Real Estate Can’t Save Department Stores

This week, Macy’s attracted the attention of activist investors. Again.

Just a few months after fending off a bid from activist investors Arkhouse Management and Brigade Capital, the hedge fund Barington Capital and real estate private equity firm Thor Equities called on the retail chain to cut costs, repurchase shares to drive up its stock price and create a separate entity to monetise its real estate assets. Arkhouse and Brigade’s proposal from 2023 similarly entailed Macy’s selling off its valuable retail properties.

Also this week, Saks Fifth Avenue-owner HBC sold $2 billion in junk bonds to help finance its acquisition of Neiman Marcus Group. HBC chairman Richard Baker, a real estate mogul, has devoted much of his career to extracting value from retailers’ buildings and land. For instance, Baker purchased Lord & Taylor, a regional department store chain, for $1.2 billion in 2006. Even before its bankruptcy in 2020, HBC was able to sell or redevelop key properties, such as the Lord & Taylor flagship building in Manhattan, which WeWork acquired for $850 million in 2017.

Presumably HBC will apply the same approach to Neiman Marcus too.

The push for offloading properties is a common refrain among retail’s activist investors and dealmakers. It’s certainly a faster path to profits than trying to turn around an ailing retail business. Department stores make for the perfect target as sluggish, bloated enterprises that sit on billions of dollars worth of prime real estate. JC Penney, Kohl’s and most infamously, Sears, have all piqued the interest of disruptive financiers in the past.

Macy’s latest suitors, who are eyeing seats on the board of directors but are not looking to acquire the retailer outright, say its real estate is worth upwards of $9 billion.

“In our opinion, Macy’s board should create a separate real estate subsidiary to collect market rents from Macy’s retail operations and pursue other asset sale and redevelopment opportunities,” Thor Equities chairman Joseph Sitt said in a statement Monday.

The concept, at least in theory, is sound: the retailer would sell its most prized assets and then reinvest that cash into growth initiatives and dividends. But in practice, this playbook has mainly benefited the investors while producing few lasting retail success stories.

Under hedge fund owner Eddie Lampert, Sears spun off a portion of its real estate holdings for $2.7 billion in 2015. Lampert himself purchased a significant stake in the entity, called Seritage. Under the sale-leaseback arrangement, Sears paid hundreds of millions of dollars in rent to Seritage over the course of the next three years — until Sears filed for bankruptcy in 2018.

Lord & Taylor is another notable example of a real estate play gone wrong. After Baker purchased the nearly 200-year-old chain and its 50 stores, the retailer was able to weather the recession, and even grow its topline in the subsequent years. But by the late 2010s, Lord & Taylor was struggling to adapt to new ways of shopping. A wave of online competitors and brands selling directly to consumers whittled away the market share of department stores, and Lord & Taylor was among the most vulnerable.

In 2017, HBC sold Lord & Taylor’s Manhattan flagship building to WeWork; two years later, it sold the intellectual property of Lord & Taylor to rental startup Le Tote, which declared bankruptcy in 2020. Lord & Taylor ceased operations and closed all of its stores in 2021, which Baker still owns today and is in the process of redevelopment, such as a mixed use project with townhomes and office space in New Jersey.

Lord & Taylor’s new anonymous owners are relaunching its name in the form of a luxury off-price e-commerce store next year.

In an interview with the Wall Street Journal in July, Baker called the Lord & Taylor deal “a monster win.”

Under new CEO Tony Spring, Macy’s has rebutted the advances of its latest real estate admirers, underscoring the preliminary success of Spring’s turnaround strategy. While third-quarter sales at Macy’s continued to slip, the chain posted comparable sales growth at the 50 locations that it has revamped in recent months to serve as a model for the rest of the chain’s footprint.

Saks Fifth Avenue, on the other hand, seems stuck in neutral, even as it is poised to dominate America’s luxury department store category by swallowing its biggest rival. Under Baker, even before the spinoff of its e-commerce arm in 2021 — which earned Saks a $500 million minority investment and at one point, a $6 billion valuation for its online store — a portion of Saks properties have been converted to coworking offices. In 2022, HBC unveiled a blueprint to redevelop the Saks Fifth Avenue store in Beverly Hills into a hotel and private residences. The store relocated down the block into a vacant space that used to house Barneys.

Meanwhile, vendors have continued to raise concern over late payments from Saks. BoF first reported the news last November, when multiple brands confirmed that Saks had been withholding payment. A number of brands ceased their relationship with the department store after months of chasing invoices.

As of December 2024, these issues have persisted, according to people familiar with the situation.

It remains to be seen whether the union of Saks and Neiman Marcus will create a new, stronger presence in American luxury retail. But one thing is for sure: the footprint of department stores has rapidly shrunken in the last decade, and while these properties often make for lucrative sales for whoever is at their helm, monetising real estate is not a long-term strategy for revitalising a broken business model.

THE NEWS IN BRIEF

FASHION, BUSINESS AND THE ECONOMY

Chanel names Matthieu Blazy creative director. The designer, fresh off a star turn leading Bottega Veneta, succeeds Karl Lagerfeld and Virginie Viard as artistic director, the industry’s most coveted creative post. Louise Trotter, currently creative director of Carven, will replace Blazy at Bottega Veneta in January.

Company insider succeeds Dries Van Noten. Julian Klausner, Dries Van Noten’s former head of womenswear, will make his runway debut as the label’s creative director in March. “I like to think I encouraged Dries to embrace bolder expressions,” Klausner told Tim Blanks.

John Galliano to exit Maison Margiela. The OTB-owned brand has enjoyed rapid growth as the star designer dialled up its creative impact and steadily redeemed his public image.

Inditex’s sales grow 9 percent as holiday shopping Begins. The Zara parent company’s sales grew more slowly in the five weeks to Dec. 9 compared to a 14 percent lift a year earlier.

Mike Ashley calls for accountability at Boohoo in bid for board seat. The billionaire renewed his pitch for a board seat at Boohoo Group Plc, vowing to turn around the struggling fashion retailer that he said was underperforming with “no clear strategy to halt the decline.”

Amazon pulls merch capitalising on UnitedHealthcare CEO killing. Since the killing of Brian Thompson, T-shirts, hoodies and more bearing the words “deny, defend, depose” have appeared on Amazon, eBay, Etsy and other sites.

Dior opens ‘Gold House’ concept store in Bangkok. The space, with a facade modelled after the brand’s historic Avenue Montaigne flagship, showcases work by Thai artists and houses a ‘Café Dior’ featuring desserts from three Michelin-starred chef Mauro Colagreco.

LVMH extends its bet on luxury hospitality with Fontenille deal. The luxury giant has bought a stake of about 20 percent in hotel group Les Domaines de Fontenille, according to a person familiar with the transaction who declined to provide the entity’s value.

Skims opens first NYC flagship. The shapewear brand, co-founded by Kim Kardashian and Jens Grede, unveiled its first New York City flagship on Fifth Avenue.

THE BUSINESS OF BEAUTY

Bic buys Tangle Teezer for $210 million. The consumer goods giant is acquiring the UK hair brush firm, known for its brightly coloured ergonomic tools from its private equity owner.

Report: Sycamore Partners in talks to acquire Walgreens. The New York-based private equity firm has been having ongoing discussions about a deal to take Walgreens private, people familiar with the matter told Bloomberg.

Chinese cosmetics brand Mao Geping raises $300 million in IPO. Shares in the premium cosmetics brand soared as much as 87 percent in a frothy debut on Hong Kong’s stock exchange on Tuesday.

Kosé acquires Thai Beauty brand Pañpuri. The Bangkok-based brand will join the Japanese conglomerate’s portfolio, which includes cosmetics maker Tarte and luxury skincare line Decorté.

PEOPLE

Vogue editor Polly Mellen dies at 100. The Connecticut-born editor, known for her close work with Diana Vreeland and Richard Avedon, has died.

Harvey Nichols hires Net-a-Porter veteran Katie Benson amid revamp. Benson will join the department store chain as chief merchant as part of a wider push to revitalise the business under new CEO Julia Goddard.

MEDIA AND TECHNOLOGY

US TikTok content creators warn followers to find them on Instagram, YouTube. The move comes after a federal appeals court ruled that the social media app could be banned if it is not sold to a US-based company by Jan. 19.

TikTok Shop begins European rollout. TikTok’s in-app shopping feature has gone live for users in Spain, marking the first step in an expansion of ByteDance Ltd.’s fastest-growing business across Europe.

Lucien Pagès joins The Independents. The agency founded by Paris public relations star Lucien Pagès is being acquired by the fashion communications giant that owns Karla Otto, Bureau Betak and more.

Zalando to buy German e-commerce player About You for $1.3 billion. Berlin-based Zalando said Wednesday it will offer €6.50 per share for rival e-tailer About You, a 67 percent premium to Tuesday’s closing price.

System co-founders reacquire magazine. Elizabeth von Guttman, Jonathan Wingfield and Thomas Lenthal have bought back the title after its publisher was placed into liquidation last month. System will launch its next print issue in January.

Puma is bringing AI-generated design to the football pitch. The sports brand is letting Manchester City fans create their own designs for the team’s uniform — no drawing skills needed — with one design to become the club’s third kit for the 2026 season.

Compiled by Joan Kennedy.