Activist investors turned up the heat on several retailers this year, pushing for strategic change, new board members and, in some cases, corporate overhauls. As the retail sector as a whole has finally started to see improvement, companies that have failed to keep up with their competitors have been particularly ripe targets for hedge funds, private equity firms and other activist groups.
The trend seems likely to continue for the year ahead, too, as a recent survey of top activist investors found that they see more opportunity in the consumer discretionary sector, which includes retailers, than in any other industry. The study was conducted by law firm Schulte Roth & Zabel in association with Activist Insight and Okapi Partners.
Here’s how four companies dealt with activist investors in 2018:
Hudson’s Bay Co.
HBC’s ongoing high-profile showdown with Land and Buildings Investment Management LLC, the Stamford, Conn.-based hedge fund that as of last July held a nearly 5 percent stake in the company, showed no signs of slowing down this year. In late November, Land and Buildings CEO Jonathan Litt wrote in a letter to shareholders, “We believe Hudson’s Bay could see its share price double or triple if the company takes the necessary steps to maximize long-term shareholder value.” These steps include selling off two of its retail holdings — Saks Fifth Avenue to a luxury department store company and Lord & Taylor to a mass merchant — as well as the remaining 50 percent stake it holds in its European business, and seeking real estate investment trust status for its valuable Canadian real estate portfolio. HBC CEO Helena Foulkes, who joined the company in February, has already made significant changes — including shepherding Lord & Taylor through the sale and closure of its Fifth Avenue flagship and shedding the struggling Gilt Groupe business — but according to Litt, more drastic moves are needed.
Big 5 Sporting Goods
A group of investors calling themselves The Concerned Shareholders of Big 5 Group (CSB5 Group) have been on a quest to get the sporting goods retailer to fill two vacant board seats with two of their own: Mel Redman, a former Walmart executive, and Jeff Moore, a former Vans executive. “We believe these are desperate times for Big 5,” they wrote in a Dec. 3 letter signed by another group member, a managing partner at law firm Johnson Fistel LLP. With the retailer’s stock trading near historic lows and its management largely unchanged since it went public in 2002, the group has called for several sweeping changes, including marketing the company as an off-price chain rather than a generic sporting goods retailer; modernizing its promotional efforts to move away from print ads; increasing its focus on its most successful category, athletic footwear; eliminating carryover inventory; and either sell the company to new owners or replace its senior management. The group has threatened a takeover attempt or an appeal to the company’s shareholders if it doesn’t act soon.
In January, a pair of investment firms, Legion Partners Asset Management LLC and 4010 Capital LLC, acquired a combined 5.3 percent of the company — which owns retail chains Journeys and Lids and licenses the G.H. Bass & Co. and Dockers brands — saying that the stock was “undervalued and represented an attractive investment opportunity.” With some organizational changes including selling off the beleaguered Lids business, the activist investors said they believed they could help turn the stock around. Genesco played ball, agreeing in April to add two new seats to its board and remove one incumbent director, and in exchange, the firms have agreed to vote for the company’s board candidates and not raise their stake to more than 10 percent. Genesco also said in February that it would put Lids up for sale, though it has yet to secure a deal.
Marcato Capital Management, the activist fund that last year tried to force Ugg’s parent company, Deckers, to overhaul its leadership and pursue a sale, dumped its stake in the company in March, three months after shareholders voted to approve the company’s board nominations over Marcato’s choice of candidates. As of January, the fund held an 8.5 percent stake in Deckers, and the stock dropped more than 7 percent in the sell-off, but it has since risen more than 28 percent.