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Poor sales could spell doom for May's CEO Kahn |
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The yearlong sales slump at May Department Stores Co. is fueling speculation that President and Chief Executive Eugene Kahn soon may be replaced.
Kahn, 53, has faced criticism as same-store sales declined for the last year at May. A high profile lawsuit by Bebe Stores Inc. against May for trademark infringement for its proprietary brand "be" also hasn't helped.
May last year made growth through merchandising a top priority, and the development of the "be" label was part of that strategy to target young- adult women. However, May was forced to stop advertising the brand and manufacturing clothing with the label after an injunction in the lawsuit.
Despite a poor economy, some department store chains, such as J.C. Penney Co. and Kohl's, have been doing well, so May's poor sales likely are management-related, said Terre Simpson head of the New York-based retail executive search firm Simpson Associates.
"I think Kahn has a different way of doing business and it has not worked as effectively. The proof in the pudding is in the results," Simpson said.
She said David Farrell, Kahn's predecessor, who retired in 1998, ran a much tighter ship with better results. "He numerically, strategically managed the business and it was very profitable when it was run that way."
Kahn took over the top post in 1998, and while the retailer enjoyed same-store sale increases for 1998 through 2000, they began a decline in 2001 that continued through 2002.
Others have a different view on Farrell and his successor, however. "I feel Farrell milked (May) for all it's worth and then left Kahn with an empty shell," said Arnold Karr, financial editor for trade newspaper Women's Wear Daily.
Farrell could not be reached for comment.
However, company insiders said Kahn, who led May in the build up of its formalwear division with the $436 million acquisition in 2000 of David's Bridal and subsequently Priscilla of Boston and After Hours Formal Wear, recently signed a three-year contract.
May does not comment on rumors or speculation, said Sharon Bateman, spokeswoman for May. Any information about employees or contracts will be reported in the company's proxy statement filed with the Securities and Exchange Commission in April, she said.
William McNamara, vice chairman and former president and chief executive of May's Famous-Barr division, is considered the leading candidate on the inside to replace Kahn, if he is ousted, according to former May executives.
McNamara rose through the ranks in the late 1990s, serving as senior vice president and general merchandise manager for May Merchandising Co. from 1995 to 1997, president and chief executive officer of Famous-Barr from 1997 to 1998, and president of May Merchandising from 1998 to 2000, when he became vice chairman. Under McNamara, net retail sales at Famous-Barr, which then included L.S. Ayres and The Jones Store, steadily rose, from $1.01 billion in 1996 to $1.21 billion in 1998.
Bateman said McNamara would not comment on the speculation.
Another possibility for internal selection would be presidents of divisions that have been profitable, Simpson said. Department store companies don't usually pick from the ranks of vice presidents, she said. "The question becomes, is there a president in one of the divisions who has the capability to run the whole business?"
Farrell, 69, and Judith Hofer, recently retired chief executive of May Merchandising, also would have the expertise to serve as head of May, but their willingness to come out of retirement is unknown, according to a former May executive. Bringing Farrell back is a wonderful idea, Simpson said. "I wonder if he would do it."
Hofer, 62, was persuaded to postpone retirement as chief executive of Filene's in 2000 to take the post at May Merchandising. She could not be reached for comment. Hofer worked for May for more than 30 years, including becoming the first woman to head a May department store division when she was named president and chief executive of Meier & Frank in 1981. She also headed May Co., California, and Famous-Barr and Filene's.
If Kahn were forced to leave May, he'd be in good company. Rob Gruen, head of the Parisian division of Saks, Ken Pilot, chief executive of The Gap, and Allen Schlesinger, head of Filene's Basement, all lost their jobs in January, according to articles in Women's Wear Daily. They're among 14 top executives who've left retail companies in the last month, according to an article in the New York Times.
"It seems that the month of January has shown itself to be the month and even the year of massacres.... It would not surprise me if the massacres were to continue," said Kurt Barnard, president of Barnard's Retail Consulting Group. The Montclair, N.J.-based group forecasts retail industry trends and consumer spending patterns and consults with financial institutions and individual investors.
The national retail industry is one of change, said Kirk Palmer, chief executive of Kirk Palmer & Associates, a retail executive search firm. Palmer declined to comment specifically on any changes at May, but said he hadn't seen so many top executives leave retail companies in the 25 years he's been in the business. "When the results aren't there, the board feels pressure to respond and make a change and that's what you do. This year we're seeing a lot of change in a compressed time period."
The question would be who to bring in if Kahn were to leave, because the industry is suffering from a dearth of talent, Karr said. Simpson agreed. "I think there has been a crisis for the last couple of years in terms of finding the talent necessary to change some of these businesses," Simpson said.
Bemoaning the lack of talent is common in the retail industry, but Palmer said he doesn't necessarily agree there's a problem. There are a limited number of senior executives who have been successful at turning around various retail companies, he said.
One such executive is Allen Questrom, chief executive of J.C. Penney. Questrom headed Cincinnati-based Federated Department Stores Inc. from 1990 to 1997, leading the company out of Chapter 11 bankruptcy. Questrom has been mentioned as a possible successor for Kahn at May. Questrom could not be reached for comment, but J.C. Penney Spokesman Tim Lyons pointed out that Questrom and J.C. Penney are in only the third year of a five-year turnaround plan.
Palmer said he couldn't see Questrom leaving. Questrom has been at J.C. Penney only a short while and stands to earn in the tens of millions of dollars in incentives, pay and profit sharing, if he does a good job, Palmer said. |
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