A new push from investors is aimed at getting Macy’s to explore options with its real estate — and possibly some of its retail brands. That’s the message from a group of shareholders and investors who say the venerated department store should separate some of its valuable real estate from its retail business. And while Macy’s is at it, the group believes options for Bloomingdale’s and Bluemercury should also be explored.

Those were the recommendations of a presentation that was released this week by Barington Capital Group, L.P. and Thor Equities LLC about what they believe is the best path forward for Macy’s. The move came ahead of Macy’s quarterly earnings results and at the end of a tumultuous year in which Macy’s dealt with a takeover effort by Arkhouse Management and Brigade Capital Management.

Macy’s ranks No. 16 in Digital Commerce 360’s Top 1000 Database of the largest North American e-retailers by online sales. Macy’s is also the second-largest Apparel & Accessories retailer in the database. Digital Commerce 360 projects Macy’s total web sales in 2024 will reach $7.30 billion.

Why shareholders want Macy’s to look at real estate and Bloomingdale’s

Joseph Sitt, chairman at Thor, homed in on Macy’s real estate portfolio in a public statement about recommendations.

“Macy’s owns valuable and well-located real estate assets — led by its flagship property at Herald Square in New York City — that we believe are worth between $5-$9 billion,” Sitt said.

He added that the group thinks that Macy’s board should create a separate real estate subsidiary to collect market rents from retail operations while also pursuing other asset sale and redevelopment opportunities.

“We believe doing so would greatly maximize the value of these owned assets for the benefit of stockholders,” he noted.

Macy’s released a statement on Monday responding to the plan, without addressing specifics, saying that its board and management team are committed to “delivering sustainable, profitable growth and driving shareholder value.”

Delivering value, according to Thor and Sitt, means selling real estate.

Still, some industry experts urge caution.

Why selling or splitting off assets isn’t a panacea for Macy’s

Other chains have tried spinning off real estate into a separate entity with mixed results.

Ryan Dossey, co-founder of real estate brokerage SoldFast, told Digital Commerce 360 that selling real estate isn’t a cure-all for Macy’s.

“The technique of decoupling the real estate holdings from the brand is referred to as asset stripping,” Dossey explained, adding the example of private equity firm Golden Gate Capital’s arrangement with Red Lobster after its 2014 acquisition.

Golden Gate sold off Red Lobster’s real estate holdings. It then leased the properties back to Red Lobster at what some would argue were inflated rates. Weighed down by high rents, Red Lobster filed for bankruptcy in May.

Dossey said Macy’s may be better off selling the real estate owned by underperforming stores.

“However, I have reservations about the prospect of selling all of the assets and leasing space back,” he said.

What unloading Bloomingdale’s and Bluemercury would mean for Macy’s

As far as unloading Bloomingdale’s and Bluemercury, those are different questions with different answers, according to Evan Mann, senior high yield analyst at the research firm Gimme Credit.

Mann said Bloomingdale’s doesn’t have quite the cachet and name recognition among the American public as Macy’s. That could make selling it difficult. Bloomingdale’s has 32 stores in the U.S. Meanwhile, there are over 700 under Macy’s, which also hosts its annual Thanksgiving Day parade.

“Who would be a likely buyer?” Mann posed. “Department store revenues are shrinking, I don’t know how much of an appetite there would be for that.”

Meanwhile, Bluemercury — with 164 locations — caters to a younger audience, and that can have a lot of value, Mann explained, so Macy’s might want to hang onto that.

“But it depends on how much capital you want to raise to pay down debt,” Mann said.

He said he thinks that Macy’s can turn things around. However, the process might take a couple of years and Macy’s would need to strengthen its online presence to compete.

“They need to focus on growing their online presence,” Mann said. “Macy’s needs to do a lot more of that.”

Macy’s unveiled a turnaround plan earlier this year, and Mann said he believes that plan remains solid.

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