Macy's on sale?

This Thursday Macy's 89th annual Thanksgiving Day parade will wind it's way through New York to Macy's Herald Square. In a age where most retailers are being Amazoned (code word for retail destruction) Macy's stands out with its own parade. Macy's is still number one in apparel but Amazon is soon expected to take the lead. Unlike most department stores Macy's is online it is the 7th largest internet retailer (just behind Netflix) offering same day delivery in 17 markets. Macy's Thanksgiving day parade and their iconic locations make Macy's stand out from the brick and motor pack. Macy's don't disclose the cost of the parade but it does requires a lot of hot air. Apparently Macy's is the second largest helium consumer after the government that's one big Kung Fu Panda!

Macy's stock has taken a hit recently with declining mall traffic. They also took a hit from the strong dollar impacting sales as tourists find it more expensive to go on a shopping trip. Given its prominent locations Macy's is highly sensitive to a strong dollar. In total Macy's operates 885 stores in 45 states with 446 owned properties.

Sell stores not dresses
Investors are rightfully questioning the future of department stores but Macy's properties are iconic. Most investors seem more interested in their property as it is irreplaceable so much so that some think Macy's should sell their stores not dresses. Starboard an activist investor in Macy's believe that their flagship Herald Square store is worth $4 billion by itself, including all mall locations around $21 billion a similar level to Macy's market value. They also have a credit card business the situation looks similar to what happened here in Australia with David Jones where valuable property has been monetised.

Buy one get one free?
Understandably management are reluctant to introduce high fixed costs (rent) in the business separating the property in a sale and leaseback in a REIT structure would reduce the flexibility and increase the leverage they have in their business. Macy's is an enduring brand but it is a concern when investors value the property more than the business. Like many retailers the value is their property but Macy's is also their single tenet. Its tricky so they are seeing if they can monetise some of the space through a joint venture with Tishman Speyer they might let space to other stores. Just like many buy one get one free offers you receive something extra but did you really need it in the first place? For the moment Macy's is a property asset and you get the retail business for free.

Jason

http://www.decisiveassetmanagement.com/

Decisive has no position in Macy's (M). The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.