Kohl’s has become the latest retailer to attract the attention of an activist investor seeking the separation of its digital and brick-and-mortar businesses. Engine Capital, which owns an approximately 1% stake in Kohl’s, believes the standalone ecommerce business could be “conservatively valued at $12.4 billion or more.” In comparison, Kohl’s total operation is currently valued at about $7.3 billion.
Engine Capital also called on Kohl’s to explore the possibility of a sale, noting that it could attract a purchase price of approximately $75 per share. Talks with potential buyers also could open opportunities to monetize the retailer’s real estate holdings.
This marks the second time Kohl’s has come under pressure from its investors in 2021. Macellum Advisors GP, Ancora Holdings, Legion Partners Asset Management and 4010 Capital pushed for a slate of nine independent directors to join the company’s board. That plan and another effort to add three directors were ultimately rejected by Kohl’s, but the retailer eventually agreed to add a different three executives to its board, including former lululemon CEO Christine Day. Engine Capital called on the promises the Kohl’s leadership made during this push to support its own efforts.
“During last year’s proxy contest waged by four shareholders, the company made several commitments, including that the board has and will continue to be an agent of change and that the board is open to new ideas that could enhance shareholder value,” said Engine Capital in a statement. “We urge the board to be this agent of change and publicly commit to a review of strategic alternatives to create value for shareholders.”
Kohl’s isn’t the only retailer under pressure to split off its ecommerce operations in search of higher valuations. In October 2021, Jana Partners took a stake in Macy’s in a push for the retailer to divide its digital and physical offerings. Macy’s, like Kohl’s, could be more valuable as a standalone ecommerce company: Jana estimated Macy’s digital business at $14 billion, compared to the retailer’s total current valuation of $6.9 billion.
The test case for whether such a split is truly profitable will be Saks Fifth Avenue, which is reportedly aiming to go public in the first half of 2022 with a targeted valuation of approximately $6 billion — triple the $2 billion valuation it held in March 2021. The retailer has been a digital pure play since it spun off its physical operations into their own business called SFA in March 2021.
Notably, Saks Fifth Avenue and SFA still work in tandem to support a full omnichannel experience. Services including BOPIS, exchanges, returns and alterations are still offered at the physical stores owned by SFA, while Saks Fifth Avenue handles merchandising and marketing for both companies.
The divesture was successful enough that the ecommerce operations of Saks OFF 5TH also were split into their own company in June 2021. The company that was created to operate the brick-and-mortar stores, O5, still accepts returns and exchanges from both retailers.