What: Coresight, just like FT and Forbes, is against the strategy of splitting up offline and online activities for large retailers.

Why it is important: The spilt-up reasoning is purely financial, but creates logistical and operational hurdles, according to analysts. So far, the Saks.com example suggests however that it can generate enough resources to fuel both online and offline activities. But one example might not suit all retailers.

Coresight addresses the very trendy topic of large US retail companies being under pressure from activist investors, who are pushing them to spin off their e-commerce division just like what Saks Fifth Avenue and the Hudson Bay did earlier in 2021: Macy’s, Kohl’s, and others… Coresight is not the only one sceptical with this approach: the Financial Times or Forbes also expressed doubts. For them, this approach goes against optimal retail management and is contrary to long-term trends, as the articulation between online and offline allows retailers to have a holistic view of their inventory, creating benefits in efficiency, pricing and customer satisfaction.

Investors are pushing spin-offs as companies with a combination of slow-growing and fast-growing businesses are typically sanctioned with a “conglomerate discount” in their market share price. Splitting up allows to value companies at the right price, and boost them when they are growing, like e-commerce. Coresight reckons that the strategy worked well for Saks, as they received an $500m investment which helped to allocate resources to the e-commerce company and make it grow (+80% GMV since the spin-off). Such an approach allows Saks to stop having to make choices in terms of resources allocation, between stores and online, and do both at the same time.

Coresight analysts do not really provide evidence that the strategy is ill-suited to department stores, even though if they assert that splitting up would create confusion for consumers and make click&collect and BOPIs activities very difficult.

An open letter to department stores to resist spinning-off ecommerce