Sudden surge in support for separating digital commerce: What's driving the recent trend?
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The latest hype on Wall Street is dismantling e-commerce and physical retail, and Saks Fifth Avenue has proven it can be a gold mine. Earlier this year, Saks Fifth Avenue attracted a whopping $500 million from private equity when it spun off its online business. Not long after, Saks Off 5th followed suit, raking in an additional $200 million from a group led by the same investors. The new Saks.com could grow even more if it goes ahead with a rumored IPO, and now Macy's and Kohl's are being coerced to consider the idea among activist investors.
Curious about the sudden popularity of separating e-commerce divisions? Retail Dive Senior Reporter Daphne Howland has been digging deep into the Saks split and its reasons. On this episode of The Backroom, Senior Reporter Ben Unglesbee, Sears expert par excellence, offers insights into the financial machinations of Sears that might enlighten the current trend. Howland also shares tidbits from her investigative work on an upcoming story set to publish on Monday.
So, really, why is the idea of splitting e-commerce so in vogue right now?
- Economic Efficiency:
- By divorcing e-commerce operations, department stores can concentrate on their core businesses while granting the e-commerce division the freedom to swiftly adapt to market changes, improving operational efficiency.
- Attracting Investors:
- E-commerce divisions often exhibit distinct growth patterns and valuations compared to physical stores. Spinning off e-commerce enables companies to sway investors enticed by e-commerce opportunities, potentially freeing up extra funds for expansion.
- Market Valuation Clarity:
- Merged retail operations can obscure the true worth of high-growth e-commerce divisions. A separation offers clarity on the e-commerce businesses' financial performance and potential, enabling the market to gauge them accurately.
- Adaptation to Consumer Behavior:
- With online shopping on the rise, separation lets companies cater more effectively to shifting consumer preferences, potentially boosting customer satisfaction.
Stay tuned for Daphne's enlightening report on the Saks split coming up on Monday!
[1] Meet the Activist Investors Pushing Macy's and Kohl's to Spin Off Their E-Commerce Businesses[2] Sears May Finally be at the End of Its Saga[3] Macy's Prepares to Adapt in Retail's E-Commerce Dominated Market[4] Private Equity Pumps $500 Million into Saks Fifth Avenue's E-commerce Spinoff[5] Saks Off 5th Online Secures $200 Million from Investors[6] Saks E-commerce Company Preps for IPO: WSJ
- The popularity of separating e-commerce divisions has caught the attention of Wall Street, leading to a heightened interest in economic efficiency.
- As department stores focus on their core businesses, e-commerce division freedom allows for quick adaptations to market changes, improving operational efficiency.
- Attracting investors is a significant motivation behind the spin-off of e-commerce divisions, as these ventures often display unique growth patterns and valuations.
- The separation of merged retail operations provides a clearer understanding of the true value of high-growth e-commerce divisions, enhancing market valuation clarity.
- More accurate financial performance and potential assessments become possible with the separation of e-commerce businesses, benefiting the market assessment process.
- In response to the rise of online shopping, separation enables companies to better cater to changing consumer preferences, potentially increasing customer satisfaction.
- The news of Saks Fifth Avenue's e-commerce spin-off has led activist investors to push Macy's and Kohl's to consider separating their own e-commerce businesses.
- As the retail world evolves, stay updated on the latest policy, fashion, and business trends, notably the ongoing sphere of cybersecurity, by tuning in to The Backroom on your TV, or through platforms such as Apple Podcasts, Stitcher, iHeartRadio, and Spotify.
