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Macy’s Declines to Spin Off Ecommerce Operations, Citing ‘High Execution Risk’

Macy's Q4 2021 Earnings

Following better-than-expected Q4 and full-year 2021 results, the Macy’s, Inc. Board of Directors announced that the company’s ecommerce operations will remain integrated within the larger business, not spun off into a separate company.  

Activist investor Jana Partners took a stake in Macy’s in October 2021 and pushed the company to separate its ecommerce business from its brick-and-mortar operations. Such a move is becoming more common for struggling department chains in particular, with both Hudson’s Bay and Saks Fifth Avenue spinning off their ecommerce operations in 2021, and investors pushing Kohl’s to do the same.

The pressure from Jana Partners prompted Macy’s to launch a review of alternative operational models for its ecommerce business, including a full spinoff. In outlining its decision to keep digital operations integrated within the larger business, the Macy’s Board cited high separation costs and ongoing costs from operating separated businesses, as well as “high execution risk” for both the business and its customers. Instead, the Board said it will double down on its Polaris transformation strategy.

“We are more confident in our path forward as one integrated company,” said Jeff Gennette, Chairman and CEO of Macy’s, Inc. in a statement. “The Board’s review reaffirmed our conviction that we are pursuing a robust strategy, and it provided us with greater clarity on several initiatives that could be further accelerated to unlock additional value for our shareholders, which we are pursuing.”

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That transformation strategy appears to be working, with sales for both Q4 2021 and full-year 2021 results exceeding expectations and bringing the retailer back to pre-pandemic levels.

Comparable sales for 2021 for the company — which includes results from Macy’s, Bloomingdale’s and Bluemercury — were up 43% from 2020 and 3.1% from 2019. Active customers for the Macy’s brand were up 18% over 2020 and 1% over 2019 to 44 million, and new customers increased 40% over 2020 and 26% over 2019 to 19.4 million.

In addition to comparable sales and customer counts apparently normalizing back to pre-pandemic levels, the company’s online sales also continue to increase. Total digital sales in 2021 increased 13% over 2020 and 39% over 2019, and digital penetration reached 35% of net sales in 2021, a 9-point decline from 2020 but a 10-point improvement over 2019. The company also pointed out that in the markets where its Macy’s brand has omnichannel operations, more than 58% saw omnichannel sales growth in Q4 2021 over Q4 2019, further underlining the Board’s decision to keep online and offline operations integrated.

“I am proud that Macy’s, Inc. outperformed expectations on both the top and bottom lines every quarter in 2021, despite COVID-19-related disruptions, supply chain issues, labor shortages and elevated inflation,” said Gennette. “Our team began the large-scale work of transforming Macy’s, Inc. two years ago when we launched the Polaris strategy, and today we believe the evidence is clear – our business is stronger, more agile and financially healthier. We are more digitally led and customer centric and believe we are better positioned for long-term sustainable and profitable growth.”

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