Saks, Kohl’s Spinoff Rumors Bringing Attention To Board Ecommerce Strategy

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As the prevalence of online shopping continues to increase, shareholders will be paying a lot more attention to the company's online engagement with consumers. Boards should consider these three questions.

The spinoff of Saks Fifth Avenue’s ecommerce operation into an independent business earlier this year seems to have activist investors convinced that separating online sales from in-person shopping is a strategy that can unleash hidden value in certain retail brands. Both Macy’s and Kohl’s are being pressured by activists to consider spinning off their ecommerce enterprises with the potential of launching IPOs of the units worth billions of dollars in the future. This is setting up 2022 as a year when corporate boards will likely need to clearly articulate why their ecommerce strategy will be successful or risk being challenged by activist investors who may want to follow the Saks Fifth Avenue strategy. And activists may not only target retailers with this spinoff idea.

According to reporting by CNBC,, the new ecommerce arm of Saks Fifth Avenue, claims that it could possibly go public in the first half of 2022 at a valuation $6 billion. The speculation that online operations could attract that type of financing from the capital markets has some shareholders ready to consider the move.

Engine Capital, which owns 1% of Kohl’s shares, recently sent a letter to the company’s board stating “We believe a standalone Kohl’s ecommerce business could be conservatively valued at $12.4 billion or more.” Activist Jana Partners has indicated that it believes a standalone Macy’s ecommerce business could fetch a market capitalization of $15 billion. Those are heady numbers that would be hard for any board to ignore when shareholders are eager for higher returns after lockdowns over Covid-19 health scares have depressed retail sales revenues during the pandemic.

Concern over the board’s ecommerce strategy is legitimate—especially since online sales have skyrocketed since the pandemic began. According to Mastercard SpendingPulse, online sales rose 21.1 percent and luxury sales nearly doubled in the first nine months of 2021. How companies intend to capture a share of that growth is critical to their long term financial health. Shareholders will be interested in what board directors and management have planned in terms of an ecommerce strategy that will capitalize on the company’s current financial condition and future trends in online consumer spending. Additionally, boards and management should be prepared to tell shareholders their plans for online innovations and strategies that can potentially increase sales, build brand awareness and improve customer service.

Boards that are challenged to consider spinning off their ecommerce unit should question how both the ecommerce portion of the business and the brick-and-mortar part of the business can survive and thrive long-term. Critics of spinning off ecommerce units say it is more of a short-term play that may capitalize on the current environment where online purchasing is the primary way consumers can obtain their goods safely but is not sustainable. What is the board’s plan to make both parts of the company profitable with sustainable growth into the future? How can both parts of the business survive without each other?

The increase in online shopping will likely continue, so going forward, the role of ecommerce at a company and its online engagement with consumers will receive a greater level of attention from shareholders. Shareholders will likely consider:

• Has the board articulated how it is adjusting/ramping up its ecommerce strategy in light of current economic conditions? Companies like Zoom and Amazon benefited greatly from the pandemic because they fulfilled increased consumer demand via the internet when customers couldn’t connect in person. After two years, companies that have not figured out ways to use ecommerce or the internet to serve customers better may be opening themselves up to attacks from activist investors.  Ecommerce strategies other companies have used to increase profits will be used to make the case that the current board is lacking.

While every company cannot operate like Amazon, most companies should have improved their online capabilities in some significant way to interact with customers and suppliers over the last two years. If your board hasn’t enlightened shareholders as to how customer engagement has been enhanced in the last two years, it is well past time to do so – especially if revenues have been flat. In an environment where consumers are relying on the internet to connect to businesses for essential products and services all companies must tell shareholders how they plan to take advantage of that business opportunity.

• Does your board have members with past experience with ecommerce strategy? The activists that are pressuring retailers to spin off their ecommerce operations are suggesting that the directors on those boards are less qualified to implement ecommerce strategy than alternate candidates they propose take their place. Touting the ecommerce experience of current board members and the ideas that the board has to improve ecommerce revenue would be helpful if there is even a hint that an activist might suggest the current board is not fully capitalizing on that aspect of the business.

If your board does not have persons that are considered experts in this area, someone should be recruited immediately – even if that means accepting a candidate offered by an activist. Denying that the board has an obvious deficiency is not productive.

• Are there plans for new products and services, currently not available that can be offered online? The ecommerce unit of any company will need to be maintained. That will require the introduction and promotion of new products and services that will be made available online. The board and management may need to be prepared to discuss strategies to introduce new product lines or services that will increase online revenues over time and improve engagement with customers with their shareholders. These strategies will need to show how the entire business model works without spinning off the ecommerce unit of the company. If not, expect activists to swoop in with Saks-like spinoff proposals that include replacing members of the board.

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