Dive Brief:

• Macellum Advisors, owner of nearly 5% of Kohl's common stock, issued a letter to other investors in the retailer Tuesday that called for a board shakeup. 
• The investment firm pushed Kohl's to make a series of moves, including selling property, ramping up stock buybacks and breaking out its e-commerce segment. In a response, Kohl's said it was "disappointed with the path" Macellum is pursuing and "the unfounded speculation" in its letter.
• In the letter, Macellum also said that "a sales process must commence" for the company as a whole absent a board revamp. "[W]e believe there are multiple buyers that have expressed interest in an acquisition," wrote Jonathan Duskin, managing partner with Macellum.

Dive Insight:

Macellum, by its own account, has been agitating quietly for more than a year for Kohl's to make both operational and financial changes at the company. The financial firm and the retailer entered into a settlement last year that gave Macellum two board seats in return for public silence with other shareholders.  

The firm is talking now, and launched into Kohl's and its leaders with a litany of complaints and demands, including a "lack of urgency" as Kohl's underperforms those retailers Macellum considers its peer group, which includes everyone from Ross Stores to Dick's Sporting Goods to Walmart.

While Kohl's agreed to renominate Macellum's two designees to the board, Duskin wrote that Macellum plans to nominate its own slate of directors at the company's annual investor meeting this year. 

For its part, Kohl's said that its "recently refreshed Board has the right mix of fresh perspectives, industry and financial expertise and institutional knowledge." Over the past three years, six new directors have joined the retailer's board, bringing with them experience from Lululemon, Walmart and Burlington, among other companies.

Many of the items in Duskin's letter that Macellum is pushing for are familiar refrains among activist investors in retail companies. Included is the sale of $4 billion worth of owned real estate — turning the company from an owner to a renter at those properties — and passing on the cash to shareholders via a stock buyback program.

Macellum also alluded to a fairly recent innovation in terms of financialization of retail companies: the e-commerce spinoff, such as that of Saks Fifth Avenue and being contemplated at Macy's. Such a spinoff brings in cash by putting the e-commerce operations of a retailer on public markets or up for private investment. It also adds legal and potentially operational complexity to the coordination of physical and digital stores, in an industry that is by and large working to make shopping as seamless as possible across channels. 

In the letter, Duskin wrote of Kohl's breaking out its e-commerce operations: "We believe this can be done in a way whereby the customer experience is unchanged, yet the Company can be accorded a reasonable valuation for this valuable business."

No doubt asset sales, spinoffs and buybacks could be profitable to shareholders. The question before Kohl's board is whether the such moves would be best for the company's long-term interests. Critics of share buybacks say they divert cash away from business investment and toward shareholders. And unlike dividends, buybacks, in the view of their critics, reward short-term investors who sell company stock when prices increase in response to share purchase programs.

In its reply, Kohl's said that leadership "will continue to aggressively pursue the best interests of all shareholders as we manage the business to increase shareholder value in both the near- and long-term."

Along with financial changes, Macellum wants to see Kohl's get more nimble in its merchandising, streamline its offerings, bring product sourcing for private label goods in house, rationalize its distribution network and revamp executive compensation.

In response to Macellum's letter, Kohl's touted its brand partnerships, including the recently launched partnership with Sephora and said it was positioned to pass its 2023 financial goals two years ahead of plan.

And barring all that, Macellum urged a sale of the company. "We believe the number of potential suitors for Kohl's would be even larger if the Board were to announce a true sales process and hire qualified financial advisors to solicit proposals from strategic buyers in the ecommerce and retail sectors, rather than attempting to chill the process as we believe it is doing today," Duskin said in the letter.