It’s a daunting task: can Jeff Gennette recast Macy’s as a store for the future?
Gennette moves into the chief executive officer slot at Macy’s Inc. in the first quarter of next year, having the benefits of knowing Macy’s inside and out as a 33-year veteran of the company, and broad experience beyond his reputation as one of the nation’s top merchants.
He’ll succeed Terry J. Lundgren, who next year shifts to executive chairman.
The challenge for Gennette is to make Macy’s more innovative and exciting at a time when many believe department stores are losing relevance; reinventing selling space with new products and experiences to break free from an overdependence on dusty big brands, and reversing Macy’s yearlong downward trend flagging fundamental changes in consumer shopping habits and expectations.
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Even after announcing 4o closures this year, Macy’s needs to further prune its fleet of 870 stores.
There’s also catching up to do on the off-price and international fronts, and monetizing real estate assets amid shareholder pressures.
“I have a pretty good handle on what we need to do,” Gennette told WWD on Thursday morning, just after Macy’s revealed that he would succeed Lundgren as ceo in the first quarter of 2017. Gennette has joined the Macy’s board — he and Lundgren are the only Macy’s members of the 14-member board — and he will assume additional management responsibility during the transition period, including oversight of the Macy’s stores organization.
Wall Street took the change in command in stride, as the stock on Thursday closed up 1.7 percent to $33.38 in Big Board trading.
It’s possible that Gennette, even as a Macy’s veteran and working side by side with Lundgren for the last seven years, brings a new agenda to the business. Asked if that would be the case, Gennette replied: “There’s nothing we are going to announce right now. We are very clear on the opportunities.”
Gennette did outline a few of the opportunities, indicating Macy’s will get deeper into customer data “to really touch our customer in more significant ways” and drive “personalization” strategies, both online and in stores.
He also suggested changes to the shopping experience. “This customer wants shopping to be easy and simple. We have an obligation to take the friction out of the system,” he said.
With the merchandising, Gennette sees Macy’s elevating its “level of curation and specialness” and bolstering its pursuit of exclusive vendor offerings, leased concepts and new brands. “We are very focused on product and value.”
While displaying no shortage of ideas, Gennette has big shoes to fill. Lundgren’s personal flair, inclusive leadership style and propensity for bold growth initiatives put a positive spin on Macy’s image as an industry leader for over a decade.
During Lundgren’s tenure — he became ceo in 2003 and added the chairman’s title in 2004 — Macy’s took over May Co. in 2005 for $11 billion, replacing the venerable Marshall Field’s nameplate and other May Co. nameplates with the Macy’s name, and doubling the size of the Macy’s business to over $28 billion, though the business has lately declined to about $27 billion in sales.
Lundgren gave Macy’s a new mantra — MOM — to rally his team around the cornerstones of his Macy’s program: My Macy’s localization, omnichannel initiatives and “magic selling” involving improving the skills of sales associates.
He also launched celebrity lines, including Jessica Simpson, Martha Stewart, Thalía, and most notably Donald Trump, which Macy’s dumped in the aftermath of the presidential candidate’s comments on Mexican immigrants last year, in the early days of Trump’s presidential campaign.
Lundgren is credited with progressive digital and social media strategies, and triggering the massive renovation of the Herald Square flagship.
“He fulfilled the number-one responsibility that a ceo for a major company has, which is to train and prepare his successor and he has done just that with Jeff Gennette,” said Leonard Lauder, chairman emeritus of the Estée Lauder Cos. Inc. “For that he should be congratulated.”
Aside from Gennette, Lundgren brought up a number of seasoned executives including chief growth officer Peter Sachse; Karen Hoguet, chief financial officer, and he recently named Justin S. MacFarlane, formerly of Ann Inc., Macy’s chief strategy, analytics and innovation officer.
In the past year, Macy’s bought Bluemercury; launched the Backstage off-price business and an e-commerce site in China on Alibaba Group’s Tmall Global, and formed a single merchandising organization for stores and online and a marketing organization for stores and digital involving the relocation of 1,000 merchants, planners and marketers at New York offices so they can closely collaborate.
Macy’s first overseas store, in Abu Dhabi, was announced, and a rollout of LensCrafters shops to hundreds of Macy’s locations began. Macy’s also began testing Best Buy shops inside 10 stores.
On Thursday, Lundgren defended his decisions to hold back on off-price and international strategies [which Macy’s has been criticized for] so the company could be out front building up e-commerce and omnichannel operations, among other initiatives.
“I still feel we absolutely made the right decisions,” Lundgren told WWD. “There’s only so much capital available. You have to pick your shots, where you want to invest in. We have built the best omnichannel organization and technology team in the industry. We have a head start on our competitors. In the categories we sell online, we are third [in volume] behind Amazon and Wal-Mart.”
Lundgren did agree that Macy’s is still overstored. “We feel we are. America is overstored. There is more retail real estate than what is required. Over time, that will change.”
Asked if Thursday’s development was expedited by Macy’s downturn, Lundgren replied, “Absolutely not. I am 65 next year. It’s just a natural progression.”
Lundgren said he could have departed in 2015 after the company had its best year in history, but issues started to arise that he wanted to address. “We said, ‘Let’s buckle down, get focused on the business, get the strategy refined and make the appropriate business changes.’ Working side by side by Jeff, I am very encouraged by the progress. I could have [left] a year ago, but I never would have done that.”
Lundgren expressed no remorse about stepping down as ceo and maintained his usual upbeat manner. Asked to compare his style to Gennette’s, he said, “Jeff is much better looking than me.”
He did characterize Gennette as “a sponge for information. He is fantastic with people, and surrounds himself with very talented individuals, and he’s a great motivator and communicator.”
He also stressed Gennette’s experience beyond being a merchant, noting he has supervised macys.com, ran stores and had bottom-line responsibilities including heading up the former Macy’s West division.
Regarding the transition, Lundgren said, “I feel great. There are not a lot of Fortune 500 ceos who say they’ve been on the job for 13 years, and next year it will have been 14 years for me. That’s a pretty long time. I feel great because I have 100 percent confidence Jeff is the right guy for the job and ready to take this on. The most important thing is I leave behind a company positioned for greater success than the success we achieved during my tenure.”
It had been expected that the 55-year-old Gennette would succeed Lundgren, ever since 2014 when Gennette was named president.
Gennette began his retail career in 1983 as an executive trainee at the former Macy’s West. He held positions of increasing responsibilities, including vice president and division merchandise manager for men’s collection and senior vice president and general merchandise manager for men’s and children’s, and ultimately became chairman and ceo of the division. He also ran the former Seattle-based Macy’s Northwest, and was once a store manager for FAO Schwarz and director of stores for the former Broadway Stores. Before rising to president of Macy’s Inc., Gennette was chief merchandising officer.
Some believe that Gennette could accelerate some of Lundgren’s recent initiatives such as the off-price Backstage business, or the rollout of Bluemercury. When asked about that possibility, Gennette emphasized a cautious approach. “We test things very thoroughly. We don’t make moves unless it makes sense. With our fine jewelry initiative, we tested that [successfully] in the fall. Now we are rolling it out nationwide. We are currently testing Backstage and China, looking at those numbers, and will plan our moves carefully.”
Gennette continues to report to Lundgren through this year. Next year, he will report to the board. Lundgren will be become executive chairman of the board, continuing to play a role in the company and working with Gennette.
Asked about life post-Macy’s, Lundgren replied, “I am not even thinking about that. I don’t have time to. I am so focused on Macy’s Inc. and 100 percent focused on Jeff’s transition.
“Certainly the job is very challenging. It affects different people differently. There are different challenges, new challenges. Jeff is very well-prepared for the assignment…While our company is larger, stronger and more resourceful than we were 13 years ago, 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.”
“Terry has had a terrific run,” observed Craig Johnson, president of Customer Growth Partners. “Look back at all he’s done over a long time. But even with a terrific ceo trying to adapt to the changes, sometimes you need someone less invested in the past and more invested in the future.”
While some sources contacted suggested naming Gennette, a Macy’s veteran, implies keeping the status quo, Johnson disagreed, saying, “Jeff provides a new pair of eyes, he’s younger and closer to the age of the customers. This change makes a ton of sense. Jeff is a Macy’s veteran, but you want to have someone who knows the legacy of Macy’s but is not bound by it. With the nature of the changes Macy’s needs to make being so fundamental, you may need a new pair of hands on the tiller. The entire department-store sector is challenged now.
“Jeff is quieter than Terry, a touch more reserved, he’s very bright, and an outstanding merchandiser and great with people — he is forward-looking. He has skills on both sides of the fence — merchandising and stores. He knows the customers and store operations, that is a great recipe for a retail ceo.”
Peter J. Solomon, founder of the investment banking firm that bears his name, observed the retail backdrop over the years and said, “Gennette and the board are going to be challenged to rethink the business. It will be a great challenge. We are in the late innings of a paradigm change, but in the early innings of understanding what does it mean. So the question, if you’re running a major department store chain, is ‘Where are you going to go?’ and ‘What are you going to do?'”
Oliver Chen, analyst at Cowen & Co., said, “We expect Macy’s to refocus on rapidly changing customer trends to drive store traffic, expand off price, increase speed and streamline and execute an evolving omnichannel experience.”
Chen noted that the biggest near-term challenges are the physical store traffic flows, weaker tourism traffic, global macro-challenges, generational shifts in spending patterns away from materialism and a need for stronger product differentiation.
Rick Snyder, analyst at Miller Tabak, said, “I think it is a positive that a merchant will be running the company. A large portion of Macy’s problems have been about merchandise.”
Dana Telsey of Telsey Advisory Group said, “There has been an orderly succession planning,” while Yehuda Shmidman, chief executive officer of Sequential Brands Group, said, “Terry has built a powerhouse team, and we’re big believers in their ability to execute in stores and online.” Sequential’s brands at Macy’s includes Martha Stewart, Jessica Simpson and Joe’s Jeans.
Gennette will join the Macy’s Inc. board of directors, effective today — bringing the size of the board to 14 members. He will assume additional management responsibility during the transition period, including oversight of the Macy’s stores organization.
Retail consultant Walter Loeb said, “Gennette’s a fast learner. I believe he will have a younger approach to the problems of Macy’s. Terry Lundgren prepared him well for the job.”
Michael Warner, president of Republic Clothing said about Gennette, “He’s level-headed and he’s a straight shooter. His reputation precedes him.
“It’s not a surprise. He’s been groomed for that position for quite a while,” said Morris Goldfarb, chairman and ceo of G-III Apparel Group. “He has a relationship with the marketplace and he’s a very conscious and aware of the skill set he’s surrounded himself with. He and Terry understand the needs for the future of Macy’s. They’re an excellent combination and it’s great that Terry remains on a chairman. This will be a seamless transition.”
Emanuel Chirico, chairman and chief executive officer of PVH Corp., said, “I think it’s been a textbook succession plan. It’s been in the works for years. There’s no surprise at all. The reaction in the market’s been positive. Jeff is such a well-known player in the industry. Everybody trusts him, he’s been Terry’s right hand. The industry is calm about it.
“Terry has done an amazing job and transformed Macy’s-Federated to Macy’s,” Chirico continued. “He took nine regional nameplates and converted them to a national brand today. He’s invested in people, systems, stores and e-commerce. They’re positioned well for the future. He’s leaving them in a good strategic position. He’s the Mickey Mantle of the retail industry. He’ll be there for a while as executive chairman, which will provide a smooth transition for the company and gives people a level of comfort. Nobody has been as well-prepared to be ceo of a major retailer as Jeff Gennette. He’s ready and smart. I’m happy for both of them.”
Tommy Hilfiger said, “Jeff knows everyone in the business, has great respect from all the suppliers and has really been on the ground running the business under Terry.”
Hilfiger is a close friend of Lundgren’s and an important brand name at Macy’s. “If you think about when Terry came into the position 15 years ago, it was before the May Co. acquisition and before exclusives and celebrity brands, and he changed all the nameplates over to Macy’s for all the stores. Think about what he’s done with celebrity brands, department store shopping, e-commerce and TV advertising. What they’ve done from a marketing standpoint has been really phenomenal on every level…He’ll be in the saddle for a while. He hasn’t let on that he has anything else planned. Certainly he’s a legend in the industry who has been a game-changer.”