
Macy’s Appoints Former Hermès CEO To The Board. Will It Matter?
Macy’s Inc. just announced the appointment of Robert Chavez, former Hermès Americas CEO, to the board of directors. He joins a board that has experienced considerable upheaval in the past year, guiding a business that has gotten into a hole it can’t seem to dig itself out of.
After graduating from Princeton in 1997, Chavez started his career at Bloomingdale’s, under the tutelage of the legendary Marvin Traub. He moved over to Macy’s, rising to divisional merchandise manager before joining Etienne Aigner Group as CEO from 1992 to 2000, then onto Hermès for the past 24 years.
Yet how much influence can a single board member have for a company that is so troubled, no matter how qualified or experienced?
Can Chavez’s 24 year’s experience guiding Hermès Americas – a luxury brand which virtually doubled revenues from 2019 to 2023 – translate to dealing with the challenges facing the flagship mass-market department store business of Macy’s?
Where’s the Fit?
Executive search specialist John B.R. Long explains that when companies are in the midst of “mission critical” transformation, like Macy’s, it’s expected that they “refresh” their board to ensure relevant experience and to leverage that experience and expertise at the highest levels.
But he questions Chavez’s relevant experience just given the differences between the two companies, their positioning and lifecycle. Hermès is a mature, ultra-luxury, vertically-integrated brand with some 40+ stores in the U.S. and exceptional levels of high-touch customer experience.
Macy’s is the opposite. An extremely large retailer, operating some 700 stores in total and 500 Macy’s stores, that is in decline in a declining multi-brand, department store market. It has some exposure in the aspirational luxury market with Bloomingdale’s but that’s a far cry from the ultra-luxury position of a brand like Hermès. And it’s largely a self-service model and hardly something to brag about, given the challenge of finding sales staff to help on the floor.
“I see very little between the two companies that would be beneficial or leverageable for Macy’s,” Long said. “Maybe they see his relevance to Bloomingdale’s, but Bloomingdale’s is literally a ‘rounding error’ at this point in terms of its scale/weight to Macy’s as a whole.”
That said, maybe Chavez joining the board will be highly productive given his different experience. “I’ve seen some board relationships that are highly productive because they are great ‘thought sparing partners’ – one plus one equals three,” he continued.
Breadth And Depth Key To Macy’s Board Member Success
How well Chavez fits on the board and the influence that he can wield to lift the company will become clear over time.
“Boards are sometimes portrayed as just window dressing, with the management team fully driving strategic change,” said Edward J. Zajac, Professor of Management and Organizations at Kellogg, commenting on a study of board member effectiveness he and fellow researcher Razvan Lungeanu conducted.
They found that board members with both broad and deep experience, spanning multiple industries, firms, and corporate strategies, proved highly influential in guiding corporate strategy and change.
The research, conducted among 750 board directors, specifically measured depth as the number of years a director has been on a board of a firm or in an industry and breadth was the number of different firms and industries the director had deep experiences in.
They found the two qualities of depth and breadth are not necessarily found in a single individual, but when they are, those individuals “have a better chance of making a strategic difference to a company,” Zajac observed.
The appointment of Chavez gave Macy’s stock a bump to $17.22 when first announced, but it quickly settled back down to the $16.50 range, so perhaps investors aren’t convinced one new board member can make the difference. Macy’s didn’t respond to request for comment prior to posting.
Macy’s Compounding Problems
Macy’s most recent third-quarter earnings call was delayed by a $154 million bookkeeping scandal. The financial shenanigans carried out by a single employee went undiscovered for nearly three years – where were the company’s auditors or the board’s audit committee?
“Such things create more nervousness for investors who are already concerned about the company’s performance,” Neil Saunders, managing director at GlobalData Retail, shared with CNN.
When Macy’s finally released results, it reported net sales declined 2.4% to $4.7 billion and the pace of store closures would pick up before the end of fiscal 2024, from a planned 55 to 65. And by 2026, it will be down to around 350 Macy’s stores, which it has classified as “Go-Forward” stores.
However, it reported glimmers of hope from its “Bold New Chapter” turnaround strategy. Its designated First 50 stores, where new strategies are tested, were up 1.9% in comparable sales and its luxury Bloomingdale’s banner up 1.4% and beauty specialty retailer Bluemercury advanced 3.2%.
But those minor increases are largely meaningless given the comparative small scale of the First 50, Bloomingdale’s and Bluemercury compared to the behemoth Macy’s flagship.
“After all, the ‘First 50’ is the group of stores that they’re ‘betting the company’ on,” Long shared. “It just doesn’t feel like they understand how quickly their core business is eroding and Bloomindale’s and Bluemercury aren’t going to be meaningful counterweights.”
Nonetheless, Macy’s raised guidance slightly from before the bookkeeping scandal and expects to close the 2024 year in the $22.3 billion to $22.5 billion range, a steep drop from $25 billion in 2018. It ended fiscal 2023 off 5.5% at $23.9 billion.
Macy’s Activist Investor Wants More Change
Losing patience with Macy’s leadership, Barington Capital Group with partner Thor Equities made a presentation to the Macy’s board in early December demanding a swifter turn around in the business.
Specifically, they asked the company to:
- Reduce capital expenditures to 1.5%-2% of total sales from ~4% currently;
- Repurchase a minimum of $2-$3 billion in stock over the next three years;
- Create a separate internal real estate subsidiary to optimize the return potential of the Company’s real estate assets;
- Evaluate strategic alternatives for the Company’s higher growth Bloomingdale’s and Bluemercury luxury operations.
Plus they want Macy’s to appoint Barington and Thor representatives to the board.
This request follows the appointment last April of two outside board members, Richard Clark and Richard Markee, as part of a concession to activist investors Arkhouse Management and Brigade Capital, which wanted to appoint nine new board members, not to mention acquire the company.
Acquisition discussions ended in July, but Clark, who hailed from Brookfield Property Group, and Markee, formerly CEO and chair of Vitamin Shoppe, remain on the board.
Macy’s Board Turnover Continues
Late last year, Macy’s lost two members of its fixed 15-member board. Outside members Ashley Buchanan and William Lenehan both resigned voluntarily and according to the company’s SEC filings, neither cited any disagreements with the board or company management.
Buchanan moved on from the board and as CEO of craft-giant Michaels to CEO of Kohl’s, a position that would have conflicted with his Macy’s board position. He’d served on the board since 2021.
Lenehan, CEO of Four Corners Property Trust, had been on the board longer, since 2016 and also served on the audit and finance committee.
Amidst this already high level of board turnover, there’s another one. Coinciding with Chavez joining the board, Sara Levinson will be stepping down due to the company’s mandatory retirement age policy of 74 years. Chavez is 69 years old.
Can Chavez Get Along With The Board?
Based upon Zajac and Lungeanu’s research, a new board member joining boards that have been together for a long time face an uphill battle influencing corporate strategy, even with the requisite breadth and depth of experience.
That is certainly not the case for the board Chavez will be joining. It’s longest standing members, outside exiting Levinson who served since 1997, are:
- Deirdre Connelly, who came from GlaxoSmithKline pharmaceuticals and has served since 2008
- Paul Varga, former chair and CEO Brown-Forman spirits company, since 2012
- Torrence Boone, Google vice president of global client partnerships, since 2019
The remaining nine members of its board joined the board in the last three years.
Macy’s chairman and CEO Tony Spring is certainly looking for leadership and direction from Chavez. “Bob will bring significant additional retail industry and leadership experience to our Board as we further our efforts to capture market share across our three nameplates,” he said in a statement.
Chavez shared his passion for the Macy’s, Bloomingdale’s and Bluemercury businesses. “I am honored to join the Macy’s Board and serve as a director at the Company where I started my career and in an industry which I am most passionate about,” he stated.
Big challenges await him at Macy’s and those challenges are unlike any that he faced leading supercharged Hermès Americas for the past 24 years. Welcome, Mr. Chavez, to the deep end of the pool.