What a year it’s been in the world of retail.
Activists took aim at plenty of companies (hello PetSmart, eBay and Family Dollar), major retailers announced CEO changes (J.C. Penney, Home Depot, Walmart US and Target) in a year that was particularly full of them, there were truces between bitter enemies (LVMH and Hermès) and even changes in fortune for long struggling retailers (books sales are rising again at Barnes & Noble.)
Before we turn our attention to 2015, which will be chock full of more drama in retail-land as the improving landscape will make it harder for underperforming retailers to make this weakness, let’s have a look at the action-packed year that was.
1. Retail CEOs dropping like flies
Walmart US (WMT), Target (TGT), Home Depot (HD), J.C. Penney (JCP), Tiffany & Co, (TIF) Abercrombie & Fitch (ANF) and Walgreen (WBA) were among the many retailers to announce changes in the corner office in a year with an unusually high number of CEO changes.
2. Hyperactive activist shareholders
Retail, with its sluggish performance in the last few years, is ripe terrain for activists who see companies being just a few moves away from much higher returns. And activists almost batted 1.000 this year.
Just ask eBay (EBAY), which initially was successful in pushing back Carl Icahn’s demands it spin off its fast-growing PayPal payments unit. By September, eBay announced the split, as well as the departure next year of CEO John Donahoe, whose ability and integrity were attacked by Icahn. The billionaire activist also agitated for dollar store laggard Family Dollar Stores (FDO) to sell itself, and that retailer found itself fielding offers from rivals Dollar General (DG) and Dollar Tree (DLTR). (More on that later.)
And of course there was Jana Partners getting PetSmart (PETM) to sell itself, which it just did, to a private equity firm. If we include restaurants, the Starboard Capital war against Darden Restaurants (DRI) over how to prepare pasta was also a headline-grabbing story for much of the year.
3. As the dollar store world turns… multi-billion dollar bids
What a love triangle Family Dollar, Dollar General and Dollar Tree formed this year.
Soon after Carl Icahn pushed Family Dollar to sell itself (see above), Dollar Tree offered this summer to buy Family Dollar for $8.4 billion and let its CEO Howard Levine keep some role at the company. Then, Dollar General offered $9.1 billion in a deal that excluded Levine, whose father founded Family Dollar, leading things to get nasty. Dollar General offered to shed thousands of stores to get past anti-trust regulators, while Family Dollar was having none of it. So much drama in discount retail. And it will continue in 2015: Family Dollar investors will get to vote on Dollar Tree’s offer on January 22.
4. The gradual, but continued dismantling of Sears
Sears Holdings (SHLD) continued to shrink itself, selling off valuable assets such as its Lands End activewear brand and its big stake in Sears Canada, closing 200 Sears and Kmart stores and renting out some of its space in stores in major malls. The company, between selling off assets and borrowing money from CEO Eddie Lampert, a hedge fund manager and its top shareholder with a 48.5% stake, raised $2.2 billion in cash this year to shore up its liquidity as sales continued to fall. More change could be on the way: Lampert recently said he may try to create a real estate investment trust with up to 300 of Sears and Kmart’s best stores, a way to get the money of out them while he still can.
5. Data breaches go mainstream
Close on the heels of Target’s (TGT) disastrous data breach in December 2013, several other retailers got slammed by similar intrusions, most notably Home Depot, Staples (SPLS), Bebe Stores, Sally Beauty, P.F. Chang’s, Supervalu (SVU), Neiman Marcus and Michaels Stores (MIK). Pity poor Target—its holiday quarter last year was wrecked by the breach and contributed to the ousting of its ex-CEO Gregg Steinhafel. But by the time Home Depot announced its breach in summer, consumers had grown blasé at what has become a common occurrence, and the home improvement chain suffered nary a hit to sales.
6. Founders and boards clash
American Apparel (APP) just fired its founder and CEO Dov Charney after a six-month investigation into his (mis)behavior at the helm of a retailer whose sales and profitability have long been in a tailspin. In June, Charney was stripped of the chairmanship of the company he built into a global, trend-setting clothing retailer and removed as CEO in a stunning boardroom coup after the company alleged he had engaged in misconduct. He then fought to get his job back via a takeover of the company. He remains a major top shareholder.
Lululemon Athletica’s (LULU) board also clashed with its founder, former CEO Chip Wilson, who in June threatened to wage a proxy war, accusing the board of being heavily weighted towards short-term results at the expense of product, culture and brand and longer-term corporate goals. The board did reach a truce that saw Wilson agree to delay any proxy war against the company’s board until 2016 and refrain from waging or supporting a hostile takeover of the business during that period. Wilson sold half of his 27.7% stake for $845 million.
7. Big changes in Walmart US’s top ranks
Walmart US generates sales of $279 billion a year, and it saw plenty of action in its executive ranks. In August, Greg Foran became CEO of the unit a few months after Bill Simon was passed over for the top job. Then two days before the big Black Friday weekend, its chief merchant left. And earlier this month, operations chief Gisel Ruiz left, right at the heart of the peak holiday shopping season. Wal-Mart downplayed the importance of the last two departures, saying they were part of the regular ebb and flow of management changes. But at crunch time? When Walmart US is fighting hard to get even a marginal increase in sales?
8. Barnes & Noble’s book sales finally rise
After years of decline, as Amazon.com (AMZN) ate into its business, Barnes & Noble (BKS) last month finally reported an increase in comparable sales in its core book selling business, which rose 0.5%, showing there is life yet in traditional book selling. Indeed, the growth of e-books market has slowed dramatically in recent years—while they now account for 27% of trade books sales, according to the American Publishers Association, they only rose 3.8% in 2013. That’s good news for Barnes & Noble, which plans on spinning off its Nook digital business in 2015 and resuming life as a publicly traded, stand-alone bookseller.
9. Hermès and LVMH finally reach a truce in their luxury war
LVMH Moet Hennessy Louis Vuitton, the world’s largest luxury conglomerate with brands ranging from jeweler Bulgari to handbag maker Fendi, agreed in September to give up most of the controversial 23% stake in Hermès it had quietly built up since 2007 and not buy any new shares in its smaller rival for five years, ending years of legal wrangling between the two. The deal all but eliminated the prospect of a takeover of the 177 year-old Hermès, famed for its $10,000 Birkin handbags, and one of the few remaining stand-alone French luxury companies.
10. Walgreen gets caught in the inversion debate
Walgreen Co (WBA) found itself in the middle of the intense debate last summer around the patriotism of U.S. companies using foreign domiciles to lower their tax bills. CEO Wasson admitted he was considering structuring Walgreen’s planned $15 billion acquisition of European druggist Alliance Boots as a tax inversion, but ultimately decided it. Wasson had a bumpy year on other fronts—he was sued by his former CFO and earlier this month, announced he would leave the company, reversing earlier plans to stay on and lead the newly formed trans-Atlantic drugstore operator.