Dive Brief:

• Many retailers have come under scrutiny by activist investors who see potential in their dipping stocks and their real estate holdings, reports CNBC. 

• Macy’s is under pressure from hedge fund Starboard Value, for example, and, after resisting calls to form a real estate investment trust with its portfolio, the department store is exploring ways to capitalize on many of its properties. Sears has already spun off its property to a REIT, but Fairholme Capital, which added another 276,100 shares to its portfolio of Sears stock early this year, may also want that struggling retailer to make another move.

• According to CNBC, Retail Metrics forecasts say home furnishings retailers are especially vulnerable among low-performing retailers, down 14%, followed by footwear, down 12%. And as we’ve reported, department stores and teen apparel retailers, with few exceptions, face low performance expectations—leaving retailers of many persuasions vulnerable to activists.

Dive Insight:

When investors take a significant stake in a company in order to influence decision-making of some kind, it’s usually a sign that value at some level is “locked in” and not reflected in the company’s share price. If a sale, spin-off or other move would drive shares higher, the activist, once the moves are made, can make a mint. 

But such value-unlocking actions aren’t always good for the business. Investor activism often disrupts the plans and management of retail companies because it can get in the way of thoughtful strategy and corporate governance. That's what led former eBay director Marc Andreessen to compare Carl Icahn to "evil Captain Kirk" in 2014 while Icahn was agitating for PayPal’s split from eBay, which, by the way, eventually did happen. 

But that kind of disruption has its upsides, so sometimes it actually is good for business. In many, if not most cases, the aims of an activist investor are parallel to the investors of a company — to ensure that a company’s value is reflected in its stock price. And, although activist investors have a reputation for making moves that garner them quick profits at the expense of the company — and many do — a study released last year by Duke University’s Fuqua School of Business found that on average, companies’ performance improves after activists make and get their demands. 

More importantly, these investors are often on to something: There are issues at a company that should be addressed by management, like inflated executive compensation or a lagging e-commerce strategy. Boards of directors should be nimble enough to get ahead of any issues that activist investors might seize on.