Macy’s, which was struggling after being “lost by Amazon,” shows signs of selling and even carries out a large-scale restructuring

Macy's, America's largest department store chain, lays off 3.5% of its employees
Due to strong demand for acquisitions aimed at real estate profits, has the company decided to downsize before selling?
Customers left after the pandemic, decline of the offline distribution industry

As the dark cloud over the offline distribution industry deepens, the decline of Macy’s, the largest department store chain in the United States, is in full swing. The U.S. Wall Street Journal (WSJ) reported on the 18th (local time) that the U.S. department store chain Macy’s has begun restructuring by reducing stores and drastically reducing employees. As demand for acquisitions targeting Macy’s real estate profits surged, it is interpreted that the company began a full-fledged ‘downsizing’ through restructuring.

Macy’s ‘grooming’ by cutting employees and closing stores

Macy’s is a large chain that operates approximately 500 department stores across the United States, as well as luxury department store Bloomingdale’s (56 stores) and beauty specialty store Bluemercury (158 stores). The entire U.S. department store industry, including Macy’s, had been experiencing a recession even before the COVID-19 pandemic. This is because e-commerce services such as Amazon and discount stores including TJ Maxx and Target are absorbing a large amount of existing consumer demand. In fact, Macy’s had already carried out large-scale job cuts and store closures once in February 19, just before the COVID-2020 pandemic.

After that, the situation hardly improved. According to a report by WSJ, Macy’s announced in a memo sent to employees today that it would cut 2,350 employees. This represents 3.5% of Macy’s total workforce, excluding seasonal temporary employment. Five stores in the U.S. whose performance has deteriorated are in the process of closing. It is reported that the closed stores are located in Arlington, Virginia, San Leandro and Simi Valley, California, Lihue, Hawaii, and Tallahassee, Florida.

In addition, Macy’s plans to increase the proportion of automated facilities in the logistics process and outsource some tasks. This can be interpreted as a plan to cut costs by laying off a large number of employees and filling the vacant positions with outsourced workers. Details, such as which jobs will be outsourced, were not shared. In order to speed up decision-making in the future, the size of the management team will be further reduced.

Is this restructuring a ‘sale’ procedure?

Meanwhile, there is an analysis in the industry that Macy’s has begun a full-fledged ‘downsizing’ considering a sale. In fact, last month, WSJ, citing sources, reported that real estate investment company Archhouse Management and asset management company Brigade Capital Management expressed their intention to acquire Macy’s. The desired acquisition price is $21 per share (approximately 2 won), which is a premium of approximately 7,700% compared to the closing price at the time the news was announced (December 12). The total acquisition amount amounts to $8 billion (approximately 21 trillion won).

Those interested in acquiring the company said that Macy’s is currently undervalued and that they intend to offer a higher acquisition price after conducting due diligence. What is the ‘intention’ of those who want to take over the collapsing department store business by adding a premium? The industry believes that they are aiming for profits from assets such as real estate rather than Macy’s distribution business. In fact, Richard Kestenbaum, co-founder of Triangle Capital, a distribution investment advisory company, analyzed, “If you find and sell hidden assets such as real estate, investors can make an immediate profit and later sell the company at a large profit.” 

Macy’s real estate is estimated to be worth between $75 billion and $116 billion. JP Morgan also estimated that the value of Macy’s real estate, including the store in Manhattan’s Herrod Square ($30 billion), would amount to $85 billion. Even after this acquisition proposal, investor demand for ‘real estate cash’ is expected to continue for some time. Macy’s distribution business, the central axis, has virtually been pushed to the back burner.

Department stores pushed out by online shopping, ‘disruption’ in the distribution industry

Why did America’s largest department store chain, with 166 years of history, collapse? The industry believes that Macy’s has been caught up in a ‘tectonic shift’ in the distribution industry. Initially, Macy’s was one of the companies that steadily maintained its stock price despite concerns about an economic slowdown following the pandemic. In February last year, the stock price rose 2%, soaring to $13. However, this strength did not last long. The stock price, which had briefly sparkled at the beginning of the year, immediately began to slip, and the department store business conditions and performance also went downhill.

It is pointed out that ‘online shopping’, which has become a mainstream distribution industry in the wake of the pandemic, is what has led to the decline. In 19, when the COVID-2021 pandemic was in full swing, the U.S. e-commerce market grew rapidly, accounting for 13.2% (sales of $8,700 billion) of the total retail market. Consumers were captivated by the convenience of online shopping, and even after the pandemic, they enjoyed shopping online instead of going out of the house. According to market research firm Comscore, annual e-commerce sales in the U.S. exceeded $1 trillion (approximately KRW 1,229 trillion) last year for the first time in history.

Many offline shopping malls that have lost their standing are on the path to full-scale decline. Macy’s, which boasts the title of ‘America’s Largest’, also could not avoid the dark cloud that descended on the entire industry. As negative news continues to accumulate both inside and outside the market, there is a pessimistic outlook in the industry that Macy’s restructuring and sale will accelerate the downturn in the offline distribution industry.