How Macy’s can turn around its business as department store struggles

Macy’s needs to reignite its creativity by featuring more exciting products in stores and hosting engaging events to attract younger generations back, according to activist investor Barington Capital.

Those are just two of several changes the activist investor says are necessary to turn around Macy’s, which once established itself as a premier department store but has struggled to keep up with rapid industry changes and competition.

Jim Mitarotonda, the CEO of Barington Capital Group, made it clear that he is confident in Macy's executive leadership, saying "there isn't any reason" why the company shouldn't be able to improve the execution of its business. While Macy's CEO Tony Spring and CFO Adrian Mitchell "have a good understanding of the retail sector," Mitarotonda told FOX Business that "the thinking has to change." 

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Barington Capital, Thor Equities LLC and their respective affiliates, who are Macy's shareholders, recommended that the retailer make changes to its capital allocation strategy and consider other structural actions to improve shareholder value. 

Mitarotonda said the company needs to bring on "superb merchants." Spring wasn't on the merchandising side when he was heading Bloomingdales, so it's important that he brings on a very creative team with people with strong merchandising and fashion skills, according to Mitarotonda. 

"If the product is not exciting, they're [customers] not going to go to the store or even go on a Macy's website. It's just not going to happen. So it really is about the product and about creating exciting events to drive people into the store," Mitarotonda said. 

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The company also has to boost its digital marketing strategy, including leveraging influencers. Appealing to younger consumers is critical in helping the company penetrate the vast retail options available to the U.S. consumer today, according to Mitarotonda.  

"Young people are going to TikTok. They're going to Instagram, they're going to Threads, they're going to all of these other things that older people are not just gravitating towards," he said. "They [Macy's] need to think about that. They need to recreate the excitement again that existed a long, long time ago." 

Barington Capital’s chief praised Dillard’s, another major department store, for its strong performance, highlighting its success in both merchandising and improving business execution, which led to a significant increase in margins.

Over the past year, Macy's shares have fallen more than 16%. During that same time, Dillard's stock has increased over 11%.

Mitarotonda also suggested that Macy’s should separate its operating company from its real estate business, meaning Macy’s should create a separate real estate company that owns the property, with the operating business paying rent to the real estate company.

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This won't "damage the retail business at all," Mitarotonda said. On the contrary, he said it would "make them even better." 

Mitarotonda said this would create more transparency, allowing shareholders and the financial community to clearly see the revenue and expenses for each part of the company. Additionally, by having a real estate expert manage the property side, rather than a retailer, the firm believes it would help maximize the value of the real estate.

The firm also suggested spinning off the company's luxury brands, Bloomingdale's and Bluemercury, which continue to generate positive store sales. 

Mitarotonda said if Bloomingdales and Bluemercury traded independently of Macy's, they would trade at a higher multiple than their corporate parent. 

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"It's imperative for the board of directors and the management team to look at how to maximize value for the owners of the company to shareholders of whom they are as well," he said.