Abercrombie CEO Leaves Chain After Overseeing Rise and FallLindsey Rupp
Abercrombie & Fitch Co. Chief Executive Officer Mike Jeffries, who helped create the definitive wardrobe for 1990s teens before losing his status as a tastemaker in recent years, is stepping down.
Jeffries will retire immediately as CEO and a member of the board, the New Albany, Ohio-based company said today in a statement. The board is now seeking a replacement and has enlisted an executive-search firm to identify both internal and external candidates.
Jeffries, 70, came under fire after the Abercrombie and Hollister clothing lines lost their cachet with teenage shoppers. The company also suffered from a broader drop in shopping-mall traffic, contributing to 11 quarters of same-store sales declines and a 77 percent plunge in profit last year. Jeffries’s departure reflects a change in strategy, said Simeon Siegel, a New York-based analyst at Nomura Holdings Inc.
“This is what people have been waiting for,” he said. “They’ve not been happy with the results. So in theory, change is good.”
The shares jumped 8 percent to $28.46 after the move was announced, marking the biggest one-day gain in more than nine months. Through yesterday’s close, the retailer’s stock had fallen almost 20 percent this year.
Abercrombie had already stripped Jeffries of his chairman role earlier this year. It created a new chief operating officer job and named four new independent directors to its board as part of a deal with Engaged Capital LLC, an activist investor that sought changes at the company. The retailer also hired two executives to head up the Abercrombie and Hollister brands.
“Back when they announced they were going to be having brand presidents, when they said they were going to have a chairman, it was all leading to this,” Siegel said. “As opposed to answering an activist by throwing a CEO to the curb, they basically allowed him to retire with dignity.”
As part of today’s changes, Abercrombie & Fitch’s nonexecutive chairman, Arthur Martinez, will become executive chairman. The board has created an office of the chairman that will include Martinez, as well as Chief Operating Officer Jonathan Ramsden, Abercrombie brand President Christos Angelides and Hollister brand President Fran Horowitz. The team will manage the company’s strategy and day-to-day operations until a new CEO is named, Abercrombie said.
Martinez said the decision wasn’t sudden, but rather the result of discussions among board members, including Jeffries. While the timing of the change -- less than a month before Christmas -- may seem abrupt, merchandise, discount and marketing plans for the season have long been decided and the CEO search won’t affect execution in stores, he said.
“The timing is a byproduct of a long process over several months,” Martinez said in an interview. “Succession planning in the boardroom today is topic No. 1. Selection of a CEO is the most important duty a board has.”
Abercrombie & Fitch was founded in 1892 as a purveyor of outdoor gear to adventure seekers such as Theodore Roosevelt and Ernest Hemingway. In the 1990s, Jeffries shifted the company’s focus to young adults and became known for its jeans, polos and T-shirts emblazoned with a moose logo. The company expanded with the Southern California-style Hollister apparel stores and Gilly Hicks lingerie shops.
“It has been an honor to lead this extraordinarily talented group of people,” Jeffries said in the statement. “Now is the right time for new leadership to take the company forward in the next phase of its development.”
Like many teen-apparel retailers, Abercrombie began struggling over the past decade, hurt by e-commerce competition and the rise of fast-fashion chains such as H&M. The company’s next CEO will need to help the company adapt to the rapidly changing industry, Martinez said.
“We’re never going to reinvent Mike Jeffries, and we shouldn’t be trying,” he said. “The next step forward requires someone with somewhat different skills than Mike, and someone who’s acutely aware of the disruption that’s coming in the industry -- the emerging dominance of online and omnichannel retailing -- someone who can strategically navigate those waters.”
Analysts have cited Ramsden, who oversees the company’s operations, and Angelides, who is highly regarded internationally, as strong internal candidates.
“They owe it to the shareholder base to look externally as well as internally,” said Pam Quintiliano, a New York-based analyst at SunTrust Banks Inc. “It’s not as though they’re going to be rudderless without a CEO. They both would be good candidates.”
Jeffries will receive a retirement package worth $27.6 million, according to the company’s proxy statement filed in May, including a supplemental executive retirement plan worth $14.1 million and a 401(k) and other savings worth $13.5 million. Jeffries, whose employment will end Dec. 31, will also get an additional $5.5 million in cash and benefits, according to a filing today.
Once one of the best-paid CEOs in retail, Jeffries saw his compensation shrink 72 percent last year. His total pay was $2.24 million in the last fiscal year, which ended Feb. 1. That was down from $8.16 million in the previous year and $48.1 million before that.
Jeffries didn’t receive any performance-based bonuses last year, accounting for much of the reduction in his total compensation. He also didn’t get a cash bonus or any equity awards because the company failed to achieve financial targets and its stock performed poorly, Abercrombie said in a May filing.
Calls for a change in leadership began a year ago, when Engaged Capital sought to push out Jeffries. The two sides declared a truce in April after the chain agreed expand its board. Engaged didn’t immediately respond to a request for comment today.
Abercrombie has already begun taking steps toward appealing to a new generation of teens. The company is changing the store experience and stamping its logos on fewer items, going for a more understated look. Looser-fitting styles and the color black also are lining shelves -- a break from tradition. And the company has enlisted so-called Instagram kids to help market the brand on social-media platforms.
As part of the makeover, Hollister stores are more brightly lit and the company has turned down the music. It’s also reduced the fragrance spritzed among the racks by 25 percent. At the Abercrombie brand, the signature blinds on the windows are gone. The shirtless models that were ubiquitous in the chains advertising have been replaced with mannequins and images focused on the store’s clothing.
Still, the company will have to find new ways to regain its status without the man credited with building its original success.
“He actually was the brand,” said Terre Simpson, president of New York-based executive-search firm Simpson Associates. “Now it’s almost as if they need retail psychotherapy to determine what the brand direction should be.”
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