This has been a tough, tough year for some retailers.
Earnings are under pressure from fickle consumers who aren't buying according to typical seasonal patterns. More Web shopping does not help matters. Neither does the entrance of new boutique concepts in major cities that are drilling down on greatly enhancing customer service. For others, a larger rival is simply doing a better job, causing execs at the laggards to try all sorts of new initiatives to try to wrestle back share. In the process of these things, the stock prices of some major retailers have nosedived in 2015.
Best believe in this world of activist investors, pressured stock prices and subpar results will lead to a high likelihood of changes at the top to bolster performance in the New Year. In part two of this series (read part one), Real Money takes a brief look where changes may land within the retail sector.
Macy's (M): Full disclosure -- I am a big fan of Macy's Chairman and CEO Terry Lundgren. He is the father of modern-day department store retailing. A Macy's store today -- full of designer shops and better customer service -- is light years different from a Macy's shopping experience when Lundgren took over as CEO in February 2003. Back then, it was almost depressing to walk through a Macy's store. Further, the company has blown past its peers in integrating stores with online, while making assortments more local as to reduce the potential of markdowns and inventory investment. I also happen to enjoy his optimism on business. Macy's stock price has gained about 177% since Lundgren assumed the CEO role -- the Dow Jones Industrial Average has risen by 118%.
Having said that, I think Macy's would benefit from a new pair of eyes, perhaps from outside the company, as it seeks to maintain its edge over competitors -- some resurgent, such as J.C. Penney (JCP). Lundgren has dealt with a major activist threat this year, and at the same time has had to defend his strategies more to Wall Street amid soft quarters for sales and profits. The stock has lost 44% in the past year, and could lose more as Macy's deals with a mixed holiday quarter due in part to warmer-than-normal weather. All in all, these things are taxing on one's energy. Unlike other CEOs in this series, however, I don't think Lundgren should leave Macy's entirely. He has a wealth of knowledge and would be a perfect chairman who works closely with a successor to impart his wisdoms.
Finish Line (FINL): This is another hard call for me to make. Finish Line Chairman and CEO Glenn Lyon has a 40-year career in the retail industry. Lyon had led Finish Line as CEO since 2008, and was made chairman in 2010. To talk to him on the phone, you can tell he has a true passion for retail, and the footwear industry in particular. But Finish Line has badly underperformed rival Foot Locker (FL) for the better part of two years -- despite a major innovation cycle in footwear and athletic apparel driven by Nike (NKE), Under Armour (UA) and Adidas. Finish Line shares have lost 35% in the past year, whereas Foot Locker's stock has surged 63%. Nike and Under Armour have seen their shares rise 65% and 90%, respectively, over that span. It's as if Finish Line is the only footwear retailer not partaking in the major demand cycle for athletic footwear. (Under Armour is part of TheStreet's Growth Seeker portfolio. Foot Locker is part of the Trifecta Stocks portfolio.)
I think Finish Line would benefit from a bigger focus on basketball and urban street culture as opposed to mostly running both in stores and online. Similar to Lundgren at Macy's, Lyon has a wealth of experience that would make for an ideal chairman, letting someone else from outside the company take over the day-to-day.
Chipotle (CMG): In my opinion, restaurants are retailers. They sell people food and some form of customer service. And in this regard, making a change to the co-CEO structure at Mexican-themed food retailer Chipotle is something Wall Street would likely embrace. In fact, it may be forced upon Chipotle in early 2016 -- with the stock under severe pressure and seeing how poorly the E.coli situation has been handled (it never would have happened if the proper infrastructure was in place), an activist may swoop into the picture. Chipotle has many, many years of high growth left in its future, which will be realized once this major E.coli outbreak makes its way into the rearview mirror of consumers (and it will). I think Chipotle would benefit with founder and co-CEO Steve Ells serving as chairman, while a veteran restaurant industry exec with background in operations assumes the singular role of CEO.
The discussion of this may pick up in earnest when the compensation packages for Ells and co-CEO Monty Moran are disclosed in proxy filings in 2016. Ells and Moran made $28.9 million and $28.2 million, respectively, last year in total compensation (mostly in stock options), according to company filings. Over the past three years, Ells has raked in about $74 million in total compensation, Moran about $72 million.
