Why Lands’ End Ousted Its Change Agent
It was starting to feel a lot like Christmas in Lands’ End’s private New York City showroom, though it was only July 27th. Speaking over softly playing Christmas carols, Federica Marchionni, the company’s CEO of a year-and-a-half, was giving me an early preview of the company’s new holiday offerings. They included well-crafted cashmere throws, monogrammed pajamas, fine glassware, and even artisanal cheese collections for $50. Then we moved to another room, where Marchionni showed off the new Canvas by Lands’ End line, featuring a $600 men’s jacket and brocade dresses. They were all lovely. They were also bewilderingly, preciously off-brand for the 53-year old, sensible-to–the-point-of-dowdy, all-American retailer, based in small-town Dodgeville, Wisc.
But creating a fancier alter ego was exactly what Marchionni, a stylish 44-year-old who favored tailored white suits and stilettos, was brought in to do back in February 2015. Lands’ End had been through three CEOs in the previous decade (she was the 6th since 2002) and suffered from an affiliation with its former parent Sears, aging customers and a sluggish retail market. The $1.4 billion company needed a Hail Mary. And so its board had reached way, way out of the box, taking a chance on the Italian-born Marchionni—who was becoming a CEO for the first time and was a veteran of luxury businesses Dolce & Gabbana and Ferrari.
Marchionni spoke often, and passionately, about her connection with the company’s more traditional customers. Many of them come from small towns and she pointed out that she did, too (though hers was near Rome—a far cry from Wisconsin). But Marchionni positively glowed when talking about the new line and its better-heeled potential customers. At our walkthrough, she mentioned several times just how impressed the editors of Vogue had been with the clothing and with Lands’ End’s high-end media campaign, shot by Mario Testino (who photographs for the likes of Vogue and Vanity Fair) and featuring actress Emma Roberts. “I am sure,” Marchionni said with a salesperson’s flair, “that one day soon everybody will buy at least one product from Lands’ End.” Everybody, it was quite clear, included a lot of people that had either never heard of the company—founded to provide durable clothing for sailors—or wouldn’t previously have been caught dead in its offerings.
But Marchionni didn’t make it to Christmas—and if “everybody” falls in love with Lands’ End, it won’t be on her watch. On Sept. 26, after just 19 months at the helm, and just as the first product line she had shepherded hit the market, Marchionni was abruptly pushed out by the board and replaced by two existing members of her executive team. “We remain committed to… returning to sustained, profitable growth for the benefit of all our stakeholders,” the company said in a statement announcing her departure. (Lands’ End declined to comment for this article.) With the company’s stock down by almost half since she came on and a 2015 loss of almost $20 million, the board had had enough.
I couldn’t help feeling a sense of déjà vu at the news. It’s the sequel to a movie we’ve seen before, in which a glamorous outsider takes the reins at a struggling retailer and, with full board support, promises to move it from middle-of-the-road to upscale. Customers and employees rebel, short-term results plummet and the board panics, abandoning the new strategy before it has a chance to fail—or to succeed. That’s what happened at J.C. Penney back in 2011, when Ron Johnson, head of Apple retail stores, came in with the mission of making the department store chain, er, great again. He did it by bringing in well-known designers to attract a customer that would never have considered shopping there previously. The plan had a disastrous start, and Johnson was soon pushed out by the same board that welcomed him less than two years earlier. (For the full J.C. Penney saga, read this Fortune article).
As I got to know Marchionni earlier this year, I was so struck by the parallels to J.C. Penney that I asked her to comment on them. “I studied the successful stories,” she said. “I also studied the failed ones and [J.C. Penney] is one of them. First of all, you need to respect your customer. Of course, people are getting excited by the new things. But 90%-plus of our focus and resources are dedicated to the loyal customers. They are the most important constituency in the strategy.” True or not, Marchionni’s experience turned out to be oddly reminiscent of Johnson’s—both in terms of her management missteps and in the board’s waxing and waning appetite for major change. Snipes one rival CEO, who, years earlier, said almost the exact same thing about Johnson: “It was not meant to be from Day One.”
Changing a culture is not for the weak, and Marchionni came in well aware of that. As an Italian woman who had worked her way up in the regional operations of a Korean-run tech firm (Samsung) and then moved to other industries in which she had little experience, she was not easily intimidated. “She was a serious agent of change in a company that really needed to be changed,” says Joel Layton, senior director of digital commerce at Lands’ End until February 2016.
But it is also true that her edges were sharp—and her tenure was rocky almost from the get-go. She was criticized for not moving to Dodgeville but instead keeping her home base in New York—the same criticism lobbed at Johnson, who stayed in California instead of moving to Dallas at a time he was turning J.C. Penney’s culture upside down. Her desire to be at the forefront of fashion—in the front row at Fashion Week, opening up a popup store in Southampton, speaking on a panel about content and commerce at Davos—prompted concern that she had little interest in old Dodgeville. And her blunt approach was a far cry from midwestern politesse. One insider says people referred to her as “The Devil who wears Prada.” (The company says this is not true).
Marchionni, however, wasn’t pretending to be someone she wasn’t. The board readily accepted her desire to stay in New York, writing it into her contract. That’s perhaps not a surprise given that Eddie Lampert, the hedge fund manager and CEO of Sears who owns 59% of Lands’ End’s stock—Sears bought Lands’ End in 2002 and spun if off in 2014—doesn’t live in Illinois. More of a surprise was the fact that the board also signed off on her vision of building a new customer base by improving quality and style and by spending on brand exposure, even as Lampert has effectively destroyed the Sears brand by starving it. (Lampert wouldn’t comment for this story.) Says one source close to the company: “They didn’t hire the former CEO of L.L. Bean. They wanted a change.”
Marchionni understood the risks, but plunged in anyhow, perhaps because CEO gigs are so hard to come by (especially for women, as this Fortune story makes clear). Back in April, she told me that she had warned Lampert that she would take the job only if she had real control. “I have to be really driving and leading,” she says she told Lampert. “If you put me in a cage, it’s the moment where I will fly away.” At the beginning, she seemed to have the full support of the board, bringing in a new executive team, including head of merchandising and design Joseph Boitano, from Saks, and a new chief supply chain officer, Scott Hyatt, poached from J. Crew. She promoted a few long-time executives and cited the careful studies she had done of companies such as Burberry and Ralph Lauren that had resurrected their brands.
Marchionni also reduced the circulation of Lands’ End’s catalogs—which went to the more traditional customer—and reallocated that money to things like popup stores. She set out to boost the quality of the company’s products by changing the sourcing, and spoke about making the company less dependent on weather by focusing on the types of clothes that can be worn all year, rather than just the coats and bathing suits that Lands’ End was best known for. And she aimed squarely at millennials. “Any brand, to stay relevant,” she said in April, “also needs to service someone who is 20-35 years old.” She talked about getting out of the discount trap that so many retailers, including Lands’ End, fell prey to.
All these ideas made sense in the abstract. But quickly, there was pushback from her employees, the board and her customers, most of whom had little interest in high fashion and shopped at the company for its durable clothing and excellent customer service. After all, these changes were not only costly but were also taking place in the middle of one of the biggest retail slumps in history—not just for Lands End, but for virtually all retailers. Indeed, Lands’ End’s first full year under Marchionni’s tenure was dreadful, with sales falling 9%. It was far too early to evaluate her strategy, given the long lead times to develop new products. Still, the board—not Marchionni, says a source close to the company—recruited Jim Gooch as Lands’ End’s COO and CFO in January 2016.
Gooch was, in many ways, the opposite of Marchionni and Boitano: a mid-market executive who had worked with Lampert at Kmart until 2005. From there he went to coupon book maker Entertainment Publications, and then to Radio Shack, where he served as CEO until 2013 (the company eventually went bankrupt). Gooch moved on to a tumultous short stint at Demoulas Supermarkets, which ended with him being pushed out. More relevant, it seems, was his nonluxury background—and his cost-cutting skills. The press release announcing his hiring pointedly stated that his “primary residence” would be Dodgeville.
Then Marchionni made a huge mistake—one that sowed doubt about her ability to run the Lands’ End, as well as about her understanding of its traditional customers. In a new catalog, Marchionni—trying to illustrate the notion of Lands’ End as an American icon—conducted an interview with another American icon, Gloria Steinem. Both were photographed in Lands’ End’s newer attire. The interview was benign, boring, even, considering the stature of the subject. But some people who were involved in setting up the interview fretted that Steinem’s status as an icon of the left could upset the company’s many conservative customers.
It’s unclear whether Marchionni was warned or never told that this could be a problem, but she forged ahead—apparently clueless as to why, at a moment of such politicization in this country, that could push some buttons. The reaction to the Steinem interview was swift and harsh; many customers and Catholic schools, many of whom bought their school uniforms from Lands’ End, announced they would boycott the company because of Steinem’s active pro-choice position (though this was not mentioned in the interview). The company’s Facebook page—normally made up of practical queries about sizes and colors—blew up with vitriol.
Then Marchionni compounded her mistake by apologizing—and withdrawing the catalog from circulation, which, in turn, enraged the pro-choice segment of customers. “Our intent was not to take a stance,” Marchionni said in April. “It was a painful moment.” Says Layton: “It was not a great move and it just wasn’t handled well.” It was reminiscent of a move that Johnson made, when J.C. Penney put out a catalog featuring a gay couple and shoppers threatened a boycott. (Johnson did not, however, apologize.)
A few months later, the brouhaha had died down somewhat, and Marchionni, eager to find the positive, asserted that surviving the tempest had brought her closer to her employees. “It was an experience where I could prove my leadership to the team,” she claimed. “It gave me the opportunity to stand up for them.” Perhaps, but it was a poorly timed stumble, coming just as the company moved to launch Canvas by Lands’ End, the higher-end brand that Marchionni championed.
In my two meetings with her in April and July, Marchionni seemed to be in a tremendous hurry. “I don’t work thinking that they are giving me time,” she said. “I work full speed.” In retrospect, I think she was also under tremendous pressure by a board that, like J.C. Penney’s, had lost its nerve and wondered whether she had the skills to manage the rest of the business. “Maybe I will be a failure,” she said, knocking wood. “But I don’t think so. I’m not Elon Musk, but I’m innovative and leading the transformation with a lot of courage.”
In New York, Marchionni seemed on terra firma, but in Wisconsin, she seemed tone deaf to a very established culture—perhaps a slow-moving one, but one that had survived for a long time. Although she said all the right things about her employees and how critical they were to the company’s success, she also seemed to have something of a messiah complex. “Imagine if I wasn’t here, what this company would do,” she told me in April. “I think without this [move to attract new customers], it would probably be the end.” Again, I was reminded of Johnson.
I also remembered Ron Johnson saying that his transformation of J.C. Penney would take four years. But after he lost an incredible $1 billion in his first year, the board lost its appetite for anything more. Marchionni held herself responsible for showing relative improvement, and in the 2nd quarter of this year, ended Sept. 1, she at least cut the rate of decline; same store sales fell 2.5%, better than the previous quarter, though the company lost $2 million. At our meeting in July, she said that finally, with the holiday offerings reaching the marketplace, it would be appropriate to judge her on her own strategy. But still, her focus remained external. Case in point: Marchionni accepted an offer to co-marshal New York City’s Columbus Day Parade this year. That’s great achievement for a New Yorker, but it’s unclear exactly how that would have sold more fleeces or even glass candleholders.
It’s hard to know exactly what the final straw was. The fiscal 2nd quarter numbers were not great, but that was also true at virtually every other retailer. There was also some disagreement about whether Lands’ End should try to wean itself from its massive reliance on discounting, which would strengthen the brand but result in a short-term financial hit. Either way, Lands’ End is now half pregnant, regardless of who ends up taking over (Boitano and Gooch are now co-interim CEOs, an odd couple if there ever was one, while the board is bringing in Heidrick & Struggles to do an outside CEO search as well). The company says it will continue supporting Canvas and the new home goods line, although it added that all projects are “evaluated on a case-by-case basis.” But if it doesn’t work—if the storyline sticks to that of J.C. Penney—it’s likely the merchandise will all be unloaded (and discounted by 80%; sale-lovers, get ready!).
For all of Marchionni’s issues, the ultimate failure here belongs to Lands’ End’s board of directors. Just like at J.C. Penney, where Johnson was brought in as a hero, then shunned when the radical change he proposed didn’t instantly work, Marchionni took the blame for a strategy the board endorsed from the beginning. According to Layton, Marchionni told a fellow executive a few months back, ”I’m going to build all this stuff and then someone else is going to make it work.” Whether it will work is far from decided. But the “someone else” part was spot on.