Lundgren done with Macy's

Dive Brief:

Macy's, on Friday announced that Executive Chairman Terry Lundgren will retire from the board of directors, effective Jan. 31, and that Jeff Gennette, who has been CEO since March, will take his place.
The move will complete the planned transition announced in June 2016, and leaves the board with 10 directors, according to a company press release. Marna Whittington remains Lead Independent Director, the company also said.
The department store retailer is in the midst of a massive store count reduction, which has hit sales. Last month the company said that sales in the third quarter fell 6.1% to $5.28 billion, due in part to its large number of store closures. Same-store sales on an owned basis fell 4% in the third quarter and 3.6% on an owned plus licensed basis. The department store's gross margin improved slightly to $2.11 billion or 39.9% of net sales, compared to $2.24 billion or 39.8% in the year ago quarter, which Gennette attributed to the company's "tightly controlled inventory position."

Dive Insight:

Gennette's promotion to the top spot at Macy's was by no means unexpected. He started there in 1983 as a Macy's West executive trainee and steadily climbed the ranks, ultimately rising to president and de facto heir apparent to Lundgren following a five-year stint as chief merchandising officer. He's now been in the chief role for eight months.

"I have worked closely with Jeff and his team over the past two years, focusing on the changes and vision required for future success," Lundgren said. "I am confident that the company has the strategies, resources, talent and leadership to capitalize on the fundamental shifts in consumer shopping patterns we have all experienced."

Lundgren's departure from the board marks the last vestige of his tenure there — a decades-long venture that included a vast brick-and-mortar expansion that had to be unwound in recent years. It's not just about shrinking its huge footprint, however. Macy's has also shifted much of its focus to its new Backstage off-price unit, playing catchup to the likes of Nordstrom Rack, in an attempt to join in on the stellar performance of off-price retailers like TJX and Ross.

The retailer is also turning to its Bluemercury beauty unit to capitalize on consumer enthusiasm in that category, and is actually opening doors. In the third quarter, the company opened eight new freestanding Bluemercury beauty specialty stores and seven new Macy's Backstage off-price stores within existing Macy's stores.

But the company's positive spin last month — that its overall negative trajectory has been slowed by its improvements in earnings and margin — isn't the real story, according to retail analyst Nick Egelanian, president of retail development consultants SiteWorks International. The real story, according to Egelanian, is found in the department store's sales and same-store sales decreases. "Sales continue to decline, and I see no end in sight for this trend," he said in a note emailed to Retail Dive. "We expect to see more store closures and continuing sales contraction in 2018 and beyond."

Those declines will likely continue because the company's focus on off-price and beauty is inadequate, he warned. "We see this as a fundamentally flawed strategy that is unlikely to change the overall picture," he said. "TJX, Ross, Ulta Beauty and other discounters in Macy's merchandise space continue to open new stores at an aggressive pace, and we see this as an existential threat to Macy's business model."

GlobalData Retail Managing Director Neil Saunders agrees, saying that the business is suffering in part because Macy's lacks a holistic approach. "While there is no doubt that the company has made progress across some areas, change is far from comprehensive or far-reaching. We get the sense that Macy's fixes issues in a piecemeal way and that it lacks a unified vision for the future of the business," he said. "On the ground, this means it is hard for shoppers to see any material change, which is one of the reasons why Macy's continues to suffer from customer defections."

Gennette last month touted the company's revamped loyalty program, which he promised would help drive holiday sales, in light of already positive response from customers. But Saunders said such small-bore moves won't help the fact that Macy's has lackluster merchandising. However, with Lundgren's departure, Gennette may have more room to enact his vision, considering that radical change may have been difficult with Lundgren still hovering in the wings, according to observers speaking to Retail Dive this year.