Harvard Business Case Study Macy's

This is a challenging time for retail and Macy’s is so exception. There has been a large shift in the last year as profits have decreased and earnings are forecasted to fall this year. There are numerous challenges and obstacles that have caused this to occur, including: irregular weather patterns, too high inventories, a decrease in tourism, limited growth in women’s wear, and a decline in share prices by 45.4 percent. Shareholders are also affecting business, especially one stakeholder in particular, Jeffrey Smith of Starboard Value. Smith has allied with other shareholders to advocate for “real estate spin-offs to lift shareholder value.” In other words, Smith sees more value in Macy’s real estate rather than in the operation of the stores. Morgan Stanley evaluated Macy’s real estate and came up with an aggregate value of $18.5 billion, with a range of $16 billion to $20.8 billion. The previous value was $11 billion. This suggests that the stores are worth more than the operating business. A large part of why Macy’s is struggling is the rapidly changing retail landscape: the rise of fast fashion, the digital revolution, price deflation, shifts in spending patterns, and consumers’ desire for incorporating entertainment into the shopping experience are all

Macy’s is valued at twenty-eight billion dollars. Macy’s is not increasing their cash flow. This proposal is not an answer to Macy’s problems. Instead it will merely move around cash and real estate. Selling stores and then renting out some floors could be detrimental to Macy’s because they would no longer be in control. Rents can rise, increasing operating costs and harming profits. Underperforming stores should be closed so efforts can be directed to stores that are performing well. The value of these stores would outpace sales so this would be beneficial. Other stores could be downsized for