Former Abercrombie Executive Ready for His Moment in the Sun
As the No. 2 guy at Abercrombie & Fitch Co., Seth Johnson grew weary of investors reminding him about the sales gains Pacific Sunwear of California Inc. was racking up.
Johnson doesn’t get cranky about that any longer. He’s set to become Pacific Sunwear’s chief operating officer today and its chief executive five months later.
He’ll take charge at a pivotal time for the teen-clothing retailer, which passed the $1-billion sales mark for the first time last year. Now Pacific Sunwear is on the hunt for a new growth strategy -- to help it keep pace with the likes of Abercrombie & Fitch.
“There was arguably not a better candidate out there” to become the new CEO, said Joseph Teklits, an analyst with Wachovia Securities.
Pacific Sunwear, headquartered in Anaheim, operates 971 PacSun and d.e.m.o. stores. The company plans to open a handful of extra-large PacSun stores in 2005 to test new products -- executives are mum on what those might be -- and will in the meantime scout around for businesses to buy. By the start of 2006, Pacific Sunwear plans to launch what it describes as a “new concept” -- that it has yet to define.
To tackle all that, Chairman and Chief Executive Greg Weaver decided he needed to relinquish oversight of day-to-day operations and turn CEO duties over to someone else.
“Finding the right person was challenging,” said Weaver, 50, who has been with Pacific Sunwear since 1987 and chief executive since 1998.
Weaver, who will become executive chairman, zeroed in on Johnson, also 50, who retired in June from Abercrombie & Fitch. It had sales of $1.7 billion last year.
“I’ve watched him as a competitor for over 10 years,” Weaver said. “He’s been where I’m going, from a size standpoint.”
The two companies have important similarities but distinct differences. Abercrombie & Fitch stores offer so-called preppy styles, often with a sexy twist, while Pacific Sunwear stores cater to surfers, skateboarders and wannabes, selling brands made by California companies, such as Quiksilver Inc., Billabong USA and Hurley International.
Pacific Sunwear is one of the strongest performers in specialty retailing. Its earnings have grown an average of 35% annually over the last five years, on average sales increases of 27%. By comparison, Abercrombie’s average annual earnings and sales both increased 16%
Johnson was involved in the launch of Hollister, Abercrombie’s beach-themed chain -- widely viewed as a head-on competitor with Pacific Sunwear. Both the Hollister and PacSun chains have been a hit with teens, although West Coast youth tend to prefer the local brand.
In a recent survey of brand preferences among teens nationwide, Abercrombie & Fitch took the top spot, PacSun ranked second, Hollister came in third, and d.e.m.o. was fifth. Among West Coast teens, PacSun took first place while Abercrombie & Fitch was fourth and Hollister ranked sixth, according to the report by Jeffrey Klinefelter, senior research analyst with Piper Jaffray.
As COO at Abercrombie & Fitch, Johnson was credited by analysts with keeping the New Albany, Ohio-based company profitable through four years of comparable-store sales declines. He accomplished that feat partly by keeping a tight rein on expenses and managing inventory wisely, they said.
Johnson said the company boosted profit partly by trimming payroll and travel expenses and by installing computer systems that helped the distribution center run more efficiently. Year-over-year profit increased every quarter for the 12 years he was with the company, Johnson noted, adding, “I hesitate to take credit for this. We had a great team of people doing it.”
For all the positive buzz about Johnson, investors didn’t jump for joy at the appointment. Pacific Sunwear’s stock dropped 5% to $22.05 on the day after the announcement. It since has recovered, closing Friday at $23.44, up 15 cents, on Nasdaq.
Investors were probably initially feeling skittish because PacSun’s management team is suddenly shifting after years of rock-solid stability.
The announcement that Weaver would be moving out of the CEO suite came just 10 days after longtime Chief Financial Officer Carl Womack retired, and amounted to a “one-two punch,” said Adrienne Tennant, an analyst with Wedbush Morgan Securities, who has a “buy” rating on the company’s stock.
What’s more, the company had only recently named a new leader for its PacSun division and is searching for a president for its urban-themed d.e.m.o. chain, a new position. Tennant said there had been concerns that the company, after being run for many years by the close-knit team of Weaver, Womack and President Tim Harmon, would be turned over to “a new team that has to learn to work together.”
Johnson, who grew up in Minneapolis, attended Yale University and earned a master’s in business administration at the University of Chicago. He has worked for Dayton Hudson Inc. (now Target Corp.) and Batus Retail Group and Limited, Abercrombie’s former parent. He became Abercrombie’s chief financial officer in 1992, before it went public, and was named chief operating officer in 2000, a position he held until last June.
Ultimately, Johnson said, he grew tired of playing second fiddle at Abercrombie & Fitch. And because Chief Executive Michael Jeffries’ contract doesn’t expire until 2009, Johnson made his exit.
“I didn’t feel like being the No. 2 person for another five years,” he said.
Then Weaver asked him to dinner. After multiple interviews and meetings with board members, the deal was struck.
Johnson will have personal transitions to deal with as well, as he moves from Dublin, Ohio, with his wife, Sharon, and two daughters, who are 12 and 16 years old.
“The girls have never lived anyplace else. We have a lot of friends and a nice place to live, so that’s tough,” he said in a recent interview. “But this is a great opportunity.”
He’s counting on his daughters to be flexible, at least about the clothes they wear.
“They’ve liked Abercrombie & Fitch and Hollister,” he said. “But they’ve already been to a PacSun store, and they like the PacSun stuff. They’ll be happy to switch.”