New York (CNN) 鈥� Macy鈥檚 would be more valuable if it just shut down its business and sold everything off for parts.
That鈥檚 the argument activist investment firm Barington Capital and private equity firm Thor Equities said in a proposal Monday that called on the company to make drastic changes to boost its stock price.
The problem, they say, is Macy鈥檚 is sitting on real estate that is more valuable than the company itself 鈥� an untenable situation that masks the true value of the company. Macy鈥檚 struggles are making its stock so unattractive that it is worth less than the sum of its parts, they argue.
The solution: Break it all apart.
鈥淢acy鈥檚 owns valuable real estate holdings,鈥� Barington said in a posted online. 鈥淭he market is implying that Macy鈥檚 retail operations are essentially worthless.鈥�
The investors claim that Macy鈥檚 real estate, including its flagship store at Herald Square in New York City, is worth up to $9 billion on the open market, nearly double Macy鈥檚 closing market value Monday of $4.7 billion. They say Macy鈥檚 can squeeze more value out of its real estate by paying rent to a subsidiary controlling the property. The company could also sell space to developers to build on Macy鈥檚 real estate, like hotels, apartments or offices.
Macy鈥檚 owns 720 stores, including luxury department store Bloomingdale鈥檚 and beauty chain Bluemercury. The real estate value locked up in Macy鈥檚 retail locations is not a new discovery 鈥攊nvestors and developers have long sought to build atop Macy鈥檚 Herald Square location, and Macy鈥檚 has an office tower above the store.
Macy鈥檚 responded to the investor proposal Monday, saying the company is committed to 鈥渄elivering sustainable, profitable growth and driving shareholder value.鈥� Macy鈥檚 said it was confident in its strategy, which includes closing underperforming stores and investing in its top 50 stores with better staffing and new merchandise.
Investor groups such as private equity funds and hedge funds have sometimes bought struggling or under-performing retailers in recent years, with the stated goal of taking them private, turning them around and selling them for a profit. But the results have often led to closures, not salvation, for companies such as Sears and Toys 鈥淩鈥� Us.
Macy鈥檚 should reject the investor proposal, said Mark Cohen, who retired as director of retail studies at Columbia Business School this year.
鈥淭he investors are not interested in long-term viability of the business,鈥� he said. 鈥淟eft to their own devices, these guys would strangle the company.鈥�
The investors did not immediately respond to CNN鈥檚 request for comment.
The path laid out by Barington and Thor is similar to one followed by hedge fund operator Eddie Lampert after he purchased control of Sears and Kmart. He ended up selling off or developing much of their real estate.
He also sold off some of the many of the valuable brands that had been associated with Sears, including Craftsmen tools. And he spent more than $6 billion repurchasing shares of Sears Holdings, the company he formed to run the two chains, in a failed attempt to support its plunging stock price.
The results were not good. Stores were closed when they could no longer afford to pay rent to the separate company that now controlled its real estate. Sales plunged as the company was starved of the cash needed to invest in stores to make them attractive to shoppers. In 2018, after years of closing hundreds of stores, the company filed for bankruptcy. While it emerged from bankruptcy early in 2019, it has continued to struggle and has closed most of its remaining stores, leaving it with only a handful of Sears locations, and no full-size Kmarts in the mainland United States.
And Sears and Kmart are not the only once-iconic retail brands to die once private equity investors and hedge funds took control. Retailers from upscale department store chain to to to and have all closed in the last 10 years.
Macy鈥檚 struggles
Macy鈥檚 and other department stores, such as Kohl鈥檚, Nordstrom and JCPenney, have lost out in recent years to online retailers like Amazon; big box retailers that sell groceries and a range of consumer goods like Walmart and Target; and discount clothing chains such as TJ Maxx and Marshalls. Macy鈥檚 stock () has dropped around 70% over the past decade.
It鈥檚 the second time activist investors have tried to pressure Macy鈥檚 this year.
Macy鈥檚 management ended talks with private investors attempting to in July. The investors planned to take Macy鈥檚 private and consider spinning off its real estate assets or separating its online operations from brick-and-mortar stores.
Macy鈥檚 board of directors voted unanimously to end discussions with Arkhouse Management and Brigade Capital Management over the investors鈥� offers to acquire the chain. Macy鈥檚 said it was unclear that the investors could finance a deal and it was not in shareholders鈥� best interests.
The new proposal also comes just weeks after Macy鈥檚 disclosed that an as much as $154 million in expenses over the course of nearly three years.
Macy鈥檚 was forced to delay its quarterly earnings report because of the accounting problem. The company reports quarterly earnings Wednesday.
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