Kohl’s Corp. once again responded to activist investors Macellum Advisors GP, LLC on Monday in a letter to shareholders laying out the skills and expertise of the company’s board, which Macellum seeks to replace.
The letter is the latest in the ongoing battle between the department store retailer and Macellum, which owns about 5% of shares outstanding. The back and forth between the two groups has gone on for months, with Macellum accusing the company of “mismanaging” the business and Kohl’s KSS, +1.01% rebuking the criticism by pointing to steps it has taken to evolve, including a partnership with beauty retailer Sephora and an ongoing relationship with Amazon.com Inc. AMZN, +3.23%
Kohl’s has also rejected takeover offers, which Macellum has called out. There are reports of a new $ 9 billion offer from Franchise Group Inc. FRG, +0.41%, parent company to The Vitamin Shoppe and other businesses.
See: Shoppers spent $ 2.8 billion more for the same amount of online goods in March versus February due to inflation, says Adobe
Kohl’s is just one of a number of companies across the consumer space that has gotten the attention of activist investors lately. Certainly, activist investor activity in the consumer space isn’t new. But right now, there are companies coming out of the pandemic in a strengthened position while others float somewhere in the middle of thriving and declining, like department stores, which were on a downward path prior to COVID but have seen some improvement more recently.
Macy’s Inc. M, +4.20% recently completed a strategic review after Jana Partners called for the department store to separate its brick-and-mortar business from its e-commerce business. Macy’s determined that continuing on as a multichannel operation was the better option. Macy’s shares have rallied nearly 55% over the last year.
Bed Bath & Beyond Inc. BBBY, -0.12% settled with Ryan Cohen and RC Ventures last month after the activists criticized the company for its “scattershot strategy.”
The Wall Street Journal reported in February that Alta Fox Capital Management LLC has pushed for changes at toymaker Hasbro Inc. HAS, +1.30%, including the possible spinoff of the Wizards of the Coast and Digital Gaming unit, which houses Dungeons & Dragons. It was announced in January that Hasbro had lost the license to sell the Disney Princess dolls to rival Mattel Inc. MAT, +1.09%
Cowen analysts wrote in a March report that there are some trends, like the growth of online grocery and e-commerce, premium pet food, and a focus on health and fitness, that will stick around once the pandemic comes to an end. This bodes well for companies like Target Corp. TGT, +0.99%, Walmart Inc. WMT, +2.69%, Nike Inc. NKE, +1.92% and Freshpet Inc. FRPT, +3.30%, analysts say.
At the same time, these changing consumer behaviors are a “historical bankruptcy driver” to Fitch analysts. Fitch published a report on retail bankruptcy last week, finding that there was a decline in filings in 2021. But changing societal trends and strong competition are among the factors that have, in the past, been to the detriment of struggling brands.
While angry exchanges between a business and activist investors may seem like an unwelcome development for companies, all of this activist investor activity signals to Natalie Kotlyar, retail and consumer products industry leader at professional services firm BDO, that there is optimism for certain companies.
“The group in the middle that has potential for success or a turnaround gets the activist attention,” she told MarketWatch.
Companies are currently faced with hurdles that are out of their control, like sky-high inflation, supply chain disruption, and geopolitical upheaval, putting the response from business leaders in sharp focus.
Read: U.S. inflation rate leaps to 8.5%, CPI shows, as higher gas prices slam consumers
“In [activist investors’] minds, I would imagine, they’re there to help and assist management to rebound from the issues they’re having,” Kotlyar said.
“It might not be the same strategy as management but there’s still a vision for a turnaround.”
The solutions being offered aren’t all getting rave reviews.
“Companies have spent a ton of time and effort to get e-commerce operations in alignment with bricks-and-mortar stores when it comes to marketing and customer experience because they know it is the best way to build customer loyalty and increase share of wallet,” said Berna Barshay, retail expert with Empire Financial Research.
“Why un-do all this work, work that was grounded in good corporate strategy… whether we are talking about Kohl’s, Macy’s, or any other company.”
Also popular are leasebacks and other real estate strategies. In the short term, these sorts of moves could spark a jump in the stock, but might not be beneficial in the long term, Barshay said.
There are many reasons why activists target a company. In the case of Guess Inc. GES, +4.44%, Legion Partners aims to remove co-founders and directors Paul and Maurice Marciano after multiple media reports of sexual misconduct and assault, and, according to Legion, a failure to adequately address them. On Monday, Legion Partners issued another letter pushing back against materials released by the company and arguing that the brothers threaten the Guess brand, its reputation and its valuation.
Guess responded on Tuesday, calling the letter “misleading” and saying that Legion has created a “massive distraction” for the management team. And on Wednesday the company announced that it has sent a letter to shareholders discussing its transformation strategy and improved results. Guess expects fiscal 2023 revenue to reach $ 2.7 billion.
The apparel and accessories company is hosting its annual shareholders meeting on April 22.
“There’s a lot of dispersion between the strategies of U.S. activist investors. Some are looking for opportunities overseas, others are continuing to focus on their home market. Some are leaning into ESG activism, more are starting to revisit pushing companies to sell themselves,” said Josh Black, head of activist insights at Insightia, which provides activist investor and governance data.
“Overall, we think the uptick in board seats campaigns show that activists are starting to be more bullish after being fairly selective about their campaigns and demands during the pandemic.”
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Black says that activist investors are trying to take advantage of the changes to the consumer landscape during the COVID-19 pandemic.
“Activists understand the businesses, there is constant disruption, and there are often non-core assets that can be spun out or cash that can be redeployed,” he said.
“I think that has only increased in the last 18 months or so thanks initially to the upswing in consumer spending during the pandemic thanks to stimulus payments and excess savings and increasingly because of the impact on stock prices of supply chain challenges and fears that the opportunity to maximize gains is going to be fleeting.”
BDO’s Kotlyar forecasts that investor activism will calm once inflation and the other larger challenges facing consumer companies start to recede.
“Once the survivors become successful or survivors disappear there will be no one to go after,” she said.