An activist hedge fund that took a stake in Macy’s is is pushing the department-store giant to follow its upscale rival Saks Fifth Avenue’s online playbook, The Post has learned.
In March, Saks separated its bricks-and-mortar business from its online division, with the latter becoming a new private company controlled by Saks whose value has exploded as demand for online luxury goods has boomed during the pandemic.
Likewise, New York-based Jana Partners — headed by hard-charging billionaire Barry Rosenstein — is now proposing that Macy’s split off its e-commerce business into a separate, privately held company, according to a source familiar with the situation.
Macy’s is reportedly in talks with private equity investors about investing in its e-commerce business, according to a Wall Street Journal report, which first disclosed a Wednesday letter from Jana to Macy’s directors.
In such a deal, Macy’s could potentially keep control of its e-retailing business while securing additional backing to accelerate its fast-growing web sales. Macy’s has said about 40 percent of its new customers come from its online channels, as opposed to its 700-plus physical stores.
Industry sources tell The Post that by separating the digital business from the bricks-and-mortar stores, retailers also can better attract tech talent. Saks.com has hired hundreds of employees who used to work for Amazon, Apple, Netflix and Disney, according to a source close to the company.
These tech experts have improved Saks.com’s search function, the speed of the site and its overall functionality, which has led to explosive growth at the company, the source said. Saks.com also doubled its marketing budget, which has not only fueled digital sales but benefitted Saks’ physical stores as well.
“Jana is seeing that” and thinks Macy’s should do the same, the source said. Macy’s investors seem to agree: Its stock was up nearly 5 percent in the past week compared to gains of 1.5 percent in the broader market.
Last week, Jana executive Scott Ostfeld hinted at the hedge fund’s plan, saying Macy’s e-commerce business could be worth $14 billion as a standalone entity — or twice Macy’s current market valuation. Ostfeld pointed to Saks as an example of a company that successfully leveraged its fast-growing e-commerce site.
The size of the stake taken by Jana — which has forced changes at other big companies, including Outback Steakhouse, Tiffany & Co. and Whole Foods — hasn’t been disclosed. Macy’s, meanwhile, is working with Goldman Sachs and Wells Fargo to explore its options, the source said. Macy’s, Goldman and Wells didn’t return requests for comment.
Macy’s online revenue accounts for about a third of its overall sales as of July 31 and it increased by 45 percent over the same period in 2019, according to the company’s second quarter financial report. The company also said it added 5 million new customers in the quarter — or a 30 percent increase over the same period in 2019. More than 40 percent of the new customers came through the digital channel, the company reported at the time.
Macy’s Chief Executive Jeff Gennette has said that he expects Macy’s digital sales to reach $10 billion within three years — up from $8 billion currently, according to The Journal.
Macy’s has faced activist investor pressures before. In 2015, Starboard Value took a steak in Macy’s and demanded that its spin off its real estate assets. Macy’s stood its ground, rejecting the idea and Starboard eventually sold its entire stake in the company.
In March, Insight Partners invested $500 million for a minority stake in Saks.com, which values the company at $2 billion. But Toronto-based Hudson’s Bay Company, which owns Saks Fifth Avenue, continues to own the majority of the luxury retailer’s digital business.
The deal has been working so well that Insight Partners was part of an investment group that took a $200 million stake in the digital business of Saks Off 5th, which was also split out from the bricks-and-mortar stores, in June.
The success Saks.com is having will likely create pressure on other department stores to separate their digital businesses from the stores, including Nordstrom, the source said.