Terry J. Lundgren may be stepping down today as Macy’s Inc.’s chief executive officer after a 14-year run, but he isn’t exactly going anywhere.
Among the nation’s highest-profile retail leaders and a figurehead for the industry, Lundgren is handing the ceo job to Jeff Gennette and takes on the newly created role of executive chairman, a position he describes as a full-time job “intended to be a transitional post for me to assist and advise Jeff in his new role. That’s my primary role, but additionally, I have direct responsibility for our international businesses and I am going to directly supervise all of the real estate activities for the company.”
He stressed that Gennette will be running the day-to-day business operations of Macy’s and Bloomingdale’s. “He will be in charge.”
Lundgren, 65, has orchestrated a smooth and extended transition. Gennette has been getting greater exposure to more of the operations since becoming president in 2014, preparing him to be ceo, as Lundgren has been disengaging to some extent.
“I am purposely moving my office out of this building [Macy’s Herald Square corporate offices] to 11 Penn Plaza so Jeff can have my office,” Lundgren said in an exclusive interview. “Every one in this company’s central organization knows I have an open door policy. People pop into my office all day long. That’s where I get my most valuable information. I have encouraged Jeff to do the same thing, but obviously, he will have his own style and management.”
Relocating the office creates some distance between the two executives and casts an impression that Lundgren won’t be breathing down Gennette’s neck. Yet transitions can be tricky periods where responsibilities get blurred.
“I have worked with my board of directors on this transition for over two years, when we appointed Jeff as president. That was the signal to the inside organization and the outside that Jeff was the likely successor,” Lundgren said. “It was me working with the board and the board advising me about what they thought Jeff needed to learn and areas where he needed to grow and get exposed to. To me, he is such a perfect candidate for this role.”
Asked how he felt about stepping down as ceo, Lundgren turned reflective, saying, “I have been ready for this for some time. The key to a successful transition is to do it thoughtfully and gradually. This is an example of that. Jeff is absolutely ready to take on the leadership of this company. And I am more than ready to hand over those responsibilities to Jeff because frankly this is what makes me most proud. I can look back on my career and feel very good about what’s been accomplished during my tenure here and at Neiman Marcus,” which he ran from 1989 to 1994.
“The true test of a successful ceo is what she or he leaves behind years after the departure. It was never just about me. I got more credit than I deserved, and probably more blame than I deserve, and that’s perfectly OK. It goes with the territory. But I like Jeff. We have always agreed that you are only as good as your weakest link on the team. We have an exceptionally strong team.”
Lundgren heads to Dubai in a week, to check out the new Bloomingdale’s in Kuwait City that opened recently, and subsequently to the Abu Dhabi site where Macy’s and Bloomingdale’s will open next year. “I will be spending some time on the development of our Middle East relationship with Al Tayer,” the retail group based in Dubai which is licensed to open Macy’s and Bloomingdale’s in the Middle East.
In April, Lundgren will visit China, where Macy’s has an online business in association with Alibaba and a team there managing it. He’s been to China several times. “We are learning about the customer there and more and more about what will be the number-one [source of tourists] in the world as incomes continue to rise in China and the middle class there becomes larger. Their natural inclination would be to travel.”
Lundgren sees Macy’s and Bloomingdale’s in gateway cities such as San Francisco, Chicago, Los Angeles and New York benefiting, though currently spending by tourists from China and other countries has dwindled, hurting the performance of Macy’s, Bloomingdale’s and other retailers. He said he’s learned that men in China are more apt to shop than American men and have greater influence on the purchasing choices of women as well.
Being “the international guy” enables Lundgren to examine growth possibilities while Gennette focuses on the “primary businesses,” which are the domestic Macy’s and Bloomingdale’s stores and the online sites.
Asked if Macy’s or Bloomingdale’s could open stores in China, Lundgren replied: “I am not going to say that it’s not in our future, but I am not prepared to make an announcement either. That will be Jeff’s call eventually. My role will be to advise him…and seeing where the opportunities are. China is going through its own transformation at the moment. The good news is we have people on the ground witnessing this and we will have very good input about what we think is the right long-term play for us.”
The day after the shooting, Jeff Kantor, my head of stores, was there.…We felt this was the most important place for us to be, with the store family.
Lundgren has been getting deeper in the real estate aspects of Macy’s Inc., prompted by activist shareholders seeking to unlock the group’s hidden value in owned stores and other properties, and the growing urgency to create better experiences in malls and stores to reverse declining sales and traffic trends and compete more effectively against Amazon and other Internet companies.
“We have become really aggressive in thinking through the value of our portfolio and how to monetize and maximize this value and using these proceeds to reinvest back to our stores,” Lundgren said. “There is tremendous potential for us. I have these relationships with developers that I am working very closely with.”
Under Lundgren’s leadership, Macy’s became a national retail powerhouse through acquisitions, consolidations and advancing online operations early. He led Macy’s strategies to localize assortments, launch omnichannel initiatives and grow a stable of private brands which have often been cited as generally outperforming market brands.
For most of Lundgren’s stewardship, Macy’s Inc. blossomed. From 2003 to 2016, the company grew from $15 billion to $26 billion in volume, earnings per share rose 67.7 percent, and the 14 percent earnings before interest, taxes, depreciation and amortization goal was attained in 2014. But in 2015 and 2016, there was a precipitous drop in sales and earnings at Macy’s, along with other retailers, and the company’s stock is down 38 percent from a 52-week high of $45.41 last November to $27.97 on Wednesday.
The huge task of turning around Macy’s now falls on Gennette’s shoulders.
Lundgren said his most challenging and rewarding effort was spearheading Macy’s $11 billion mega takeover of the May Department Stores Co. in 2005 and orchestrating the tricky and sensitive conversion of May’s regional nameplates to the Macy’s brand. Macy’s divested Lord & Taylor and David’s Bridal, which were owned by May and several individual May Co. locations, and also sold off the combined Macy’s-May credit portfolio, to expeditiously pay off debt from the acquisition. The selloffs also firmed up Macy’s financial condition to weather the Great Recession, which began in 2008.
“When we bought the May Company, I called the mayor of Chicago, Richard Daley, and said I would like to meet him. We met in his office. I came alone and he had like six people with him. I said I just wanted to meet him and listen and learn what’s important to him. We talked for about 10 to 15 minutes and he asked everybody to leave except me. The two of us spent the next 20 minutes together, one on one. He figured out he could trust me, that I was going to be very open and honest and he was going to be the same way with me. That started a very important relationship because he was such an important voice,” in the city. “He was concerned about jobs in Chicago, and I said, ‘Me, too.’”
Lundgren told him his goal was to improve the Marshall Field’s business, which would spur job creation. He also told the mayor that research would be conducted to see if Chicagoans would shop a Marshall Field’s converted to Macy’s. It indicated they would. “He would have preferred we kept Marshall Field’s, but from a business standpoint, he got it. He totally understood.”
Macy’s stacked the store with top management and associates and private brands and reset the merchandise supply in the former Field’s stores to be more in line with the demand. The performance was lifted to the point where from 2010 to 2012, Chicago was Macy’s top performing city.
Lundgren’s most difficult day on the job was when Shayla Martin, a cosmetics sales associate, was shot and killed inside Macy’s in Seattle in September 2016.
“The first thing you do is you say you want to help. The day after the shooting, Jeff Kantor, my head of stores, was there. We decided to send him first. We closed the store, of course. The store was a crime scene for two days. I flew out to the funeral two days later as did Jeff Gennette. We felt this was the most important place for us to be, with the store family. We walked through the store, spent time with our people. We went to the funeral together, and spent time with Shayla’s family.”
Also under Lundgren’s leadership, Macy’s centralized its buying, planning and marketing teams around the country, acquired Blue Mercury, launched Macy’s online in China, and established the licensing arrangement with the Al Tayer Group, which led to the first Bloomingdale’s overseas, in Dubai in 2010, and the first Macy’s overseas, the one opening next year in Abu Dhabi.
I think the mall-based retail industry is at an important juncture, times like this are what create the most innovation.
Lundgren’s flair for showmanship, supporting celebrity merchandise and charity partnerships with the likes of Lady Gaga, Thalía, Justin Bieber and Tommy Hilfiger, and his comfort level in the spotlight brought a cache to the Macy’s business. Each Black Friday he would be at the main entrance to Macy’s Herald Square flagship to welcome the early bird holiday shoppers and gauge the rush. He also had a sign on his office door — “chief customer officer.” It’s been taken down.
“We used to be known as just being great merchants, and we are. But clearly you have to say we’ve become extraordinary with our online ability, our technology talent and our store execution,” Lundgren boasted. “Now we have hired the real estate expertise that is incredibly talented, and frankly, I have learned so much about the real estate business in the last couple of years. For me, it’s like developing a new muscle.” Macy’s $675 million in real estate transactions last year “is just going to make our business stronger.
“We have been challenged on multiple occasions in this company. If you go back in our 159-year history it’s been predicted that we would never make the next decade on a number of occasions. We have consistently outperformed expectations when our back has been against the wall. So I have such confidence in the team at this company that we will rise up and be this primary destination for the core consumer. Macy’s will be a physical and digital retailer, an omnichannel retailer. You have to be extremely good at both. Just as we have had to reinvent our online business each year, we have to again improve and change our shopping experience inside our stores, but the large majority of the apparel, cosmetics, handbags, shoes, etc. is still done in the traditional brick-and-mortar environment and that will continue to be the case.”
Asked if he sees any leveling off of online sales growth, Lundgren said, “Not right now. I don’t.”
He acknowledged 2015 and 2016 were “very challenging years for us and our industry and I say absolutely we must reinvent the shopping experience in our stores. We are working incredibly hard on that.”
Lundgren and Macy’s have been criticized for not investing enough in enough stores, focusing on the top 150 units, but Lundgren defended the company’s decisions. “We spent in each of the last five years an average of about $1 billion in capital investments, which is a significant amount. So you start with how much do you have to invest back into your business. We’ve had adequate investment, we have invested more in technology in the last five or six years and I am glad we did, because if we didn’t, we wouldn’t be the third largest online company in our categories,” next to Amazon and Wal-Mart.
“So we have the advantage of brilliant fulfillment centers with technology and we were just recognized as the number-one app in the retail space in the country. I have no regrets about the investments we have made in technology and our online business. But I do think with our partnerships, with our shopping center developers, there is a new level of interest.
“I think the mall-based retail industry is at an important juncture, times like this are what create the most innovation. I think retailing goes through cycles. I thought retailing was incredibly complicated in 2008 and 2009. Retailing was incredibly complicated after 9/11. I think retailing is very complicated right now. That’s what gets merchants up in the morning and fired up about being the one who will crack the code and create that reason for consumers to choose us versus others.”