What: Macy's is grappling with how to make its e-commerce business a standalone company without losing customers who rely on its department stores to pick up or return items they bought online, according to people familiar with the deliberations.

Why it is important: The e-commerce business could be worth USD 14 billion on its own, more than Macy's entire market capitalization of about USD 8 billion. But the split of e-commerce and stores, highlighting the critical importance of physical retail, is not comparable to Saks’ similar move earlier this year.

Macy’s asked consulting firm AlixPartners to review its business structure after Jana Partners urged it to separate its e-commerce arm. AlixPartners also advised HBC on the separation earlier this year of Saks’ e-commerce business from its department stores.

Macy's has close to 800 stores. It has said its online sales are two to three times higher per capita in regions where the stores are located, because of the convenience for customers of picking up and returning items at the stores. Saks, on the other hand, has only about 40 stores, and the privately held company's e-commerce business generates annual revenue of less than USD 1 billion. That is a fraction of Macy's e-commerce revenue, which is set to exceed USD 8 billion this year.

A separated Macy's online business will need to have extensive commercial agreements with the company holding the department stores. They would have to govern everything from merchandise distribution and storage to promotions and marketing, in order to provide Macy's customers a seamless experience in-store and online.

Jana Partners suggested that a benefit of separation could be a cash infusion in the online business that would help hire top talent and invest in new technology. It pointed to the case of Saks, which attracted a USD 500 million investment from private equity firm Insight Venture Partners at a USD 2 billion valuation for its online business.

Macy's reliance on stores for e-commerce weighs on mulled split