Macy’s CEO will step aside as the retailer pursues a turnaround

June 23, 2016 09:25 AM

(Bloomberg)—Macy’s Inc. CEO Terry Lundgren will pass the job to president Jeff Gennette in the first quarter of 2017, entrusting his top deputy with the task of turning around the largest department-store company in the U.S.

Lundgren, who has served as CEO since 2003, will remain executive chairman after the transition, the Cincinnati-based company said Thursday. Investors applauded the move, sending the shares up more than 4% in New York.

The move signals that Macy’s, No. 6 in the Internet Retailer 2016 Top 500 Guide, will pursue a more dramatic overhaul of the business, which dates back to 1858. In the face of declining sales and profit, Lundgren has been cutting costs and closing stores, but a turnaround has been elusive. Macy’s also is suffering from slow mall traffic and the strong dollar, which has deterred foreign tourists from visiting U.S. stores. On top of that, the company is under pressure from investors to wring more money from its real estate portfolio.

“Now is the time to reset our business model to thrive in a future that is being driven by rapid evolution in consumer preferences and shopping habits,” Lundgren, 64, said in the statement. “Our company must and will change in response to the profound secular forces that are driving consumer spending.”

In April, chief marketing officer Martine Reardon resigned from the department store chain. In 2015, Macy’s won the Marketer of the Year award at the inaugural 2015 Internet Retailer Excellence Awards, with judges citing the company’s “robust social, mobile, search and email strategies” as a reason for the honor.

Pressure on Macy’s to do more with its properties may have sped up the CEO transition, which wasn’t expected to come this quickly, said Poonam Goyal, an analyst at Bloomberg Intelligence. Other chains, such as Sears Holdings Corp. (No. 14 in the Top 500) and Darden Restaurants Inc., have used their land holdings to generate cash by forming real estate investment trusts.

“It was very unexpected,” Goyal said of the CEO change. “It probably has to do with activist investors wanting more monetization.”

Macy’s shares on Thursday rose as high as $34.17 after the announcement. The stock had dropped 6.2% this year through Wednesday, dogged by concerns about the company’s slump.

Macy’s 2015 web sales grew 15.0% to $6.21 billion compared with $5.40 billion in 2014, data shows. But total revenue for 2015 was $27.08 billion, down 3.7% from $28.11 billion in 2014.

Merchandising background

Gennette, who was named Macy’s president in 2014, also will be joining the board immediately. That brings the size of the body to 14 members. Gennette, 55, previously served as the company’s chief merchandising officer and ran Macy’s West in San Francisco. The San Diego native is a graduate of Stanford University.

“There is no doubt that Macy’s Inc. will need to be a significantly different retailer in the future in the way we operate and approach the marketplace,” Gennette said in the statement. “But we also must continue to tackle our immediate priorities with vigor and discipline.”




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