M Macys Inc

By Suzanne Kapner and Joann S. Lublin 

Macy's Inc. longtime leader Terry Lundgren will step down as chief executive at a time when the company he built over 14 years is struggling to adapt to changing consumer demands.

The department store chain appointed one of Mr. Lundgren's top lieutenants, President Jeff Gennette, to take over as CEO in 2017, a move the company said was part of its succession plan. Mr. Gennette, 55, joined the retailer in 1983 as an executive trainee and has climbed the ranks over three decades, much like his predecessor. Mr. Lundgren, who will turn 65 next year, will remain chairman.

Macy's directors accelerated the timetable for Mr. Gennette's ascent to give him the freedom to begin reshaping Macy's now, according to a person familiar with the company. "He is going to make the radical changes" before he officially takes the helm, this person said, adding that Mr. Gennette "has a tough job" ahead of him.

Shares of Macy's rose 4% to $34.12 in early trading. Even factoring in that move, the company's stock has lost roughly half of its value in the past 12 months. The decline attracted activist investor Starboard Value LP, which last year pressured the company to explore options for its vast real estate holdings.

"Now is the time to reset our business model to thrive in a future that is being driven by rapid evolution in consumer preferences and shopping habits," Mr. Lundgren said.

Macy's results have been disappointing. In the first quarter, it reported its worst quarterly sales since the recession, setting off fresh fears about the health of the U.S. retail sector and raising concerns as to whether the chain is losing market share to online players like Amazon.com Inc. and fast-fashion chains like H&M.

Executives at the retailer, which Mr. Lundgren built into the nation's largest department store chain, has complained that consumer spending has shifted from handbags and cosmetics to experiences and electronics, areas where it has little exposure. To address the changes, Mr. Lundgren has pushed into off-price retailing to try to compete with the likes of TJX Cos.' brands TJ Maxx and Marshall's. Last year, it also acquired beauty and skin-care chain Bluemercury Inc., in a bid to reach customers beyond the mall.

Finding a lasting solution to the shifting shopping habits will now fall on Mr. Gennette, a San Diego native and graduate of Stanford University, who was anointed heir-apparent in March 2014 after being chief merchandising officer for five years.

Mr. Gennette is steeped in Macy's with a 33-year career where he climbed every rung of the hierarchy. Starting as trainee, he also served as a store manager for FAO Schwarz, held merchandise positions for its men's and children's businesses, and eventually took executive responsibility for various regions.

Some Macy's directors initially had been unsure whether the CEO-to-be could identify the sweeping steps needed, given his long Macy's tenure and similar background to Mr. Lundgren, the person familiar with the matter said. But the full board ultimately decided Mr. Gennette "has the courage" to make the big shifts needed, this person said.

After elevating Mr. Gennette to president in 2014 putting him in pole position to succeed Mr. Lundgren, Mr. Gennette has filled holes in his management experience. He led analysts meetings, dealt regularly with Macy's finance chief, attended board meetings and learned more about marketing, this person said.

"There is no doubt that Macy's Inc. will need to be a significantly different retailer in the future in the way we operate and approach the marketplace," Mr. Gennette said on Thursday. "But we also must continue to tackle our immediate priorities with vigor and discipline."

The company said earlier this year it would close about 40 stores, cutting thousands of jobs. Macy's employed about 157,900 full-time and part-time workers as of Jan. 30. After deciding against a spinoff of its properties, it has also hired advisers to explore strategic options for its flagship stores and real estate portfolio.

Mr. Lundgren, who started his career in 1975 at a Bullock's store in Los Angeles, built Macy's from a regional department store chain into a national fixture, clocking strong growth in many years when rivals didn't, helped by the 2005 acquisition of rival May Department Stores Co.

When he took the over helm, Macy's operated about 394 department stores and 61 specialty stores and brought in $15.44 billion in revenue. Today, Macy's operates about 870 stores under its namesake brand as well as Bloomingdale's. In 2015, Macy's net sales stood at $27.08 billion.

Austen Hufford contributed to this article

Write to Suzanne Kapner at Suzanne.Kapner@wsj.com and Joann S. Lublin at joann.lublin@wsj.com

(END) Dow Jones Newswires

June 23, 2016 12:14 ET (16:14 GMT)

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