrust

Keeping one solid brand is important. Especially as there are so many different touch-points, splitting up will only cause overlap and inefficiency.

Liza Amlani
BrainTrust

Although controversial, this may be the right move for Macy’s. The challenge will be keeping customer-centricity at the heart of core retailing functions.

If customer insights are shared across both digital and physical platforms and if merchandising, product assortment decisions and private label development are part of a center of excellence (think single source of truth for item creation and data-driven product innovation), this could be exactly what Macy’s needs to focus on reviving its physical stores and keep driving success into its digital platforms.

Shep Hyken
BrainTrust

The magic is in the mix. Traditional brick-and-mortar combined with digital has been the secret of success for many brands. Retailers that started out on either side have found value in expanding beyond their roots. I’ve had in-store experiences where the sales people share that they can’t compete with their own websites. Prices online are different than in-store. Did Saks really do this without any impact to what the customer experiences in either channel? If so, it’s simply a behind-the-scenes move to optimize the value of the company. The moment a customers notices the differences between online and in-store, the brand starts to compete with themselves. My suggestion to Macy’s: Be careful!

Lee Peterson
BrainTrust

This is a money play, not a customer-centric, innovative move that will actually help their business. Next thing would be to split out beauty, because it’s more profitable. Anyway, at the end of the day, this does nothing to help their dying business model, which — regardless of average numbers on top of bad numbers and all boats lifting (which makes things appear better) — still needs a major overhaul.

DeAnn Campbell
BrainTrust

Separating their online and offline business is the quickest path to failure for a company the size of Macy’s. While e-commerce may be popular in generating sales, it’s not very profitable in terms of the margins those online sales earn. Only by leveraging the benefits of shipping from store, picking up in-store, returning in-store and using stores as a powerhouse media channel can a business earn high enough profit margins to stay in business for the long run. Separating their channels would be a short term play to make a small group of investors very wealthy at the cost of driving the business under – much like Sears. I’m sad that this is even being considered.

Jeff Sward
BrainTrust

Perfectly said.

Mark Ryski
BrainTrust

Sure, Macy’s should consider splitting off its digital business – and then quickly reject the idea and get back to business. Virtually every retail industry expert and commentator knows that physical stores and digital are not separate, but must operate together as seamlessly as possible. This is nothing more than some misguided, financial engineering. It’s delusional to think that this will create some kind of new value. Trying to split the digital from the physical business would be reckless and potentially cause serious damage to Macy’s and the good work the company has done recently to deliver positive results.

Michael Terpkosh
BrainTrust

Members of RetailWire write all the time about removing silos to “free the shopper data” across retail organizations creating insights and actions. Were Macy’s to split the company, creating silos, it would hurt their long-term success. The most successful retailers in the future will be the ones that make omnichannel retailing the foundational strategy of their company.

Georganne Bender
BrainTrust

I am not a fan of this idea. I wish Macy’s would concentrate on the state of its brick-and-mortar stores. Almost every one I have visited is a mess. Merchandise is thrown everywhere and the store interiors are in need of repair. It’s sad to see this great retailer fall into disarray. Consumers have to think that if the stores are a mess then online must be as well.

Steve Dennis
BrainTrust

Stated simply: absolutely not. If we’ve learned anything from the past two decades of digital disruption it is that the idea of separate shopping channels (and the resultant perpetuation of siloed organizations) is wrong and gets in the way of providing a customer-centric shopping experience. Consumers don’t think about channels, and neither should retailers. Virtually every remarkable retailer I can think of has succeeded by embracing the blur of modern shopping today and pursued a strategy of harmonizing (my preferred term for omnichannel or unified commerce) customer journeys. The customer is the channel. Silos belong on farms.

Neil Saunders
BrainTrust

Investors want it because they can make some short-term money out of it, regardless of the long-term health of the company. Unfortunately, Macy’s management has an obligation to review the matter which is why it has appointed advisors to undertake an assessment. My fear is that management is too weak – and has too few other things up its sleeve – to resist, even thought it knows the move is wrong. At the end of the day, splitting off would be extremely unhelpful for the brand. And given how the Saks deal was structured – where the online division owns and controls the brand assets – there is a clear path to demote stores. This does not bode well!

David Spear
BrainTrust

This is a classic private equity play that makes money for a select few. I would strongly advise against this move because Macy’s has figured out how to deliver value in a highly relevant way using all of its shopper touch points (physical in-store, online, mobile, kiosk). Clearly, the latest reported numbers confirm this strategy. Why tear apart the company when its transformation efforts are just now paying dividends?

Jeff Sward
BrainTrust

There’s short term financial engineering and there’s long term customer-driven fundamentals. And in Macy’s case it’s hard to see any overlap that suits both. I have no doubt that Jana Partners could extract a very healthy return on this kind of maneuver in two to three years. I also have no doubt that it would put Macy’s in a downward spiral. Digital native brands are getting into brick-and-mortar as fast as they can so they can manage the whole entire relationship with the customer, but the best thing for a brick-and-mortar business is to divest the digital side?

Mohamed Amer
BrainTrust

When corporations’ decision-making turns on Wall Street priorities, such as the supposed unlocking of trapped value (in the online business), the core business is sure to suffer and suffer gravely. It’s one thing to spin off a stand-alone division versus separating conjoined twins. If Jana Partners were to succeed, then the demise of Macy’s is not only assured but accelerated.

Michael La Kier
BrainTrust

Seriously?! This move by Macy’s is a throwback to the early days of e-commerce when retailers didn’t know any better. Today, most – if not all – retailers see benefits from a “one commerce model.” Shame on Macy’s.

Gene Detroyer
BrainTrust

The value of retail to a private equity firm is that they have an umbrella to work under — the well-known name of the company. And while we will hear wonderful forecasts on their astute moves in helping grow the retail company, they are almost laughable.

Private equity firms are interested in LBOs and IPOs and it doesn’t go further than that. When it is time to exit, it will always be easier and more valuable to exit a “Macy’s” than XYZ company. The only winners will be PE. The losers will be the Macy’s the legacy, the employees and the customers.

If they split, without the real Macy’s name, Amazon, Walmart and Target will eat Macys.com for breakfast, lunch and dinner.

Ken Lonyai
BrainTrust

It’s a little surprising that Macy’s was so quick to respond to this request.

If they split, I’m quite confident that many more stores will close.

Dr. Stephen Needel
BrainTrust

No – it should not consider this. The brand is Macy’s, not Macy’s digital nor Macy’s brick-and-mortar. Splitting them is going to mess with that brand and remove the seamless experience that omnichannel has striven for.

David Mascitto
BrainTrust

As a proponent of omnichannel retailers leveraging store networks for fulfillment and all the advantages that come with this model (inventory pooling, BOPIS, cross-channel returns, shorter last mile, etc.) this seems like a backward move on the surface. However it’s designed to attract investment, divest assets and is more a financial play than a supply chain play. What Macy’s (and HBC) need to do is prioritize integration between the two entities to ensure the omnichannel customer experience remains intact and continues to be optimized. Completely doable with the right processes and technology.

James Tenser
BrainTrust

I’m expect this reasoning underlies the proposal now being considered by Macy’s, David. The move at Saks no doubt had a similar justification. A key question that Gwen Morrison and I grappled with in preparing this piece was how two separated entities can maintain brand continuity. Is it really a simple matter of processes and technology? Effective data-sharing across silos is a huge challenge within retail organizations. I personally foresee this challenge expanding over time as the interests of two independent entities diverge.

Joel Rubinson
BrainTrust

This financial play would be as anti-consumer as you can get. And for that reason alone, this would be a disaster.

Cathy Hotka
BrainTrust

Have any of these “activist investors” (aka rich people) thought about what this would mean for customers? How idiotic. Will we ever be able to appease the ultra-wealthy?

Peter Charness
BrainTrust

You know it’s been a while since a PE company destroyed a retailer with the traditional leveraged buyout method. Perhaps in this new era PE companies can latch on to de-omnify as a basis for getting their value out of a retailer, while slowly destroying the ongoing business.

Craig Sundstrom
Guest

‘Cuz HBC is the model you want to follow. While there’s some logic in splitting up Macy’s — I’ve long argued Bloomingdale’s would be better off either alone or allied with some other high-end retailer, and Chicagoans still pine for a Field’s revival — this idea is … well just plain stupid. “Unlocking shareholder value” is just the polite term for disembowel.

Brian Kelly
Guest
16 days 9 hours ago

Macy’s is doomed. It can not throw off cash as investors expect as it is currently configured and operated. No national mall anchor provides a model of success to ape. Remember, the regional chains Federated bought to create Macy’s had all failed in the markets in which they had their best chance of survival. That was 2006. The brand is no longer relevant, at the scale required, regardless of the channel in which it is engaged.

At this point, Macy’s should sell off all assets to ensure highest return to shareholders.

Kenneth Leung
BrainTrust

Makes no sense to split unless the end goal is just short term return on investment by selling off real estate. For any retailer to survive, they have to sell how customers buy, which is across multiple channels, and let customers choose. I understand store traffic declined under COVID, but I can’t see the world going e-commerce only where we all just get everything delivered at home and never leave.

Ananda Chakravarty
BrainTrust

Was just reading that 10 of the top 14 retail bankruptcies were private equity managed companies. Now it’s not all the fault of PE — their main role is to buy distressed firms and pull a rabbit out of them, and in many cases the companies bought at fire sale prices are riddled with debt and problems introduced long before PR came to the rescue. However, the general motivation for these firms is not long-term growth, but enough growth to cash out.

As with Sears and KMart, we are already seeing devaluing of the name brand. The key consequence of separation would be a rapid drift away from the “luxury” branding of Macy’s. The brand would deteriorate quickly, like termites eating a two by four. The shell will remain intact but there would be nothing inside.

Patricia Vekich Waldron
Staff

It’s potentially a great move for investors, and absolutely a very bad one for customers. Creating separate organizations when the industry has been trying remove silos is foolish, especially for a brand like Macy’s that is struggling to remain relevant.

John Hennessy
BrainTrust
On it’s surface it appears to be a terrible idea for shoppers. So without analysis I agree with the majority opinion. However, things may not be as they seem. Two items merit thoughtful consideration. 1.) The online and offline buyer profiles and 2.) the performance of online and in-store entities. If buyers are buying different items online than in-store (and most do both), perhaps a focus on e-commerce expands the items offered in a different way than an assortment that uses e-commerce to supports in-store shopping. That doesn’t mean separation is the answer, but it would create the opportunity for more freedom within the e-commerce group to stretch its assortment wings and create an offering that appeals to the buying habits of online buyers. On performance indicators, as Macy’s is primarily a brick-and-mortar retailer, it may treat it’s online unit as second class. The results is lower quality talent and a lack of investment in new technology. If that’s the case, a standalone e-commerce group where the team is motivated to improve the entirety of… Read more »
Karen Wong
BrainTrust

It always amazes me to see investors easily speak of splitting (or merging) businesses without understanding the systemic processes involved. Even if you ignore the difficulty with data, there are corporate governance issues. Turning an internal transfer/transaction into orders between businesses is literally financial engineering “making work.”

wpDiscuz
Braintrust
"Separating their channels would be a short term play to make a small group of investors very wealthy at the cost of driving the business under - much like Sears. "
"Perhaps in this new era, PE companies can latch on to de-omnify as a basis for getting their value out of a retailer, while slowly destroying the ongoing business."
"Have any of these “activist investors” (aka rich people) thought about what this would mean for customers? How idiotic. Will we ever be able to appease the ultra-wealthy?"

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