Hear The Beat Of Dancing Feet From 34th Street- Starboard Disembarks From Macy’s Parade

Last month, we reported that Macy’s(M) outgoing CEO Terry Lundgren was working to head off a proxy fight with Jeff Smith’s Starboard Value. Lundgren was said to be looking to Hudson’s Bay Company(HBAYF) as a white knight under renewed pressure from Starboard to spin off or otherwise monetize its real estate.

A month later, Hudson’s Bay is out of the picture, and so is Starboard. Reuter’s reports that Starboard has sold its entire stake, which had amounted to nearly 1 percent of Macy’s. This clears the path for Lundgren’s retirement as CEO this Thursday and replacement by current President Jeff Gennette.

As we discussed, Macy’s missed its window to spinoff real estate into a REIT in a tax efficient way. Bloomberg Gadfly’s Shelly Banjo points out that Macy’s has been too slow in all of its efforts to transform. Perhaps a change in management will bring a new sense of urgency.

But if any chain could handle these shifts in shopper behavior, it should have been Macy’s. It invested early in e-commerce, well before Amazon had meaningfully plowed into selling apparel. Customers had strong emotional ties to the brand. And Macy’s brought in more cash each year than any of its peers. It also had a vast array of real-estate and other assets to tap to bankroll a transformation.

I argued last year that it wasn’t too late to save Macy’s. At the time, shares had dropped around 50 percent since Starboard announced its stake. But a new CEO brought new hope that change might start happening more quickly. It seemed the time was ripe for Macy’s to start monetizing its real estate, close stores, and focus its efforts on attracting shoppers.

Unfortunately, that didn’t happen. In the past two years, Macy’s hasn’t fulfilled many of the promises it has made to shareholders about turning itself around.

Macy’s pledged last year to close 100 stores, but closed just 66. Meanwhile, it opened 27 other stores (mostly Blue Mercury outposts, but also some traditional department stores) and said it would only get around to the other promised 34 closures “over the next few years.”

Now that Starboard has also withdrawn from Macy’s, investors should, too. Why wait on the obstinate department store to change its behavior when even its most ardent believers have moved on?

Starboard’s exit probably removes even the remote possibility of a Macy’s spinoff in the near term. Will a continued decline lead to spinoffs of everything not bolted down, a la Sears Holdings(SHLD)?

Disclosure: The author has no position in any stock mentioned

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