Dive Brief:

• Macy's announced on Thursday that CEO Terry Lundgren will step down in the first quarter of 2017. Lundgren has been CEO at Macy's since 2003. 
• Macy's president Jeff Gennette, who joined the company's board of directors on Thursday, will step into the CEO position upon Lundgren's departure. 
• Lundgren will continue on at the company as executive chairman of the board, working side-by-side with his successor Gennette, who will be president and CEO.

Dive Insight:

Lundgren’s announcement comes at a tough time for the department store retailer. Like many other brick-and-mortar retailers but especially those with large apparel inventories and mall-based locations, Macy's is beset by shifting trends in consumer behavior. While consumers still rely on stores for most of their shopping, online commerce is growing fast and eating away at traditional retailers' sales.

“I have been honored to lead this enterprise through a period of unprecedented reinvention," Lundgren said in a statement announcing the succession plan. "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. Our company must and will change in response to the profound secular forces that are driving consumer spending." 

In the most recent quarter, Macy’s saw its sales decrease 7.4% to $5.77 billion. The dismal report and outlook was mirrored by many of Macy’s competitors, with J.C. Penney and Sears also seeing sales declines in the most recent quarter. Experts have attributed these to a number of trends, including declining mall foot traffic, the rise of fast fashion, and younger consumers preferring to spend more on experiences than clothing or material objects. 

Department stores and other apparel retailers are also facing a new threat from e-commerce giant Amazon, which has made an aggressive foray into apparel. Investment firm Cowen & Co. predicted in May that Amazon would replace Macy’s as the number one U.S. apparel retailer by next year.

At the leadership level, Macy's has been highly cognizant of these changes. Acknowledging the significant challenges facing the company, Lundgren vowed a comeback to shareholders in May, emphasizing initiatives like Macy’s new off-price Backstage stores and an increased sales push in China. The retailer also plans to unveil a new concept store that will incorporate more store-within-store shops, such as a Bluemercury spa, LensCrafters shop, and revamped wedding services, including a Papyrus stationary shop and Tux Shop.

The concept is similar to ex-J.C. Penney CEO Ron Johnson’s grand idea for “mini-malls" that would attract customers by creating more of an experience in stores—thus making shoppers stay longer and spend more. While Johnson’s idea fizzled out after J.C. Penney’s same-store sales tanked following the swift and untested introduction of the concept, many retailers (including Macy’s) have realized that the model was in some ways ahead of its time and shoppers need attractions to visit brick-and-mortar stores beyond the goods they can buy there.

But with these changes , experts have expressed concerns over Macy’s aggressive push into off-price stores, a highly competitive space already crowded with Nordstrom’s Rack stores and TJX’s TJ Maxx and Marshall’s stores. Macy's, which plans to have 22 Backstage locations open by the end of year, implemented the store concept to attract millennials to the brand, betting that they will transition to Macy’s full-price department stores as their income grows with age. Analysts are warning that the move could disconnect Macy’s with its core shoppers and cannibalize its department store sales. 

The announcement also heralds the rise of incoming CEO Jeff Gennette. Gennette, who started his career in retail at Macy's West in 1983, was named Macy's president in 2014 after serving as chief merchandising officer since 2009. Gennette also served as a store manager for FAO Schwarz and director of stores for Broadway Stores, according to the press release announcing the succession plan.