Aside from the workers who lost their jobs, few feel as frustrated at what’s happening at Sears Holdings Corp. as Arthur C. Martinez.
“It is a slow-motion liquidation of the business and it’s unnecessary,” states Martinez, who as chairman and chief executive officer of the Sears Merchandise Group from 1992 to 1995, and chairman, ceo and president of the parent company from 1995 to 2000, staged a remarkable turnaround of the business and has since been witnessing his work come undone through asset sales, store closings and a revolving door of managers.
At his Greenwich, Conn. offices, a serene setting off the main drag, the 78-year-old Martinez sits for his first interview since leaving Abercrombie & Fitch as executive chairman in February 2018. That’s where, like Sears, he orchestrated an impressive turnaround and ushered in Fran Horowitz as chairman and ceo.
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The son of a fish wholesaler who woke at 3 a.m. each day to get to the Fulton Fish Market, and a stay-at-home mother, Martinez is completely at ease discussing the highs and lows of his professional life and opining on retailers. In his good-natured, wisecracking way, he opens the conversation, with a quip — “I was born at a young age” — and keeps the mood light, except when it comes to the topic of Sears.
“I took great joy from what happened at Sears, those were happy days even when times were tough because it was just rewarding to see a big colossus like Sears gets its footing back, get its energy back, get the confidence of the people back believing in the future,” he said of his time at the retailer. “That was a great high. It was and could have stayed a profitable, cash-flow-positive company that paid a solid dividend. Where the stock would go, I can’t predict that, but there was nothing about it that said Sears couldn’t continue to exist successfully, profitably, and never faced the specter of liquidation that it faces today. It’s a tragedy.”
On Abercrombie & Fitch, Martinez says, “The business is stabilized. I don’t think there is any question about that. But it still needs some further transformation to achieve its full potential — both from engagement with customers and also profitability.…Frankly, you should never not be in the business of transforming yourself. The notion that playbooks get written and never revised is a big mistake.”
J.C. Penney, he says, “has a chance. They will never be top of the charts, but they can survive.” Adding appliances to the assortment “might be misguided because of the strength of the competition. They don’t have the reputation in appliances. But there is enough resonance with the Penney’s brand and its equity for it to stay alive. It will never be a $20 stock in my lifetime probably.” (J.C. Penney shares closed up 2.9 percent Tuesday at $3.04.)
With the Hudson’s Bay Co.: “The underlying question is whether the HBC empire can stay together. Why did Mr. [Richard] Baker buy all those stores in Germany? Why did he buy Kaufhof?”
Could HBC sell Saks Fifth Avenue? “A lot of the value was in the real estate at Saks and a lot of that Mr. Baker has taken out. The problem with Saks is we sold the air rights to Swiss Bank and they built a tower right behind the store. You can no longer build on top. The air rights are gone.”
On the state of retailing and the advent of e-commerce, “Many felt the sky was falling, not dissimilar to how they felt when Walmart was going to take over the world, which they didn’t. Now it seems everybody has calmed down and is working hard to get the balance between the physical and virtual channels right for their customers. I see apparel having a very substantial presence indefinitely in both channels. When Stitch Fix launched, everybody was scratching their heads. But they’ve developed a model that is consumer-friendly, very personal and success is evident in the valuation of the business. It’s an example of how an apparel business with a very personal connection to consumers can be successful.”
Discussing his own, twisty career that took on a life of its own without him deliberately setting the path, Martinez said his first job was stocking shelves at Bohack’s, a former grocery chain. After getting an MBA from Harvard Business School, he worked in financial planning at Esso, now called Exxon, became a business analyst at International Paper Co., rose to chief financial officer of RCA Records, and eight years later got a call from the same headhunter who placed him at RCA, to become cfo at Saks Fifth Avenue. “I told him I don’t know anything about retail, and he said, ‘They don’t want anybody who has grown up in retail. They are looking for some fresh perspectives, to stimulate the management to think differently. Would you consider it?’ I said, ‘Why not.'”
It was that simple, and thereafter, Martinez stuck with retail.
He was cfo at Saks from 1980 to 1987 and part of a “dream team” that included the late Mel Jacobs, the ceo, along with Roger Farah, Joe Gromek, Burt Tansky, Matt Serra and Jay Baker.
“In another one of those moments you can never plan for, Mel called me into his office and said I was going to get a call that evening that’s going to surprise me but keep an open mind. The call came from the ceo of BATUS [the-then British owner of Saks] who wanted me to come to Louisville to be group ceo over all retail, with Mel reporting to me. Mel was so cool about the whole thing.”
As ceo of Batus Retail, Martinez ended up selling off the Saks, Iveys, Gimbel’s and Marshall Field’s retail properties due to a hostile takeover attempt. Saks was sold to Investcorp, which not long after brought Martinez back to the retailer as vice chairman for two years. Then it was onto Sears until he retired (temporarily) in 2000. “We were on our way at Sears to having our best year ever, but I had just turned 60. My father died at the age of 59. I just had my first grandchild and I had been doing it for eight years at Sears. Enough was enough.”
Martinez became a “serial” board member, having served as a director, lead director or chairman at one time or another at 12 companies including HSN; International Flavors & Fragrances Inc.; Martha Stewart Living Omnimedia Inc.; ABN AMRO holding bank in the Netherlands; Liz Claiborne, and AIG after its government bailout. He joined the A&F board as non-executive chairman in January 2014, rising to executive chairman in December 2014.
Colleagues say Martinez embodies “enlightened leadership” — informed, decisive, confident, cool under pressure, candid and with room for some levity. “It’s all serious business but you’ve got to have a little sense of humor,” says Martinez, who describes his management style as open and approachable. “Then I can get people to tell me what they really think. I am a pretty good listener and making it clear to people that I value their impressions and their input.”
“Arthur is the best person I ever worked for. He’s indicative of a leadership model in terribly short supply,” said Mark Cohen, director of retail studies, adjunct professor of marketing at Columbia Business School, who reported to Martinez while serving as Sears’ chief marketing officer and head of softlines.
“He’s self-made, no flash in the pan, with leadership and business management skills,” Cohen said. “He can analyze a balance sheet and participate in a merchandise style-out. He’s not a merchant but he was able to successfully manage the behavior of merchants. He paid attention to what they were doing, but he would never describe himself as a functional merchant. He doesn’t hip-shoot. He’s extremely thoughtful, approachable, engaging and he listens very carefully, processes information very carefully, studies, reads and considers. They just don’t make them like him anymore.”
“IQ and EQ — that’s Arthur,” said Mindy Grossman, ceo of Weight Watchers and the former ceo of HSN, while Martinez chaired that board. “We spent a lot of time together. He was my strategic adviser. I was a first-time ceo taking HSN public in August 2008, when the world was falling apart. Throughout that time, he was so grounded. His message was ‘stay steady, stay focused. Think of the future. Galvanize the organization and you will come out stronger.’ He has this great ability to diffuse difficult situations.”
When Sears laid off 50,000 people during the early Nineties, “My approach was being honest with everyone about what needed to be done, taking our punishment hopefully once, and not having serial restructurings. Then let’s focus on what needs to be fixed. We can’t fix everything. That’s why the catalogue had to go. I remember my conversation with the board, that we could spend three years fixing the catalogue. We could get it from losses to making some money, but it still would have been a nicely restored Fifties automobile.
“What we had to do was to focus on our stores. Everything else had to go — 35,000 people worked in the catalogue. And the rest [15,000] came from store closures — 113. It was a big chunk. The greater good was the 300,000 people that remained, giving them a sense of possibility for the future. I will always recall the people who came up to me after those decisions were announced and said, ‘Finally, somebody decided to do what needed to be done.’…Make decisions but communicate them in a kind and gentle way and communicate why things must happen. I am a pretty good communicator about what to do, how to do it and why it’s necessary. You need that to bring people along with you. Personal accessibility. Willingness to listen. Be clear about decisions that need to be taken and clear about why these decisions are taken.”
Now as an elder industry statesman, with five grandchildren, Martinez is inclined to share the wisdom of his experience to college and graduate students. “I tell the class, you can ask me anything you want as long as you don’t talk about it outside the classroom. They always want to know how did I get that ceo job. What did I do. What was the plan. I tell them I didn’t have a plan. I never had a plan. Serendipity played a big role in my career and when the opportunity is presented, I say be willing to take it even if there is some risk. Don’t be afraid.
“Answer your phone when it rings,” Martinez tells students. “You never know what might be at the other end of it.”
Here, Martinez talks with WWD about his career and views on the current retail scene.
ON A&F and MIKE JEFFRIES
In January 2014, at the behest of a friend on the board of a troubled Abercrombie & Fitch, Arthur Martinez joined the company as non-executive chairman, stripping Mike Jeffries, the mastermind of Abercrombie’s remarkable ascendance, of his chairman position.
Martinez sees young customers spending more on tech and experiences, less on clothes, and getting socially conscious, and Jeffries losing touch with Abercrombie’s aging customers. A year later, Martinez gains authority as executive chairman and Jeffries is out as ceo.
Under Martinez, the team tones down the marketing so models are less shaved and more clothed, Abercrombie’s target audience extends to twentysomethings, and the overly integrated Abercrombie and Hollister brands create new organizations with new brand heads, Fran Horowitz at Hollister and Christos Angelides at Abercrombie, to distinguish the brands better. Products become less logo-ed, less throwaway and more layered with higher-quality fabrics.
“Mike was a genius for a long time — 17 of his 20 years at Abercrombie. He built a $4 billion-plus retailer starting from zero, no stores, no product, only what came out of his mind. He was absolutely brilliant. But he lost the plot,” Martinez said. “He ignored how tastes were changing. How attitudes were changing. He stayed with the same playbook when he needed to change the playbook. Like a lot of founders, he had his blind spots. He did not build an organization. He did not build people into real leaders. He was the center of the hub. Everything went through Mike. When the business started to go wrong, he really didn’t know what to do except to do the same thing harder. Coming to grips with his own sexuality, frankly, impacted the way the company presented itself to consumers. And people were getting very tired of that.
“Abercrombie reminded me of Sears when I joined Sears,” Martinez said. “It was a great iconic American brand, down on its luck. Abercrombie had a very insular culture. It was too focused on its past and not on the future. There were a lot of smart, young, willing people in the company, but there was no business architecture. The organizational structure was very muddied. The good thing was that Mike was very [fiscally] conservative so the company was not in any financial stress. No big debt. No question of insolvency. But there was performance stress. Sustained performance stress eventually leads to financial stress.
“My first meeting with Mike was very cordial. I was surprised by his modesty, his quiet demeanor, his intelligence. You expected a guy trying to be bigger than life. He wasn’t. We talked for a couple of hours in an airport. We decided we could try to make this work. He wasn’t great at sharing information. It was very clear that he was very proud of what he had created. He was convinced he knew the way to get the performance back on track. I never expected him to show any doubt about that. Frankly, until the end, he didn’t. The issue for me coming in was to start at the top of the pyramid. I made a wholesale transformation of the board and we turned to the question of whether Mike could lead the company to where it needed to go. We decided after several months we just couldn’t go on with Mike as the ceo. There was clearly no one in the company that was ready to step up to ceo. That was part of Mike’s problem. He never developed real leaders in the company. So they asked me to step in as executive chairman,” in December 2014.
In December 2015, Horowitz stepped up as president and chief merchandising officer for Abercrombie and Hollister, and Angelides was forced out. “When we appointed Fran ceo in February 2017, I told the board, ‘She is a rookie ceo. She would benefit from some mentoring for a year.'”
Martinez stayed to guide Horowitz and retired (for the second time) in February. “I had confidence in Fran’s intellectual and leadership skills,” Martinez said, explaining why he left. “I’m getting a little old in the tooth. I am not in a race with Les Wexner to be the oldest living chairman of a retail company.”
MUSINGS FROM MARTINEZ
On being a serial board member: “I have been on 12 public company boards and chairman and lead director in half of them. People say it’s “a check and chair.’ But the thing about board work is it gives you perspective on different problems and situations. I find it intellectually stimulating. I subscribe to the theory that every company is in trouble and some of them know it and are doing something about it. Others don’t know it and should be doing something about it. There is always room for change and improvement and that is the role of the board.”
On his mentors: “Arnold Aronson was a fabulous teacher. He conveyed the urgency that is needed in this business. That it’s reinvented every single day. That you need to pay attention to the smallest details to drive the business every single day. That it’s about identifying your competition, their strengths and weaknesses and going after them. David Thomas at Exxon instilled in me a tremendous sense of curiosity about anything and everything. Go down a path, explore it, use analytics to understand, use data to understand, but be curious.”
On breaking a commitment to be ceo of Bergner’s when Sears jumped in with the merchandising group job: “That was a very hard one. I hadn’t signed anything. I wasn’t legally bound but there was a moral issue there. Bergner’s was bankrupt. They had scheduled a hearing in front of a judge in Milwaukee to approve my contract in a week or two and Sears came along. It was too big to ignore. I remember calling Bertrand Maus, who was the leader of the family that owned and controlled Bergner’s. He called back from a pay phone at the airport in Boston. Poor guy. I had to tell him I wasn’t coming. He sued me and Sears. Sears indemnified me and it was settled out of court. It was very unpleasant. He never wanted to talk to me again.” Months later, they ran into each other at a conference. “He couldn’t have been more gracious. He kind of shook his head and said, ‘Yeah that was an unpleasant moment. It happens.'”
On his worst career moment, when Sears illegally hounded customers for unpaid bills despite their filing bankruptcy and extinguishing debts. “We were under criminal investigation by the Department of Justice. That was terrible because it was a real breach of trust with our customers. We were the ‘satisfaction guaranteed’ people. You could always count on Sears to do the right thing. But we were not doing the right thing. We were doing something illegal. We were mailing bills to people who didn’t owe money. That is mail fraud…The worst moment was sitting in Boston with the U.S. Attorney for that district and his deputy, four or five FBI guys and me and my attorney arguing why we should not be indicted or convicted on these charges because of the collateral damage. I felt like I was fighting for the company’s life. They didn’t say much. Their silence was intimidating. The defense was, ‘we made a mistake and the minute it was brought to my attention and the board’s we took immediate action to halt the practice.’ We offered to repay any consumer we had taken money from improperly, with interest. We were going to make amends. We argued the criminal action was an unnecessary punishment because it would affect the lives of people who worked for the company who had no connection whatsoever to this problem. We paid $550 million in fines, penalties and reimbursements to people. Twenty years ago that was a lot of money. We had been on a roll as a company, but this really knocked us side-wise. It took a couple of years to get back on track.”
On Martha Stewart, after her indictment for securities fraud and obstruction of justice, and getting stripped of her ceo and chairman roles at Martha Stewart Living Omnimedia: “I was lead director. She took it very personally. The company was hers. She was no longer a controlling shareholder, but it was her name and her brand. It was another founder situation where her DNA was all over the company, as it should have been and needed to be. It was very difficult for her. As a board we said, ‘This is a personal matter for you. Not a company matter.’ We walled off what goes on in the company from however she wanted to handle her personal problem. We couldn’t have the company caught up in it. I don’t think her legal trouble had any impact on the maturity of the concepts she was expressing through her media properties. It’s that same story. You get the idea, launch it, grow it. It moves into maturity then it moves into decline, and she would probably argue [against] all this very provocatively, but the consumer moved on.”
On why he stayed in retail: “It’s a people-intensive business. I relish that, the day-to-day intimate contact with interesting sometimes challenging but also fascinating people. There’s also the short cycle nature of the business. You know very quickly whether you are right or wrong. The feedback loop is very short. I remember that in the oil business, decisions were made and they didn’t know if they were right or wrong for seven or eight years.”