WWD Digital Daily

Stock Prices Weighing on Retail C- suite

● Retail ceo’s are feeling pressures to transform their companies and keep their stock prices growing.

- BY EVAN CLARK

When Art Peck found himself out on a limb as chief executive officer of Gap Inc., there were plenty of reasons to point to.

By the time he fell off his perch last week, the company’s third quarter was described as “challengin­g” and earnings guidance was cut dramatical­ly, the planned spin-off of Old Navy was troubled by weaker sales and the Banana Republic and Gap brands were still struggling for a way forward.

While the specifics of Peck’s departure aren’t clear, any ceo exit involves a complex equation factoring in the board, performanc­e, the business landscape and personalit­y — but the simple math can be seen in the stock price: Gap has been under-performing — but so have a lot of other companies, resulting in plenty of

ceo departures this year in retail, and potentiall­y many more ahead in 2020.

Gap still makes money, but it’s trending the wrong way. First-half profits fell 14.3 percent to $395 million as sales slipped 2 percent.

Investors who could have bet on a spinoff of Old Navy, the company’s strongest business, or a turnaround at Gap have instead turned negative. Over the past 12 months, Gap is down 39.2 percent to $16.68, including a drop of 7.6 percent on Friday after Peck departed.

The decline stands out all the more at a time when the S&P 500 has risen

9.2 percent and hit new highs along the way.

Retail might be a tough part of the market right now, with traffic to stores slowing and more shoppers buying clothes online, renting or trying resale with ThredUp or The RealReal. But it’s also not an impossible market.

Target Corp., Lululemon Athletica Inc., Nike Inc. and Walmart Inc. all beat the market. And TJX Cos. Inc. and VF Corp. are still showing gains.

With strong companies pressing their advantage, weaker companies or those in turnaround­s find their positions all the more precarious.

“In the last year, we’ve seen a lot of chairmen of the board step in as ceo,” said Roshan Varma, a director in the retail practice at AlixPartne­rs. “We’ve seen this trend of the board and the chairman definitely wanting to have more of a say in the management of a company.”

In addition to Gap, where chairman Robert Fisher is serving as interim ceo, Tapestry’s board replaced ceo Victor Luis with chairman Jide Zeitlin. And at Chico’s FAS Inc., board member Bonnie Brooks took the reins from ceo Shelley Broader.

Varma said boards are looking not just at the recent performanc­e of the companies they oversee, but they’re also peering into the future and trying to gauge just what a company will need if already rough terrain gets even rougher.

It’s not just the threat of leasing business to e-commerce, or not catching the next wave of innovation, but also working through the complicati­ons of Brexit, massive protests in Hong Kong and more.

“There are just a lot of concerns,” Varma said. “That’s why when boards have seen weak performanc­e in the past, it’s not just that it’s raining hard, it’s that they know that two miles down the road it might turn into gravel instead of pavement, so that’s why they’re reaching over to grab the wheel. Retail’s doing what tech used to do — they’re trying to put adult supervisio­n in the room in the face of surmountin­g unknowns.”

The need for a change of leadership is something that is being felt across the economy, with c-suite churn picking up broadly.

Outplaceme­nt firm Challenger, Gray & Christmas said 172 ceo’s left their posts last month — a 14 percent gain since September. So far this year, 1,332 ceo’s have logged off, looking at companies that have at least 10 employees and have been in business for at least two years. On Friday, Shinola ceo Tom Lewand said he was exiting to take on a new, undisclose­d position elsewhere.

Andy Challenger, vice president of Challenger, Gray & Christmas, said, “We’re at a moment when corporate boards in particular are less lenient with any type of underperfo­rmance against the backdrop of an economy that’s been growing for 10 years.”

Like boards, the stock market is trying to get at the future with millions of investors betting not just how a company is faring right now, but how well it’s prepared for what’s next.

The biggest problem might be finding someone who is ready for what’s next.

Kirk Palmer, ceo of executive search firm Kirk Palmer Associates, said ceo’s are always at greater risk when stocks underperfo­rm.

“But boards look at any number of factors, including stock performanc­e in their peer group,” he said. “So then it becomes a matter of how much a business underperfo­rms relative to the others in that group. Will some heads roll after holiday? Probably so. Unfortunat­ely, the talent pool of ceo’s with proven and sustainabl­e results leading midtier apparel specialty retailers continues to shrink.”

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Art Peck

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