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Where have all the retail CEOs gone?

June 19, 2014

Through a special arrangement, what follows is a summary of an article from Retail Paradox, RSR Research's weekly analysis on emerging issues facing retailers, presented here for discussion.

Where have all the retail CEOs gone? That's the question that has been floating around for months in the wake of the succession challenges facing Target, J.C. Penney and others in the recent past. I recently realized the answer.

The reason there are so few qualified executives to do the job is all about the industry consolidation over the past 20 years. In the beginning, there were chains like Lazarus, Rich's, Gimbels, Broadway, Montgomery-Ward, Hills, Caldor, Alexanders, etc. etc. etc. If you've been around for a while, you know the names. So CEOs could move from job to job, with successively larger companies.

But serious consolidation began about 25-30 years ago, coinciding with the Federated/May consolidations and the rise of Walmart, which drove so many mass merchants out of business. Now those mass merchants and department stores that are left are mostly incomprehensively large. In other words, the number of people who really know how to run them has decreased along with the chains themselves. The remaining CEOs are in their mid-to-late sixties and no one else really knows how to run mammoth retail companies. Could the CEO of Belk run a company like Target? It would be a big shift.

Macy's and Kohl's are among those successfully executing on a succession strategy. But they're also executing a successful retail strategy. The problem comes when the strategy isn't as successful. Companies (or really their boards) prefer to look outside when they're not happy with the business and want to make a change. But there's no real "outside" anymore.

This is not a problem unique to the retail industry. In his keynote address at Sapphire 2014, SAP co-founder Hasso Plattner observed that one major problem with companies today is they've decimated the ranks of middle management, and so they've lost a major source of new management talent. Mr. Plattner was absolutely correct. Today's mammoth enterprises must focus on building talent from within, without the organizational structures in place to make that happen.

A fine mess we've made. I'm happy to have taken the first step: realizing we have a problem. But I haven't the faintest idea how to solve it.

Discussion Questions:

Does the retail industry have a leadership problem? To what degree has consolidation worked against leadership development at major chains? What collective and internal solutions are available to smooth succession?

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Instant Poll:

To what degree has consolidation created a greater frequency of succession challenges at major chains?

Comments:

The retail industry has a bottom line problem, as the internet business (hello Amazon), has taken a huge bite out of the profits. Middle management has been brought down to almost nothing, as most stores have clerks, and a customer service center to take the heat from irate customers. I know there is a store manager in these big places, but they must be hiding behind their desks, as they are no where to be found.

It comes down to crunching the numbers, and many of these stores simply have to get lean. I don't see this changing a lot, but there is a need for good managers in all types of business, and they must earn a respectable salary to stick around. Giving some authority to the front-end staff is critical to help solve the customer relations nightmares that many customers are used to these days. Will this get better? Probably not, as we are in a 50 percent-off mentality today, and that is what is preventing stores from propping up their managers, which leaves the CEOs looking for solutions.

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Tony Orlando, Owner, Tony O's Supermarket & Catering

Consolidation isn't unique to the retail industry. It's the same challenge faced by the airline industry, the financial services industry and many other examples over the past 25 years. To some degree, retailing faces the same recruiting challenge that it always has: For business school graduates (BA or MBA) are there better-paying industries with bigger growth potential, especially now in the tech sector? Until this chronic issue is addressed, the revolving door of familiar CEO faces will look a lot like the "usual suspects" coaching NBA teams.

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Dick Seesel, Principal, Retailing In Focus LLC

Paula's article is timely for the retail industry. Yes, retail is not alone in the consolidation wave of the past 25 to 30 years. However, for retailers the situation is exacerbated by the nature of the business: the consumer sits at the heart of retail and the behavior and expectations of that consumer have changed drastically in the last five years. Combined, we end up with smaller pool of future leaders at a time when the business is transforming and becoming more complex.

There are more university programs developing future retail leaders such as the University of Arizona's Terry J. Lundgren Center for Retailing. But what retailers do with this young talent will determine outcomes a decade or two out. Two decades ago, my cohorts out of business school were reticent to join retailers due to perceived prevalence of management by gut/intuition and cult of personalities trumping b-school methods. Things have changed since then, but not necessarily enough.

One additional thought: with the shift to more customer-centric strategies and operations, there may be new paths—outside the industry—to the CEO than we can currently envision.

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Mohamed Amer, Vice President, Global Consumer Industries, SAP

The bigger the chain, the more disconnect between CEO and employees and customers. Just walk into Walmart and ask yourself if the CEO has any meaningful connection to what is going on with regards to operations, employees and customers. The CEO would probably have to look up the store on the website's store locator to even know if they have a store there. Then go into a smaller regional chain and you will find a closer connection between the CEO and what is happening at the store level. The CEO function of running a mammoth enterprise is completely different than running a regional chain. Kind of similar to comparing the President of the United States to the mayor of a mid-sized city. The solution is just acceptance. Accept the fact that some retailers are just too big for one human to run effectively and accept being inefficient is the best you can expect. Economies of scale are supposed to make up for it.

David Livingston, Principal, DJL Research

Start at the beginning. Retailers want to save money at the entry level by grinding through a low-paid, high-turnover staff.

Talented entry-level people leave for better career opportunities and more satisfying work in other fields.

First-line managers burn out because they spend their time dealing with unhappy employees and the resulting unhappy customers, and again, leave for better careers and more satisfying work in other fields.

If retail were a fun, desirable industry to be in for all employees, not just the few lavishly-paid executives at the top, the industry would have its pick of talent instead of a few ragged survivors.

Carole Meagher, Faculty, CCSF

Could it be that the retail CEOs are actually spending their time running their respective businesses rather than seeking the spotlight to explain why/how they messed up? I have noticed that when you see CEOs in the news it generally does not bode well for their companies. I would think a CEO's time would be better spent doing everything possible to stay out of the news.

Ed Dennis, Sales, Dennis Enterprises

I don't think consolidation has anything to do with it. The retail industry has been systematically eliminating (or driving off) what I would call "natural" talent for years. Requirements for staff to have MBAs, the hiring of former CFOs as CEOs and the focus on data more than instinct are just a few of the factors that have caused that.

People like Mickey Drexler, Grace Nichols or Les Wexner would have no chance in today's retail leadership scenarios. Yet, the skills they possess; great gut instinct, entrepreneurial courage, vision and "get out of my way" drive are simply not important factors any more in determining who the next leaders are.

Boards are looking at numbers when searching for greatness, and that, in a nutshell, is what's causing the dearth of true leaders in retail.

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Lee Peterson, EVP Creative Services, WD Partners

Of course the retail industry has a leadership problem. So, too, do other industries. The slope has been tilted downward. While Paula points out that industry consolidation has played a key role in this retailing dilemma, the retail industry has also accepted being a by-product of the changing qualifying and selection standards that now rule. That has also complicated the building of strong effective retailing leaders' men and women who lead selflessly with a clear focus and with integrity.

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Gene Hoffman, President/CEO, Corporate Strategies International

There are at least two reasons for the demise of many corporations having little or no success in placing highly qualified individuals in a CEO position. The slow ending of company training is what keeps many companies from developing their own candidates.

Costs and corporate pirating are the usual reasons given for the dismissal of any and all training programs, but there are others. The one that comes to mind as perhaps the greatest culprit is the automation and or hiring of third party human resource departments. Much of this was and is justified as needed cost cuts. So, to minimize expenses and market pirating the powers that were left no tools to train or locate the powers to be. The results are the corporate gamble that takes place throughout the markets and the dismal failures seen over the past two decades.

This is not just a top dog issue. There are equally devastating results throughout the chief officer rankings. CEOs carry the bulk of the blame for failures with little regard for root causes and a high probability of same results for subsequent regimes regardless of their capabilities. I have found it interesting that many company training rooms and human resources facilities have been converted to company daycare centers and fitness rooms. This change of direction in health considerations, corporate vs. employee, is bewildering. It is time to mandate both.

'gjarnoldjr'

While it could be a good observation, I am not too sure about the rationale provided, especially about the point "there are not enough people who know how to run the business." All businesses run on simple fundamentals—revenues, profit and margins, returns and answering the question "what does your customer want?" You can find a CEO from outside if you don't find the right attributes within the company. What's the big deal?

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AmolRatna Srivastav, Asst. General Manager, Analytics and Insights, Tata Consultancy Services

Too many times retailers look outside they company or outside their specific segment for CEOs with MBAs from prestigious universities or success in other industries, and forget to look within the company at their own people who have worked their way up through the company (Sears, Kmart, AutoZone, Office Depot, JC Penney, RadioShack, Circuit City, Montgomery Ward, Starbucks) are just a few examples of this and some have made corrections and succeeded in turning the company around, and others did not and have failed miserably.

I applaud Walmart's decision to promote Doug McMillon and leave the company in the hands of a proven 20 year veteran who worked his way up through the company and knows almost every facet of their business.

Rick Perry, President, Cross Border Consulting

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