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Beyond The Books

The apparel cfo’s role has moved far beyond sales, profits, assets and liabilities. today’s job description includes information and integrity, too.<br><br>The role of the chief financial officer in a retail organization has changed...

Becky Stein is a managing director of executive search firm Russell Reynolds Associates. She heads the firm’s North American Consumer Practice Areas and is a senior member of the Retail Practice, focusing on recruiting chief executive officers,...

Becky Stein is a managing director of executive search firm Russell Reynolds Associates. She heads the firm’s North American Consumer Practice Areas and is a senior member of the Retail Practice, focusing on recruiting chief executive officers,...

WWD Staff

The apparel cfo’s role has moved far beyond sales, profits, assets and liabilities. today’s job description includes information and integrity, too.

The role of the chief financial officer in a retail organization has changed dramatically over the past few years. Once upon a time, the retail business was fairly straightforward. You bought things in bulk and sold them in smaller quantities for more money. The cfo managed the cash receipts and held the reins on inventory levels, payroll and operating expenses. As a result of the relative simplicity, the cfo wasn’t considered vital to the ultimate success of a company. In such an operating environment, the best and brightest financial executives weren’t necessarily drawn to this industry.

Now, however, financial accounting practices and practitioners are being thoroughly examined and standards are being revised

for transparency, resulting in the division of the cfo’s major responsibilities into four basic parts:

Making sure the numbers are accurate.

Understanding where the business makes money.

Following the money by tracking what is happening with the cash flow.

Being a partner in the business by adding value beyond the technical functions of the job.

Those are the basics, and the ability for a cfo in any industry to discharge these basic responsibilities impeccably is crucial. The cfo in a retail company — whether high-end luxury, low-end mass or somewhere in between — is an especially challenging position because retailing is a brutally competitive business with thin margins and competitors coming from every direction imaginable.

Powerhouses have emerged that blur distinctions between retail formats. Multichannel merchandising has further changed the business. Where the country was once divided into a patchwork of fiefdoms, called markets, each with its own department store aristocracy, there is now a national chain called Target with a fashion-chic image that any surviving department store operator would love to have. Wal-Mart, which low-balled numerous department stores out of many hard-line classifications, now sells as many groceries as any traditional supermarket chain in the country.

This is the challenging world in which today’s retail cfo must operate. Not only must he or she have command of the whole array of operational issues indigenous to the business, but also the mettle to make tough decisions and the vision to see the next generation of retailing trends.

This story first appeared in the November 25, 2002 issue of WWD.  Subscribe Today.

Today’s cfo is the hub of a wheel: connected to every aspect of the business, striving to make each individual “spoke” work in concert with the others to make the “wheel” stronger and more profitable.

A lion’s share of that center hub responsibility is fiscal control. In retail, every penny counts and inefficient operations cancel out the gains to be had from a great retail strategy. The absence of controls can cost an organization dearly. Kmart doesn’t have sufficient controls and is struggling even while restructuring under bankruptcy court protection. Dollar General had inadequate controls and started the year in bumpy fashion.

Kohl’s Department Stores, on the other hand, has both a great retail strategy and controls. As a result, it’s performing handsomely.

Drugstore chain Rite Aid lacked controls in the mid-Nineties and is still paying the price years later. In fact, on June 21, the former Rite Aid cfo was among those former Rite Aid executives indicted in what authorities described as “a far-reaching securities and accounting fraud that prompted the largest restatement of corporate earnings in American history.”

However, being at the hub of numerous spokes means that today’s cfo is responsible for much more than fiscal control. The new cfo will likely have responsibility for corporate technology. In fact, even when there is an information technology executive or chief information officer in place, many cfo’s are ultimately responsible for the approval of hardware, software and telecommunications purchases and are often involved in the vendor selection process. Today’s cfo is typically given a mandate to think strategically about the company’s business model, its competitors’ strategy and the overall sector landscape. This type of “blue sky” thinking is particularly important in the retail industry, where management is lean.

Where does one find retail cfo’s capable of keeping this metaphoric wheel turning and managing all the spokes? The truth is there are many industries a new retail cfo can come from; what is important is that the training he or she received is “best in breed.” That cfo will come to know the company’s business inside and out, and the competition’s nearly so, and will be capable of digging out the answers to critical operational and strategic issues, including IT, customer relationship management, and manufacturing.

Experience dealing with best-in-breed global sourcing and supply-chain solutions is also becoming particularly attractive in a cfo candidate’s résumé, especially for a position within vertical retailers or apparel companies. Increasingly, retailers and clothing manufacturers are sourcing internationally and working within just-in-time inventory models. Knowledge of global logistical issues therefore becomes critical, as the cfo often plays a leading role in evaluating which supply-chain software solution on the market the company should implement.

While it is not necessary that cfo’s have a retail/apparel background, it is important that they be able to grasp the technical issues and demands of the industry. For example, Gap Inc. brought in an executive from IT Industries, and companies often look to General Electric for executives with best-in-breed supply-chain experience. The apparel/retail cfo must understand and have at least moderate experience dealing with some of the more unique manufacturing demands of the business, such as the shortened lead time and product development cycle.

Beyond assessing the technical knowledge, when considering a cfo candidate, assessing “integrity” is also an absolute necessity. Integrity is a noble attribute in a human being, a fine concept embodying traditional values. And for a cfo, it’s nonnegotiable. Increasingly, investors will demand it and ceo’s are emphasizing it. Steve Reinemund, PepsiCo’s chairman, has said that his company places a high value on integrity in their equation. In his words, “As much as we emphasize growth, we put an even higher value on trust and integrity.”

GE, IBM, Kraft, General Foods, The Limited Brands, PepsiCo and Tricon, the restaurant conglomerate, have historically been standouts at developing talent and reinforcing the need for integrity in financial practices.

It is said, to abuse Leo Tolstoy, that all well-run businesses are the same, while poorly run businesses are run poorly in their own ways. For the financial function, this is true. Debits are debits, credits are credits and a balance sheet is a balance sheet. Multilocation operations have similar functionalities, whether working with drug stores or fast-food restaurants, and the basic principles of customer service are the same in car rental operations as they are in residential real estate. The retail business can be learned, and boards and ceo’s are advised to cast as broad a net as possible when they look for their next cfo.