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How CEO Changes in the Department Store Ranks are Likely to Impact the Sector

Against the backdrop of the well documented challenges facing apparel retail in general and department stores specifically, the industry is also experiencing three high profile changes in the C-Suite.

Terry Lundgren, the legendary CEO of Macy’s, handed the reigns to Jeff Gennette nearly a year ago. It hasn’t even been a week since Karen Katz’s last day at Neiman Marcus so her replacement Geoffroy van Raemdonck is brand new in the post. And Kevin Mansell will leave Kohl’s, turning the top job over to Michelle Gass in May.

Each of these incoming CEOs have a lot to grapple with.

Van Raemdonck, who joins the department from Ralph Lauren, starts his new job with lots of promise as everyone does but he’s also saddled with a debilitating amount of debt. He’ll be tasked with finding new ways to court young shoppers and differentiate the store from its competitors.

Gennette, who rose through the ranks at Macy’s, immediately set about mapping out the company’s North Start Strategy, aimed at moving more shoppers from occasional to loyal, repeat fans, elevating its assortment, ramping up its Backstage off-price concept, chasing the beauty business with Bluemercury and monetizing excess real estate.

Once Gass takes over at Kohl’s, the former Starbucks exec who’s been with the company for close to five years is likely to continue some strategies already in place, including downsizing floor space, finding creative ways to make the stores more productive and reducing production lead times.

With so much in flux, the question becomes: will shuffling the deck help or hinder these stores on their road to reinvention? And is the relative outsider better positioned to take on the challenges or are company veterans a better bet?

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“It’s about finding the CEO that understands both sides of the discussion—and it’s more than two sides at this point. You’ve got the consumer, the digital market, the brick-and-mortar market,” said Gary Wassner, CEO of factoring and finance firm Hilldun Corporation and InterLuxe Holdings LLC co-founder and chairman, adding those could be someone from within the organization or from another sector. “I don’t know that there’s a rule anymore.”

Jan Rogers Kniffen, former May Department Store executive, agrees either strategy can work. It just depends on the company.

Walmart is a prime example of what can happen when you bring in fresh blood, he said. Though CEO and president Doug McMillon is a long-time Walmart guy, he brought in a fresh view, Kniffen said. And then he acquired and landed Marc Lore, a move that’s put the company on a completely new trajectory. “That’s a good example of how someone new makes it work,” he said.

At the same time, Kniffen applauds Macy’s for selecting Gennette, who he calls Terry Lundgren 2.0. In this case, because so many of Lundgren’s ideas were solid, it’s his opinion that it will serve the department store to have someone who will continue the same general vein. At a huge public company like Macy’s, going too far afield with the CEO hire would have been “a Ron Johnson move,” he said, referring to the former Apple executive whose tenure at Penney’s was brief after he upended the business, upsetting customers and inflaming investors.

“Everything he [Johnson] wanted to do was a good idea and yet it almost put Penney’s into bankruptcy because he had customers who thought they knew what Penney’s was. He was successful in bringing in millennials but he fired his current customers faster,” Kniffen said, citing the abrupt end to retailer’s highly promotional cadence without testing the idea first, as a major misstep. “You don’t want that person at a traditional retail company. I think Jeff is the right person at Macy’s.”

For Wassner, the executive changes are coming at a good time. “The world of retail has changed so much. Old school thinking doesn’t apply anymore,” he said. He sees this as an opportunity for these chains to rethink who they are and what they stand for. “I’m hoping to see more foot traffic in stores. Stores will diversify a bit and separate themselves from the pack. And I’m hoping that people will start to see the experience of shopping as something enjoyable again,” he said.

For those reasons, he’s optimistic about Macy’s under Gennette. “I think it’s a fantastic change for Macy’s. He hit the ground running with new concepts and new perspectives,” he said. “Their strategy coming from the CEO has recognized that price can’t be the motive to get people into Macy’s. They’re not going to win on price so they need to be fashion and to appeal to the traditional Macy’s consumer from years ago who went to Macy’s because they could get what they want. It could be stylish and it could be reasonable. They have to provide something different in an environment, an experience and in product.”

Given van Raemdonck’s background at Ralph Lauren, Wassner said he too could have a positive impact on Neiman Marcus. Specifically, he thinks van Raemdonck may be able to move the needle in one area that continues to plague the industry. “What’s important to me as a factor and financier of many brands that sell to Neimans is that they partner with brands in a healthier way so that both the brands and Neimans can make money,” he said.

Amid the slowdown in brick and mortar stores and consumers’ preoccupation with price, Wassner said too often brands are the ones getting battered. “There has to be a much clearer partnership between brands and stores on product to make it more desirable and make it more sellable. And the cycle of delivery and promotions has to change. Hopefully someone coming from the brand side of things, and particularly Ralph Lauren where they’re going through similar changes in the retail and wholesale dynamic, will take this into account and strategize around the new consumer.”

While Kniffen doesn’t know van Raemdonck, he’s not convinced any change at the top would be enough at Neimans.

“It doesn’t matter. It’s heavily leveraged. They have one good business and its Bergdorf,” he said, adding that their target demographic represents the top 2 percent—and there’s not enough of those high-end clients to go around. “I don’t think we need Neimans, Lord & Taylor or Saks. I think Nordstrom can fill that space.”

On the other hand, Kniffen said Kohl’s has carved out a unique business that’s well positioned for how today’s consumer shops. First, it’s not mall-based. Second, the retailer is not overstored. Kohl’s strip center locations put it where consumers are already shopping, whether it’s at off price stores or grocery chains. The company is also planning to go so far as to lease unused space to supermarkets in an effort to rightsize its sales floors and boost store productivity.

With these advantages, he said the soon-to-be CEO is very fortunate. And he thinks Gass’s fresh perspective will serve Kohl’s well. Already the former Starbucks exec has streamlined the company’s rewards program and spearheaded Kohl’s relationship with Amazon. Referring to the latter, Kniffen said, “She’s ahead of the game. You get that when you get someone who isn’t too steeped in the culture.”

Pair those advantages with Gass’ Starbucks background—a company that Kniffen said is all about “customer service and cool”—and he said he’s looking forward to seeing what’s next. When asked what that would be, he said, “I think she’ll be the one to sell [Kohl’s] to Amazon.”

It remains to be seen what bold moves these CEOs might undertake once they fully settle into their roles. For his part, Wassner is looking forward to how the companies evolve from the top down.

“The broad skill sets are all the same in any industry, being good at strategy and being intelligent,” Wassner said. “The specific ones, no one CEO can run every department, you need really good people around you and you need to be aware and recognize areas that you’re not strong at. You can’t be strong at everything.”