What Berkshire Hathaway Sees in Macy’s

On May 15, Berkshire Hathaway disclosed it had purchased what translates into roughly a 1% stake in Macy’s. Since making that $55 million share buy, the department store retailer’s stock has jumped nearly 20% and its latest quarterly earnings report (released June 3) showed a turnaround being led by CEO Tony Spring is gaining traction. (That report reflected higher receipts at all three of the company’s three operating units: Bloomingdale’s led that parade with a 10.2% increase in comparable sales, followed by Bluemercury, at 6.4%, and Macy’s, at 1.6% — and 2.4% at 200 stores singled out for upgrades by Spring and his team.)

In its analysis of what’s up with all the above, The Wall Street Journal reported that the move by BH’s new CEO Greg Abel – who took the reins at the conglomerate holding company from fabled investor Warren Buffett at the end of last year – was motivated by two main factors: a shrinking pool of competitors and confidence in Spring and his team’s focus on the store experience.

“Berkshire’s record in the retail industry has been mixed,” the Journal noted. “Buffett himself has often highlighted mistakes in his retail investments, calling a 1966 deal to buy a Baltimore department store one of his biggest mistakes. But the conglomerate hasn’t shied away from the broader sector. It is the top shareholder of Kroger, with an 8% stake, according to FactSet. Its private-company holdings include See’s Candies, home-furnishings retailers and jewelry-store chains.”

The Journal also put a spotlight on Spring and his “Bold New Chapter” strategy, which has involved taking such steps as improving merchandising, adding more staffing near shoe, handbag and fitting-room areas, and introducing more events, such as a recent prom-themed one. (That effort has also involved closing numerous underperforming Macy’s outlets.)

“Buffett once praised Costco… for its ability to ‘surprise and delight’ its customers. Macy’s new leadership has shown that it is still possible to do that in department stores,” the article concluded.

Click here for the full Journal article. (Note: it is behind a paywall.)