What: Kohl’s is receiving pressure from their shareholders to review their business to make more profit as well as suggesting the board to sell the business outright.

Why is it important: Activist investors see Kohl’s as an opportunity to make big gains in the stock, but Kohl’s disagrees with the proposed tactics as they don’t believe that these ideas will help the business succeed in the long run.

Shareholder activist funds try to earn high returns by investing in underperforming companies. Kohl’s has been a target as such a company after sales have stagnated since 2011. This inability to grow the top line has caused its operating margin to contract, reducing its earnings. Unlike department stores such as Nordstrom’s and Dillard’s, Kohl’s does not have the founding family as a large part of the shareholder to push back against activist’s demands.

Engine Capital has suggested that Kohl’s should spin off its ecommerce business, which does not make much sense for their low-prices and margin structure and would not result in the outcomes that Engine Capital expects.

Macellum Advisors has urged Kohl’s to ramp up share repurchases beyond the initial USD 1.3 billion, but this would mean they would need to cut investments but cutting investments in growth could lead to an erosion of revenue.

Both funds have also suggested selling Kohl’s outright. There have already been some outside funds that have expressed interest, giving Kohl’s a proposal value of around USD 9 billion. Engine Capital and Macellum Advisors are hungry to make a lot of money quickly which could hinder their ability to see what it best for Kohl’s in the long run, which might be to wait it out and let the retailer prove what it can do in the coming years.

Kohl’s under pressure