What: Hedge funds are urging Kohl’s and Macy’s to consider radical changes to how they operate.

Why it is important: Some investors want to sell department stores in pieces as they see retailers’ true value in the land and buildings they occupy, or their brand name, rather than their ability to sell products.

After Saks split off their website last year and planned on a public offering that could value its e-commerce at USD 6 billion, activist investor Jana Partners took a stake in Macy’s in October and urged the chain to follow suit.

Two investment groups made moves to buy Kohl’s: a consortium of investors backed by hedge fund Starboard Value LP put in a USD 9 billion offer, and private equity firm Sycamore Partners is reportedly plotting a competing bid.

Even before the potential buyers emerged, Kohl’s was already the target of activist investors, Engine Capital and Macellum Advisors, which are pressuring the company to sell off its real estate and spin off e-commerce operations. The idea is that offloading some properties will generate cash flow for the company, and then the retailer would rent its most profitable stores instead. With digital separation, creating an independent online entity is a tactic to attract new capital.

Real estate transactions and e-commerce spin-offs can be lucrative for a retailer’s investors. What it means for the fashion industry is less clear as it might not be a long-term play to “save” the US department stores.

Why activist investors are targeting department stores?