Change is especially hard to ignore these days within the executive suites of publicly traded companies. Investors have the capability to check their open positions each second, around the clock, and around the world. In effect, CEOs and their underlings are getting graded by investors in real time.
If a CEO's performance stinks, dumping positions in droves can happen in milliseconds. Activist investors are swirling like never before, basking in the glow of belittling a CEO's performance on TV in an attempt to get a new person in office who will implement change. What an ego trip for a billionaire investor -- trash a CEO's performance on live TV and then have the story go viral on Twitter.
The next day, the stock pops because the activist investor made a ton of sense on live TV, and has a 500-page slide deck handy to email to fellow investors who were too timid to speak their minds for fear of getting shut out of access to key corporate executives. The embattled CEO either changes how he/she runs the company, or he/she is ridiculed into resigning. Talk about a gig worth striving toward for a young college kid home on holiday break.
Although change is difficult at public companies, in so many cases it's necessary in order to improve returns to shareholders both near term and into the future. I think after another year in which Internet shopping and tepid consumer spending upended business models of brick-and-mortar retailers (with warm weather disrupting holiday sales and profits, too), some retailers could be forced to make a change at the top sometime in 2016. Not helping the cases of some retail CEOs are pressured stock prices for the better part of a year. Here are three retailers that may see change happen.
Gap (GPS): CEO Art Peck officially took over the helm from longtime CEO Glenn Murphy last Feb. 1. Ever since, Gap has been a disaster. Key executives have left, most recently Old Navy's head who ventured to Polo Ralph Lauren. Results badly have underwhelmed at the Gap division and have gotten worse at the Old Navy business. As for Banana Republic, it's a well-known apparel chain that also is lagging but largely has gone unmentioned by Peck on earnings calls; it needs to be fixed. I think Peck has until back-to-school 2016 to start showing improved results, or Gap may make a change before the holiday season.
I can't say a new CEO would do a much better job at Gap, however. The namesake brand is on a long-term decline amid nimbler competition, such as the fast fashion retailers. Further, Peck and his predecessors nicely have pared down the store base -- there just isn't a ton of fat left to trim in order to improve the economics of hawking T-shirts and jeans in an increasingly price-competitive market.
Lululemon (LULU): CEO Laurent Potdevin took the helm from Christine Day in January 2014. At first, Potdevin was able to win over Wall Street with comments on how he would fix Lululemon's inept supply chain. The products even improved. However, shares of Lululemon are down about 10% since Potdevin took over amid a series of unimpressive quarters. The stores look cluttered with merchandise. Founder Chip Wilson was on TV recently criticizing the product styling and Lululemon's culture, almost seemingly asking for the board to appoint him CEO (I think it would help ...).
Similar to Gap's Peck, the clock is ticking on Potdevin, but even faster given how strong the loyalty is to the Lululemon brand. With the right executive in place, more of a merchant, Lululemon could be great again.
Whole Foods (WFM): It's time for change at the top of Whole Foods based on how the company has been run in the past two years. It almost has been as if Whole Foods has ignored the market forces and advice of Wall Street (which is sometimes helpful) and instead stuck to a playbook that clearly is not working effectively. The stock has plunged about 40% in the past two years, recently hitting a fresh 52-week low on Nov. 5. That is embarrassing for a company playing right into the mega-trend in America of greater organic food consumption.
Whole Foods has an option here to improve shareholder value other than going private, which founder John Mackey recently shot down. The first is to slide Mackey back into the role of chairman from his current position as co-CEO and board member. That would mean relieving existing chairman and entrepreneur Dr. John B. Elstrott of his duties.
The plan also would entail parting ways with co-CEO and board member Walter Robb, who has been instrumental in formulating the plans that have made Whole Foods what it is today -- a formula that the stock market says is no longer working. Whole Foods would benefit greatly from outside eyes -- someone who appreciates the company's mission statement, but isn't afraid to make bold operational changes.
