• by Sarah Mahoney  @mahoney_sarah, December 11, 2023

Macy’s has reportedly received a $5.8 billion buyout offer. The Wall Street Journal reports Arkhouse Management, a fund specializing in real estate and Brigade Capital Management, an asset manager, have reportedly offered $21 a share, with the provision that they could go even higher if due diligence found a greater value.

At face value, such a buyout could be good news for Macy’s. While the company is still the largest department store company in the world, with 500 stores and annual sales of around $23 billion, the fabled retailer has struggled with declining sales for years despite persistent “transformation” efforts that have done little to reverse the downward trend.

In 2022, Macy’s considered and ultimately rejected a plan to spin its ecommerce business into a separate company, as rival Saks Fifth Avenue did.

In Macy’s most recent quarterly results, sales fell to $5 billion, with brick-and-mortar and digital sales dropping 7%.

“We believe no-moat Macy’s is struggling to stay relevant as consumers have many choices,” writes David Swartz, an analyst who follows the company for Morningstar. And given liabilities, including $3 billion in long-term debt, the buyout offer should be considered.

That’s especially true, he says, given the cautionary tale provided by rival Kohl’s. Although that department store recently fended off offers from activist shareholders, its financial performance since then has been poor.

It’s not just Macy’s and Kohl’s. JCPenney and Neiman Marcus, which only recently emerged from bankruptcies, face challenges, too. And Nordstrom has also had activist investors rattling its cages.

“Although traditional mall-based department stores are very challenged,” Swartz says, “Macy’s has strengths that might attract bidders, including its more than 40 million loyalty members, a large base of credit card holders, and ecommerce sales estimated at more than $7 billion this year.”

Undeniably, Macy’s has plenty of valuable real estate that could be sold off. But while that might make a pile of money for shareholders, unloading real estate will do little to solve Macy’s problems.

“As critical as we are of Macy’s current management, they are at least focused on trying to run the business as a retailer,” writes Neil Saunders, managing director of GlobalData. “An investor group that sells off real estate and perhaps takes other actions, such as spinning off the ecommerce business, would certainly make some short-term gains. But unless some of those profits were reinvested in revitalizing the core retail business, it would leave Macy’s in the worst of all worlds.”

Macy’s is also facing an executive transition, with outgoing chief executive officer Jeff Gennette handing the reins to Tony Spring.