From Kohl’s to Levi’s, the Ripple Effect of Michelle Gass’ CEO Switch
Michelle Gass has made her move — signing off as chief executive officer of Kohl’s Corp. and signing on as president and CEO-to-be at Levi Strauss & Co.
It’s a switch that means very different things for the two companies.
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At Levi’s, Gass’ arrival marks the end of some very deliberate succession planning by the company’s board and CEO Chip Bergh, who turned the denim firm around over the past 11 years, took it public and is looking to hand over the reins, eventually.
But at Kohl’s, it’s a high-profile change at the top that comes after years of pressure from activist investors and as the company faces stiff macro economic challenges and weakness in its customer base.
While investors were happy to see some change at Kohl’s, they were not so keen to see Bergh preparing to step aside at Levi’s. Shares of Kohl’s shot up 7.5 percent to $28.85 on Tuesday while Levi’s stock slipped 3.1 percent to $14.87 on Wall Street.
Gass will officially leave Kohl’s on Dec. 2 and take on her new role as president of Levi’s on Jan. 2. She will start out reporting to Bergh and overseeing Levi’s and the company’s other denim businesses before stepping up as CEO within 18 months.
“I’m not going anywhere,” Bergh told WWD in an interview. “I am here. I am still the CEO. I’m in the office, it’s 6:44 in the morning. I’m all in and I’m committed to this company. I love this company. I love our brand. I love the team. I’m committed to successfully transitioning to Michelle.
“Every morning I roll out of bed happy to come to work,” he said. “I love what I do, but I just turned 65 and I’ve been in the job for 11 years. That’s a pretty good run for a CEO.”
Bergh said Gass will bring a new set of eyes to the business, an urge to move on big ideas — and a lot of experience, with about 17 years at Starbucks and nearly five years at Kohl’s.
“Her mark on Kohl’s is meaningful,” Bergh said, pointing to the company’s pivot to athleisure, which is now almost 25 percent of the business, the partnership with Amazon to accept returns and the introduction of Sephora.
“These are transformational innovations that she’s led and I couldn’t be more excited about eventually handing the baton over to her,” Bergh said. “I came with meaningful brand chops, but I had no apparel experience and no retail experience. She’s going to bring 25-plus years of meaningful retail operations experience, global business as well.”
He noted that Kohl’s digital business — at about $6 billion — is the size of Levi’s overall.
“She comes in and she learns the brand, she learns the company, she learns the business and gets to suck every ounce of knowledge out of my brain as possible and my job is to set her up for success,” Bergh said.
“My biggest hope is that she comes in with a fresh set of eyes and an open mind,” he said. “She doesn’t have to sit in the hot seat on Day One.”
That will give both her and the Levi’s organization a chance to acclimate.
“I’m very confident that we’re going to have real strong continuity of our strategic choices,” said Bergh, who has focused on building the brand, the direct-to-consumer business and, more recently, expanding with the acquisition of Beyond Yoga. Earlier this year, Bergh set a five-year strategic plan that has Levi’s targeting $10 billion in sales.
Gass, who declined to comment Tuesday, landed the top job at Levi’s after a pressure-filled, difficult tenure as CEO — and activist shareholders got the change-in-command at Kohl’s that they have been pushing for.
Taking over as interim CEO of Kohl’s is Tom Kingsbury, a highly regarded veteran merchant who elevated Burlington from a sleepy off-pricer into a top performer in the discount sector that has become increasingly competitive against TJ Maxx and Ross Stores.
Fredrick D. DiSanto, chairman and CEO of activist investor Ancora, and James Chadwick, president of Ancora Alternatives LLC, said: “It is the right time for the company to pivot to a leadership team with enhanced operational expertise and strong turnaround experience. We are very pleased that Kohl’s will be appointing retail sector veteran Tom Kingsbury, who was nominated by our shareholder group in 2021, as its interim chief executive officer.
“We are also pleased that Tom and our group’s other designee, Margaret Jenkins, will be part of the new committee tasked with identifying the right permanent leader for the business,” the two investors said. “Ancora has been a long-term shareholder of Kohl’s and believes that under the right leadership, the company can be a source of tremendous value for investors, customers, suppliers and employees.”
Gass joined Kohl’s in 2013 as chief customer officer, was named chief merchandising and customer officer in 2015 and became CEO in May 2018. Prior to Kohl’s, Gass held a variety of roles at Starbucks Corp., working in marketing, global strategy and merchandising and serving as president, Starbucks Europe, Middle East and Africa.
Her tenure at Kohl’s ended up being a challenging one — and not just because it coincided with the pandemic.
“It’s been a difficult company to steer,” said Kirk Palmer, founder and CEO of executive search firm Kirk Palmer Associates. “It’s hard to take a mature business that’s already gone through stratospheric growth and figure out how to keep it growing and how to keep the Street interested. Michelle Gass has taken a fair amount of criticism and it’s been no fun with all of the activist pressure, which can be very distracting.
“But I rate her performance way above average,” Palmer said. “She brought Sephora to Kohl’s, formed a partnership with Amazon, and look at what’s been accomplished in both private and market brands. She’s had a lot of good ideas.”
Regarding Kingsbury, Palmer cited his success at Burlington. Kingsbury joined Burlington in 2008, took the company public in 2013, and the stock rose from its opening $25 share price to more than $200 a share during his tenure. He left the company in September 2019. The stock is trading around $130.
Prior to Burlington, Kingsbury served as senior executive vice president, information services, e-commerce, marketing and business development at Kohl’s from 2006 to 2008. Before joining Kohl’s, Kingsbury held management positions with the former May Department Stores Co.
He’s considered a strong merchant and could be a candidate for permanent CEO at Kohl’s, though his age — he’s 70 — could be a factor.
Kohl’s also isn’t the only major retailer or fashion company looking for a new leader. Gap Inc. is also on the hunt for a permanent replacement for Sonia Syngal. And in the resale space, The RealReal Inc. is looking to fill the vacancy left by founder Julie Wainwright.
Oliver Chen, an analyst at Cowen, said: “Kohl’s needs to attract and retain younger customers, drive greater consistency in traffic and full-price selling, continue to innovate and update the women’s apparel business, and drive lasting performance at very good partnerships — Sephora and Amazon. New leadership will need to execute on speed, pricing, and personalization as well.”
That’s a big job for a big company in a tough spot.
Elaine Hughes, managing director of executive search firm E.A. Hughes, described Gass’ move as “very timely given the challenges being faced by Kohl’s.”
“The résumé of a CEO in the world of fashion consumer products has evolved over the past 10 to 15 years,” Hughes said. “Not all recruitments out of CPG have worked but as of late they have. Patrice Louvet of Ralph Lauren is one outstanding example. Chip Bergh broke the historic CEO mold at Levi’s and the results have been outstanding. Michelle’s foundational experience at Starbucks mirrors Chip’s P&G experience, plus she has the additional leadership experience of Kohl’s.”
Neil Saunders, managing director of GlobalData, said Gass’ departure from Kohl’s was “unsurprising” given the retailer’s “chronic underperformance.”
“This will be seen as a sacrificial offering to investors, who have long pushed for widespread change in the management suite,” Saunders said. “While it is true that Gass has presided over the decline of recent years, she has also been responsible for guiding Kohl’s through the challenging pandemic period and putting in place improvements in assortments, multichannel and store format development…it is fair to say that Gass has saved Kohl’s from more serious decline. As such, we believe her legacy should be viewed favorably.”
Now her focus will turn to Levi’s.
Craig Johnson, president of Customer Growth Partners, noted that the long transition period before Gass steps up to CEO at Levi’s “seems like a probationary period and does not indicate a real vote of confidence. Usually, a transition period is a few months.”
Another source noted that any transition period between the current CEO and CEO-designees involving the exchange of control can be awkward, and succession plans could change.
That was certainly the case for Joshua Schulman, who was set to take the reins at Capri Holdings Ltd. from John Idol, but instead made a surprise exit last March with Idol remaining in control. Elsewhere, Stefan Larsson had a long ramp up at PVH Corp. and successfully took on the mantle of CEO from his predecessor Manny Chirico.
But Bergh noted he has known Gass for a decade and gave her a ringing endorsement to take the job he clearly loves.
Johnson said: “Michelle Gass did a lot things right at Kohl’s, most notably the Sephora deal, the early jump into athleisure, and the deal with Under Armour,” among other brands added to the mix. “But if you look at the fundamentals of the company, the sales transaction velocity has flatlined, and the average ticket has lagged.”
As Kohl’s revealed Gass’ departure, it also reported preliminary unaudited results for the third quarter ended Oct. 29, indicating that comparable sales decreased 6.9 percent and net sales decreased 7.2 percent. Kohl’s reported an operating margin of 4.7 percent and diluted earnings per share of 82 cents compared to $1.65 in the year-ago quarter. Kohl’s plans to release its full third-quarter financial results on Nov. 17.
Johnson also said that the new strategy at Kohl’s to open 100 scaled-down stores, at around 35,000 square feet or about half the size of most Kohl’s stores, should have been started sooner. With smaller stores, Kohl’s expects to raise productivity levels.
The partnership with Amazon, enabling Amazon orders to be returned to Kohl’s stores, “added footfall though it didn’t add transaction velocity,” Johnson contended. “Launching the small format is designed to better match supply and demand and is a good idea but belatedly done.”
Kohl’s has already begun opening some scaled-down units including one completely modernized “concept” location in Tacoma, Washington, opened two weeks ago that rethinks and modernizes the retailer’s brick-and-mortar experience.
Johnson said Kohl’s was late in addressing the post-COVID-19 trend of consumers shifting from cozy, comfort styles to dressier ones.
In addition to searching for a permanent CEO, Kohl’s has a vacancy for a permanent chief merchant.
Said another source: “It’s anything but uncommon to see executive transitions when things are not going well. Conversations start. In this case, it looks like Michelle Gass has made a clean break.”
