Department stores and their investors are obsessed with one retail trend you won't see on the runway: Spinning off their e-commerce businesses.
Driving the news: Macy's is the latest chain to explore such a move.
Why it matters: Department stores were further behind other retailers in modernizing and, as a result, were the most cash starved.
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State of play: Investors, particularly activists taking positions in depressed retail stocks, are pushing hard for companies to bolster their cash positions and reinvest in their transformations.
Despite Macy's roughly $25 share price in late September, a level not seen since before the pandemic, activist investor Jana Partners argued in early October that the retailer could double its valuation to about $14 billion by spinning off its e-commerce platform.
Catch-up quick: It all started in March when Hudson's Bay announced its luxury subsidiary Saks was splitting off its e-commerce business, subsequently raising hundreds of millions of dollars.
Then Macy's, the largest department store retailer in the U.S., disclosed its split review and the retention of AlixPartners after being pressured by Jana Partners. AlixPartners also advised Hudson's Bay.
Now, according to sources who asked for anonymity because they are close to such matters, all department stores will at least explore separating their digital platforms.
What we're watching: Likely e-commerce spin-out candidates include privately-held merchants Belk, J.C. Penney and Neiman Marcus, as well as publicly-held banners Dillard's and Nordstrom, the sources say.
Sycamore declined to comment on behalf of Belk, its portfolio company. Simon Property, the owner of J.C. Penney, and Nordstrom also did not provide a comment. Neiman Marcus and Dillard's did not respond to a request for comment.
Industry sources say the impetus for department stores splitting off their e-commerce units are the standalone valuations such businesses could achieve.
The capital raised can then be reinvested in digital capabilities and remaining stores.
And it will take a lot of cash to transform department stores — formerly known for hosting events from dinners to fashion shows and as places to discover new products — back into the kind of physical environments that capture shoppers' imaginations.
One of the sources pointed to Restoration Hardware as an example of how to reimagine a business.
The intrigue: Companies such as Authentic Brands Group have innovated by creating corporate structures in which the intellectual property is held by a parent entity, while the operations reside in a separate company with its own group of shareholders.
That structure may serve as a kind of prototype, said one source. The idea is for both businesses to remain connected and then to reunite at some point in the future.
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