Retailers: Are e-commerce spinoffs already played out?

Rethinking the mix between brick-and-mortar and e-commerce

Frank Petraglia

Frank Petraglia

Partner, Deal Advisory, KPMG US

+1 212-954-1074

Scott Rankin

Scott Rankin

US Strategy Service Line Leader, Deal Advisory & Strategy, KPMG LLP

+1 617-988-1474

When the pandemic hit, consumers flocked to online retailers that offered the convenience and safety of at-home shopping and delivery. As a result, valuations of pure e-commerce retailers soared: Online pet food retailer Chewy, for instance, hit a stunning market cap of $42 billion last year.1

Eyeing these mouthwatering returns, companies began spinning off the e-commerce arms of their traditional brick-and-mortar retailers and bringing them to market for a quick profit. First was Canada’s Hudson Bay Company, owner of the struggling Saks Fifth Avenue chain, spinning off the e-commerce division with a $500 million infusion from private equity investor Insight Partners,2 with a view toward an eventual IPO.

Then activist investor Jana Partners took a stake in Macy’s, looking to double the company’s share price via e-commerce spin-off. But Macy’s omnichannel retail approach—letting customers browse online and pick up and return products in store—proved a temporary hit. With a juicy 68 percent return in five short months, Jana pulled out in late 2021 (the stock price has since fallen nearly to pre-Jana levels).3

The latest retailer to confront an activist attack is Kohl’s, whose share price swooned after COVID-19 hit. The Wisconsin-based retailer has been approached by no less than 20 different investors—including Hudson Bay—many of whom see large potential profits in an e-commerce spin-off, then bringing the separate entities to market separately. While the activists may yet succeed in carving up Kohl’s—Goldman Sachs is weighing the various offers—achieving the promised windfall payoff may prove difficult as the stock has recovered nearly 40 percent of its value since last fall.

Following the Saks approach is not a guaranteed payout. Spinoffs add multiple layers of complexity between the legacy retail business and the stand-alone e-commerce business. Sharing resources adds costs to both parties, which would need separate accounting and finance organizations as public companies. Also, the market for pure play online companies has declined sharply since the beginning of the year: Wayfair has lost 60 percent of its share value; Chewy is down 45 percent.

Meanwhile, customer-acquisition costs for online firms have soared. Online firms need to shell out between $100 and $800 to acquire each customer, while brick-and-mortar costs of acquisition are much lower, according to Daniel McCarthy, a professor at Emory University’s Goizueta School of Business.4

Since valuations are now so much lower, the private equity firms pursuing Kohl’s and other outlets might rethink the idea of carving out the e-commerce business as a potential financial engineering bonanza. For those already engaged, it may make more sense to follow Jana Partners’ lead and beat a profitable retreat.


  1. “Chewy: A Bubble Waiting To Burst,” Seeking Alpha, January 21, 2021
  2. Daphne Howland, “Private equity pours $500M into Saks Fifth Avenue's e-commerce spinoff,” March 5, 2021
  3. Adam Levin-Weinberg, “Macy’s Beats Back Activist Attack,” March 13, 2022
  4. Ellen Rosen, “Online Stores Try A Traditional Marketing Strategy,”, March 23, 2022