January 17, 2012
CEOs Shuffle In and Out at Retail
According to a study from recruiting firm Russell Reynolds Associates, retailers are seeing a notably higher turnover rate at the CEO level than firms in other sectors and also face a limited crop of replacement candidates.
The study examined turnover and recruitment trends between January 2006 and April 2011 at 81 multi-channel retailers based in the U.S. with annual revenues of $1 billion or more.
Some of the findings:
- Fifty-nine percent of retail companies studied experienced a change in CEO leadership during the five-year period.
- Forty-two percent of the CEOs who left did after having served five years or less, compared with 32 percent of Fortune 1000 CEOs. Slightly more than a quarter (27 percent) left after serving three years or less in contrast to only 16 percent of Fortune 1000 CEOs over the same time frame.
- Of the 18 external CEO appointments made during the period studied, only eight were sitting CEOs making a lateral move. Russell Reynolds found that while most boards traditionally prefer to fill CEO slots with current CEOs, there simply are not enough sitting CEOs to meet demand.
- Of the 18 retail CEOs in its five-year sample who were recruited externally, 16 were recruited from the same subsector of the retail industry.
Russell Reynolds said the recruiting challenges come as the industry "needs stable, transformational leadership" to meet unprecedented changes ranging from over-storing to supply chain disruption and the mobile-empowered consumer. Other industries have shown a greater propensity to cast a wider net externally for such transformative leadership.
At the same time, the lack of legendary training programs such as Abraham & Straus’ and other systematic efforts to groom young talent makes it more challenging to find promising talent internally.
"Few stores today methodically rotate their rising executives through various key operating divisions as was the case in the past," Russell Reynolds wrote in the report. "As a result, at many companies, the talent pipeline is uneven at best."
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Discussion Questions
Discussion Questions: What is driving the apparent higher turnover rates in retail relative to other industries? How would you rate how the industry manages CEO succession? Is succession a greater challenge at retail than other sectors?
Poll
Retail is a low-margin, highly competitive, capital-rich and logistically and operationally complex industry. Success requires procurement, marketing, merchandising and operations (just to name a few) to be operating individually and together well. I am honestly amazed so many retail brands largely pull this feat everyday. I am not amazed that, given the demands of the job and the complexity of the undertaking, many CEOs don’t stay in the top seat for long.
I think we live in a new normal. Expect economic indicators like the stock market, interest rates, unemployment, price of gold, etc, to take huge swings. Also expect CEO turnover to go through periods of ups and downs. As retailers try to figure out ways to beat Walmart, Target, Amazon and such, they will throw mud at the wall to see what sticks. Some of that mud will be new CEOs.
As the report points out, the retail industry is in the midst of foundational level changes, similar in scope to other industries in earlier times (transportation and manufacturing come to mind). For a generation, retail was a “push” technology — retailers decide what the “customer” wants, they manufacture and distribute it it in large runs, the “customer” buys it. Today, retail is evolving into a “pull” technology — retailers figure out what differing customers want, identify which customers offer the biggest opportunity, and then deliver value to these varied customers quickly.
Succeeding in this new and changing environment requires new approaches and new skill sets which are different than those acquired in the career path of the current CEOs. Just as in the other industries that went through this transformation, new leadership, with new skills will emerge. In the interim, however, expect it to be messy.
With the emergence of capital investment companies taking huge equity positions in retailing today, making changes at the CEO position is often the “quickest” means to effect a change in direction if financial goals are not being met.
But beyond capital investment, publicly traded companies also appear to have an equally short fuse when it comes to making changes at the top. Given the complexities and competitive intensiveness of today’s retail landscape, it is becoming increasingly difficult for a CEO to be successful for extended time periods.
Today’s retail CEO must be an effective communicator, an inspiring leader, and have a high degree of financial acumen. Moreover, he or she must understand the importance and application of merchandising techniques, pricing strategies, technology, social media, and the ever-changing consumer.
It does seem to be true, that few are being groomed for the CEO position by gaining a broad base of experience, but rather most are thrust into it, given their success at one or perhaps two of the aforementioned attributes. Given these conditions, it is not difficult to understand why retail CEOs change seats so frequently.
The marketplace is experiencing laser-like changes caused by a variety of new reasons. Retailing has become an industry that is constantly seeking the best of what comes next. Many retail CEOs don’t know how to cope with these new demand dimensions or have the skill to look into the future and see what others don’t see. Thus the turnover has become more rapid.
I think one of the reasons retail CEOs fail at a higher rate is that the pace of the retail business system is a poor fit for the strategic focus of most CEO candidates. The same reason makes the transition from other industries, even closely related ones like CPG marketing, a tough fit and thereby narrowing the field of potential candidates.
I don’t mean to understate the importance of strategic leadership in retailing, but the real-time decision making and rapid response redeployment of resources required to respond to today’s marketplace more closely resembles blitzkrieg than chess. Absent an extremely strong and empowered senior merchandising officer who can handle that role, it falls to the CEO — particularly in smaller retailing operations.
I don’t know of any industry that does a worse job of selecting CEOs than mass markets retail. No, it’s not that the folks being hired are bad people, and it’s not that they are not smart, and it’s not that they don’t put on a good face in front of the shareholders. The issue is that these CEOs are usually administrators, more so than they are creative thinkers with approachable personalities. This is in part why almost all retailers within a given channels look, feel, and smell, almost exactly the same. Retailers and CPG brands need to hire a different type of personality and skill set right now. A CEO today needs to be a lot more than just a pretty face in a nice suit.
Flip this study over. Instead of looking at departing CEOs, look at the CEOs who have remained in place more than 5 years at their respective firms.
You’ll likely find that those leaders had 10 to 20 years of experience within their own firm. They had a chance to hit a number of different “chairs” (different markets and different disciplines), and they had tenured mentors within the organization that guided them with experiences in strategy, execution, AND culture.
Succession is made a greater challenge at retail, because retail doesn’t focus on holding on to their own quite as well as other industries. That issue will be further exacerbated by the fact that associates coming out of schools aren’t shown the benefits and merits of holding the loyalty to larger firms that they may have seen in past decades. Pre-recession, a 22 year old could be expected to work for over 3 companies prior to age 30.
Just ask yourself one question. If you are a great CEO with a proven track record, and have a number of different career move opportunities, why retail?
The problem rests with the lack of qualified junior executives. Training programs like those of A&S and Saks 5th Avenue are no longer around. There is no program to develop fresh junior executives and quality CEOs at present are few and far between. CEOs that are qualified move to new retail positions for financial reasons and for more challenges.
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Retail is a low-margin, highly competitive, capital-rich and logistically and operationally complex industry. Success requires procurement, marketing, merchandising and operations (just to name a few) to be operating individually and together well. I am honestly amazed so many retail brands largely pull this feat everyday. I am not amazed that, given the demands of the job and the complexity of the undertaking, many CEOs don’t stay in the top seat for long.
I think we live in a new normal. Expect economic indicators like the stock market, interest rates, unemployment, price of gold, etc, to take huge swings. Also expect CEO turnover to go through periods of ups and downs. As retailers try to figure out ways to beat Walmart, Target, Amazon and such, they will throw mud at the wall to see what sticks. Some of that mud will be new CEOs.
As the report points out, the retail industry is in the midst of foundational level changes, similar in scope to other industries in earlier times (transportation and manufacturing come to mind). For a generation, retail was a “push” technology — retailers decide what the “customer” wants, they manufacture and distribute it it in large runs, the “customer” buys it. Today, retail is evolving into a “pull” technology — retailers figure out what differing customers want, identify which customers offer the biggest opportunity, and then deliver value to these varied customers quickly.
Succeeding in this new and changing environment requires new approaches and new skill sets which are different than those acquired in the career path of the current CEOs. Just as in the other industries that went through this transformation, new leadership, with new skills will emerge. In the interim, however, expect it to be messy.
With the emergence of capital investment companies taking huge equity positions in retailing today, making changes at the CEO position is often the “quickest” means to effect a change in direction if financial goals are not being met.
But beyond capital investment, publicly traded companies also appear to have an equally short fuse when it comes to making changes at the top. Given the complexities and competitive intensiveness of today’s retail landscape, it is becoming increasingly difficult for a CEO to be successful for extended time periods.
Today’s retail CEO must be an effective communicator, an inspiring leader, and have a high degree of financial acumen. Moreover, he or she must understand the importance and application of merchandising techniques, pricing strategies, technology, social media, and the ever-changing consumer.
It does seem to be true, that few are being groomed for the CEO position by gaining a broad base of experience, but rather most are thrust into it, given their success at one or perhaps two of the aforementioned attributes. Given these conditions, it is not difficult to understand why retail CEOs change seats so frequently.
The marketplace is experiencing laser-like changes caused by a variety of new reasons. Retailing has become an industry that is constantly seeking the best of what comes next. Many retail CEOs don’t know how to cope with these new demand dimensions or have the skill to look into the future and see what others don’t see. Thus the turnover has become more rapid.
I think one of the reasons retail CEOs fail at a higher rate is that the pace of the retail business system is a poor fit for the strategic focus of most CEO candidates. The same reason makes the transition from other industries, even closely related ones like CPG marketing, a tough fit and thereby narrowing the field of potential candidates.
I don’t mean to understate the importance of strategic leadership in retailing, but the real-time decision making and rapid response redeployment of resources required to respond to today’s marketplace more closely resembles blitzkrieg than chess. Absent an extremely strong and empowered senior merchandising officer who can handle that role, it falls to the CEO — particularly in smaller retailing operations.
I don’t know of any industry that does a worse job of selecting CEOs than mass markets retail. No, it’s not that the folks being hired are bad people, and it’s not that they are not smart, and it’s not that they don’t put on a good face in front of the shareholders. The issue is that these CEOs are usually administrators, more so than they are creative thinkers with approachable personalities. This is in part why almost all retailers within a given channels look, feel, and smell, almost exactly the same. Retailers and CPG brands need to hire a different type of personality and skill set right now. A CEO today needs to be a lot more than just a pretty face in a nice suit.
Flip this study over. Instead of looking at departing CEOs, look at the CEOs who have remained in place more than 5 years at their respective firms.
You’ll likely find that those leaders had 10 to 20 years of experience within their own firm. They had a chance to hit a number of different “chairs” (different markets and different disciplines), and they had tenured mentors within the organization that guided them with experiences in strategy, execution, AND culture.
Succession is made a greater challenge at retail, because retail doesn’t focus on holding on to their own quite as well as other industries. That issue will be further exacerbated by the fact that associates coming out of schools aren’t shown the benefits and merits of holding the loyalty to larger firms that they may have seen in past decades. Pre-recession, a 22 year old could be expected to work for over 3 companies prior to age 30.
Just ask yourself one question. If you are a great CEO with a proven track record, and have a number of different career move opportunities, why retail?
The problem rests with the lack of qualified junior executives. Training programs like those of A&S and Saks 5th Avenue are no longer around. There is no program to develop fresh junior executives and quality CEOs at present are few and far between. CEOs that are qualified move to new retail positions for financial reasons and for more challenges.