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Who’s Training Future CEOs?

When was the last time a top retail or apparel executive was recruited to run a major company outside the industry?

Quick: When was the last time a top retail or apparel executive was recruited to run a major company outside the industry?

Stumped? Perhaps it’s a sign of what many observers believe could be the industry’s growing crisis: a dearth of executive talent. According to headhunters, educators and almost any industry veteran, successful recruitment and well-rounded training programs are key to the success of an industry, and tell-tale signs that retail and apparel are missing them include an increasing number of high-level outside hires, not to mention disappointing comps and earnings.

“What is the combined head count of the top 10 apparel companies and top 10 retail companies?” asked Elaine Hughes, president of the executive search firm E.A. Hughes & Co. “I would venture to guess combined somewhere between 175,000 and 200,000 people — and we can’t find more than 10 top merchants? What is wrong with this model?”

At one time, department stores served as the unofficial universities for the industry, with more than 80 store chains recruiting and training executives, who then went on to pepper the sector with future chief executive officers. But consolidation resulted in less and less store chains and thus fewer spots for young talent in department store training programs — “and the other companies didn’t step up to the plate,” said Kirk Palmer of Kirk Palmer Associates, a boutique New York-based hiring firm.

Palmer and other industry headhunters still recommend both the Bloomingdale’s and Macy’s training programs, as well as that at Polo Ralph Lauren Corp., but even the best ones today are different than those of the past.

“In old days, department stores would do cross-training: You’d start on the floor, then become an assistant buyer, then go back to stores to be a department manager to learn merchandising, then go back to be associate buyer and work your way up to buyer, then from buyer you’d go back to the stores to group manager,” said Lloyd Lippman, ceo of Career Management, an executive search firm specializing in retail. “You were taught to understand every aspect of being a real merchant. It was terrific, making an investment in the company and in people, but they would get recruited away. A lot of companies prefer people who will stay with them a lot of years over the best and the brightest.”

But today, said Lippman, who also teaches at the Fashion Institute of Technology, “merchants at most companies now don’t know what a customer looks like because they don’t even go out to the stores.”

Karen Harvey, president of the Karen Harvey Consulting Group, an executive recruitment company that also creates training programs, agreed changing training methods have resulted in less-prepared executives. “One of the major things we face in interviewing talent, if they came through the industry more recently, their training is more siloed,” Harvey said. “When we interview these people, we find they are missing the full 360-degree view of the business.”

While the Council of Fashion Designers of America advocates designer training, it’s not involved in merchant training, said CFDA president Diane von Furstenberg. Merchants are missing such a powerful governing body, so individual companies must take the lead in their training. Industry headhunters prescribe a few steps to companies:

l Recruit at the best schools and select the best students. Make an investment in having someone full time as your ambassador on college campuses, particularly business-oriented schools, recommended Palmer, who worked as a college recruiter for May Co.

“Coming from a school like Colgate, I know it can be difficult for top-notch students to find out how to get into the fashion industry, unlike finance,” said Jaqui Marcus, vice president at Karen Harvey Consulting, who went through the Saks Fifth Avenue training program after college. “Students have to find us to some extent.”

l Pay entry-level talent salaries that are competitive with other industries. “Unless retailers are going to come to the table with competitive dollars — not $35,000 a year — it’s very tough to attract quality students,” Lippman said.

l Give responsibility, training and mentoring early on.

l Continue identifying high-talent employees for additional training programs at turning points in their careers. Harvey recommends at least three levels of training programs: one, an entry-level, three-year training program; then, an ongoing training program, and around the 10th year, an executive training program that rounds out executives to make them into leaders.

l Make mentoring and educating a top priority for management up through the ceo. “Way too few companies make training a priority,” said Paul Charron, former chairman and ceo of Liz Claiborne Inc. and now a senior adviser at equity firm Warburg Pincus. “The ceo sets the example: The ceo must talk about it, invest in it and measure people on their ability to attract and retain people,” said Charron. “The replenishment of the organization is one of the most sacred acts of management.”

When Charron was at Claiborne, he tried to make the organization a university for the industry, starting with an internship program, giving personal attention as ceo to all stewardship reviews, identifying successors and high potential employees, preaching the religion of general management to executives. Ironically, of course, Claiborne was one of those companies that went outside the industry to find a successor for Charron — William McComb from Johnson & Johnson. Charron himself was recruited to Claiborne from VF Corp., prior to which he was at Procter & Gamble and General Foods Inc.

There are, of course, costs for training and recruiting programs. A company can spend hundreds of thousands — if not millions — of dollars a year first going to campuses to recruit young talent and then educating existing talent, either by sending them to external programs like those at FIT, which cost about $3,000 per executive, or training them internally, which can cost even more.

“But whatever you have to invest in training will save you in recruitment later on,” Harvey said. “Training is about retention. Consider retention if you are daunted by the costs of training.”

Jay Baker, the former president of Kohl’s Corp. who has made significant philanthropic contributions to industry-related education since his retirement, acknowledged the significant costs.

“In the short term, cutting training programs saves you money,” said Baker. “In the long run, it’s the worst thing we could ever do.”

Baker, a 1956 graduate of the Wharton School of the University of Pennsylvania, made a $10 million donation in 2002 to found the Jay H. Baker Retailing Initiative, an interdisciplinary industry research center at Wharton. Since its inception, there has been more than a 275 percent increase in Penn students entering the retail industry to about 90 people in 2006.

Baker said part of the problem is that so few universities offer degrees in retailing. Baker encouraged other retail executives to follow his lead — and that of Macy’s Inc. ceo Terry Lundgren, who in 1993 created the Terry J. Lundgren Center for Retailing at his alma mater, the University of Arizona. Baker also encouraged companies to recruit at the best universities at the same time other leading companies recruit — and “even if your open-to-buys are smaller, keep coming back,” said Baker, a product of Macy’s training program.

Macy’s takes its training responsibilities seriously, guided by Lundgren himself.

The department store recruits at almost 100 schools for the approximately 700 graduates it hires for its executive training program each year. Each division of the company has at least one person dedicated to college recruiting, and the teams travel to college campuses six weeks each semester during peak recruitment season, according to Anne M. Voller, Macy’s Inc. director of college initiatives.

“Retail is thought of as folding sweaters in the back of stores, so we need to take people with us who can explain what they are doing,” said Voller. “We take people with us who are in the jobs that the students are interviewing for, and we let them present what they do. What we really need are kids that are good with financial analysis plus have a strong fashion sense.”

Macy’s also gives each of its approximately 600 newly hired merchants more than 142 hours of training, according to Christy Godden, the company’s director of merchant development.

The majority of the merchants who go through Macy’s training program stay with the company, said Godden. “If you commit to people that you offer lifelong learning, it helps in both recruiting and retention,” said Godden. “That’s what people want out of college now.”

Additionally, for its top 1,800 executives, in 1999 Macy’s launched the Leadership Institute to help reduce turnover, create a pipeline for future leadership and prepare its executives to better meet retail challenges. The initiative focuses on two areas: helping vice presidents and above transition into more senior jobs, and then assisting management-nominated high-potential candidates move into more extensive development programs that involve the highest levels of management, including Lundgren himself.

“Our vision was to create the Harvard of retailing,” said Debbie Friedman, who heads up the program. “With so many Baby Boomers…retiring in the next five or 10 years, we are thinking, who will fill the talent in the future?”

For companies smaller than Macy’s, there’s also the option to outsource training to organizations such as FIT, which matriculates 50 to 60 senior executives — from senior management vice presidents to executive vice presidents — each year through its executive education program. The program has been in existence for four years, and director of executive education Eric Hertz contends he can already see improvement in the industry as a result. For the executive training courses, which cost $2,495 per executive, Hertz estimated a large company would pay $50,000 a year to send 20 to 25 of its high-potential leaders through, but only the major companies pay for their employees’ training.

“Our industry has always been product-driven to the exclusion of other things,” Hertz said, adding that about 90 percent of apparel companies in the industry don’t support adequate training efforts. “The broad middle of the industry doesn’t embrace education or have the internal set up to identify future leaders.”

Joan Volpe, director for the center of professional studies at FIT, offers up to 15 courses a night, and one of the most popular courses is retail math.

However, turnover is one of the biggest dissuaders to companies investing in training programs. “The industry does have a reputation of being a people-eating business,” Volpe said. “Some of these companies have tremendous turnover, so why would you bother having training?”

But training also can be what makes people stay, asserts some companies. On average, people in the industry get eight hours of training each year, according to Larry McClure, Liz Claiborne Inc. senior vice president of human resources, and at Claiborne, that number doubles to 16 — which the $4.99 billion vendor hopes will enable it to hold onto talent.

“Our guiding strategy is how do we provide signature experiences at major turning points in people’s careers,” said Elizabeth Hall, vice president of organizational development and learning at Claiborne. Claiborne’s goal, by the end of this year, is to offer four signature experiences: first for the “individual contributor” near the beginning of his or her career (still being developed); second for the opening manager position (piloting this year) because, according to McClure, the industry loses 40 percent of its first line managers; third for directors (still being developed), and finally the Leaders Studio for vice presidents and above.

Valuable training doesn’t have to cost more than time, though. In old department store training programs, management’s time on the floor was credited with its success in understanding of the customer. Although the emphasis on floor time is a bygone practice for many retailers, Lululemon Athletica, which has been booming since it went public this summer, credits its growth to its insistence that every employee in the company – from designer to the ceo – spend anywhere from two days a month to a few days a week in stores. Depending on their jobs, employees work in different areas of the store: Designers, who must be on the floor once a week, work in the fitting room, so they can get feedback on fit, while community relations work at the front of the store so they can hear rumors about the company.

Whatever path companies choose, the consensus is that the future of the industry relies on solid training.

“So often recruitment involves bringing in a ceo from another industry — to me that’s a tell-tale sign,” Hertz said. “We are pulling away from industries where people are getting the training. We need a much stronger bench.”