The New York Times ran an article Nov. 22 entitled Grand Buildings Help Keep Macy’s Afloat, an ode to the company’s vast treasure chest of real estate assets in major cities across the country. It’s these assets that not only keep Macy’s Inc (NYSE:M) afloat but M stock as well.
It’s not a new argument that Macy’s real estate is worth more than the department store’s $7.3 billion market cap. Lots of people think it is a factor that can help save M stock.
Here in Canada, the Hudson’s Bay Co (OTCMKTS:HBAYF) is fighting an uphill battle to convince investors that its stock is worth more than the current $2.1 billion for precisely the same reason. Its real estate holdings tower over the money-losing retail operations at Saks, Lord & Taylor and its legacy Hudson’s Bay department stores.
Activist investors like Connecticut-based Jonathan Litt of Land & Buildings have been pushing HBC to turn its prized real estate assets into luxury condos, five-star hotels, almost anything but traditional department-store retail.
“Richard is not making shareholders money,” Litt says. “The world has changed. The department-store business is transforming very quickly. The rose-colored glasses need to come off.”
A Giant Game of Chicken
Whether we’re talking about M stock or Hudson’s Bay stock, the Jonathan Litt’s of the world just don’t understand or care about the stories behind the real estate assets that keep these retailers afloat.
Look at the pictures of Macy’s downtown stores and you see grand buildings that have welcomed generations of kids eager to play with the newest in gadgets and toys, not to mention to say hello to St. Nick.
If consumers are becoming more experiential in their wants and needs and less driven by owning stuff, department stores like Macy’s have a significant part to play in this new retail paradigm.
They were experiential before anyone even knew what that meant. One only needs to watch the original Miracle on 34th Street to understand the place department stores have in our culture.
“Oh, Christmas isn’t just a day, it’s a frame of mind… and that’s been changing,” said Kris Kringle, played by Edmund Gwenn. “That’s why I’m glad I’m here, maybe I can do something about it.”
Richard Baker and Macy’s CEO Jeff Gennette owe it to the generations before them to scratch and claw and hang in there because they’re not just land and buildings, they’re places where stories get told, and even though the stories might change, they ought to play out for generations to come.
A Safer Way to Own M Stock
I’m sure there other people like me who feel the world would be a worse place without these grand palaces. No, I’m not talking about the 1960s suburban stores that look like they were designed by a dropout from architecture school, those need to go, but some of the beauty’s left standing that we haven’t torn down like Macy’s flagship store at Herald Square.
These are iconic and deserve a better fate than some high-rent home for the rich.
If you feel this way, buying M stock is one way to support the cause. However, I understand your financial well-being comes before all else, and we know department stores in the U.S. aren’t exactly printing money these days.
Recently, I was talking about Rite Aid Corporation (NYSE:RAD) and what a terrible stock it was. I suggested that if you really were serious about owning value plays in retail; you should buy the SPDR S&P Retail (ETF) (NYSEARCA:XRT) which was down 8.4% year to date through Sept. 8. It’s up 9.7% in just two months.
“Since the beginning of 2013, the XRT has traded below $42 for a decent amount of time just four times, the current losing streak the longest of those downturns,” I wrote Sept. 14. “If you’ve got $10,000 to invest, take $2,500 and buy now, and then buy three more times ($2,500 each) every time it crosses above $42 and then heads back down below that critical level.”
The XRT is equal-weighted and rebalanced quarterly. Each holding starts out at the beginning of every quarter around 1.15% of the portfolio and moves up or down from there.
Macy’s is currently a weighting of 1.27% which is good news if you’re a fan ofM stock.
Bottom Line on M stock
Only those who can afford to lose their investment in M stock on a permanent basis should own it individually. However, the wisdom of the crowd will make you money in the long run. In the meantime, if you believe in the grand department store, as I do, go there and enjoy them.
They’re a part of our history.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.