Macy’s Inc. is under siege from Arkhouse Management Co. and Brigade Capital Management, which earlier this spring raised their initial bid for the retailer to $6.6 billion.

But the department store chain doesn’t need the activists when it can be its own. New chief executive officer Tony Spring can do much of what an outside investor would. What Macy’s actually needs is not financial engineering — a likely outcome for the company in private hands — but to become a better retailer, a goal that is within Spring’s grasp.

Department stores, such as Macy’s and rival Nordstrom Inc., which is also considering going private, are usually portrayed as dinosaurs, lumbering behind more agile competitors such as Amazon and Inditex SA’s Zara. But that’s not the whole picture.

Macy’s has never been short on ideas. Take One Below, an area dedicated to millennial shoppers that it opened in the basement of its Herald Square flagship in New York City almost a decade ago. Then there was the 2018 acquisition of Story, with its themed displays and product assortments that rotated every month or two, and two years later, a more compact format dubbed Market by Macy’s.

But these innovations never lived up to expectations. One Below has been gone for some time. Two years after buying Story, Macy’s announced the closure of almost half its locations and the project quietly fizzled out. The retailer still operates some Market by Macy’s, but the chain’s new smaller stores, a key tenet of Spring’s approach, are now simply known as Macy’s.

It’s a similar picture when it comes to stores. In February 2020, the company said it would close 125 Macy’s department stores, but shuttered only about 85. Spring’s latest blueprint calls for the closure of an additional 150 Macy’s over the next three years, leaving the chain with about 350 stores. This may still turn out to be too many, but at least it’s a decisive start.

Part of the reason for the stilted progress was that much of former CEO Jeff Gennette’s tenure was spent fighting fires, from playing catch-up in e-commerce to coping with the impact of the pandemic, followed by soaring inflation. Nevertheless, Spring still faces the task of lifting revenues: same store sales at the namesake chain have declined for the past seven quarters.

Spring has a good chance here. Before his appointment as group CEO in February, the seasoned merchant ran Bloomingdale’s, Macy’s Inc.’s more upmarket division, which has outperformed the eponymous brand (as has Bluemercury, the company’s beauty retailer).

To fix the core Macy’s chain, Spring must shrink the brand, delivering the closures effectively and without shedding too many sales in the process. One of the roles of the new smaller stores is to replace the more expensive big box concepts without losing all the old locations’ customers.

Spring also needs to do more with what is left. He wants Macy’s to have inspiring product ranges, in a neat and convenient environment, with enough staff to serve customers, augmented by an effective online offering. This sounds simple enough, but it’s easier said than done. Get it right, though, and the combination can be transformational: Think Brian Cornell’s initial rejuvenation of Target Corp.

But Spring should go further, ensuring that visiting stores feels more like an experience than a shopping trip. Instead of gimmicks like the selfie-spots at One Below, relevant products and events, such as beauty tutorials and fashion styling, would help Macy’s attract younger customers. He should also expand hospitality and dining as a way to draw in shoppers and encourage them to linger, as well as filling excess space.

Not all department stores are doomed. In the US, Dillards Inc. has been more resilient — its shares hit a record high in April — while the UK’s Selfridges is the model of a luxury emporium.

Of course, a big draw for a bidder is Macy’s real estate, which Mary Ross Gilbert, analyst at Bloomberg Intelligence, estimates could be worth about $8 billion. The company owns over half of its Macy’s and Bloomingdale’s stores, as well as about three quarters of its distribution capacity.

Arkhouse and Brigade have not said what they would do with Macy’s, or its property, but the latter is likely to be tapped in some way. Arkhouse CEO Gavriel Kahane told Bloomberg Television that the company’s real estate was “incredibly valuable” and he hoped to reverse slated store closures. The consortium would also keep Spring at the helm if their bid is successful, Axios reported.

Macy’s said in February that it had raised $2.4 billion from its real estate since 2015. Spring plans to unlock another $600 million to $750 million, primarily from the stores and distribution centers it will close. He could probably go further.

He should avoid a large-scale sale and lease back deal, or splitting Macy’s assets into a property company, from which the remaining operating company would lease them. All this would do is burden the retailer with rents — just another form of debt — tie it into long leases and reduce flexibility.

But he could sell a sliver of stores or distribution centers that Macy’s owns, and then rent them back. This would clearly demonstrate to the market the worth of Macy’s assets, particularly its warehouses.

Spring has some other avenues to create value as well. Part of his plan is leaning into luxury by expanding Bloomingdale’s and the fast-growing Bluemercury.

But concerns are rising about a slowdown in fragrance and cosmetics sales — and the sector is increasingly dominated by the giants, led by LVMH Moet Hennessy Louis Vuitton SE’s Sephora. With beauty valuations high, Spring should consider a sale or spin-off of Bluemercury instead. Oliver Chen, analyst at TD Cowen, estimates that the chain could be worth at least $1 billion.

Spring’s renaissance won’t happen overnight. And of course, in private hands the company could make changes away from the glare of the public markets. After so many false dawns, and no let up in competition, cash upfront in the form of a bid — Macy’s has now opened the books to the consortium — would be appealing to some investors. But a plausible recovery puts Macy’s in a strong position to ask for more than the $24 per share currently on the table.

Macy’s stock is trading at about $19, indicating a level of scepticism that a deal will be reached. And if the bidders do walk away, at least shareholders can console themselves with Spring’s potential for self-help.

By Andrea Felsted