NEW YORK — Gap Inc.’s search for a new chief executive is helping to draw the battle lines on the question of just how much of the “merchant prince” mentality is necessary to be one of retailing’s kings of the hill.
While it was the merchandising acumen of Millard “Mickey” Drexler that elevated Gap Inc. into the largest apparel specialty retailer in the nation, his successor will need a different set of skills. Gap chairman and founder Donald Fisher told investors in May the next ceo of Gap needs to be more in touch with operations and information technology, and the responsibility for merchandising will become more decentralized.
Certainly, Allen Questrom’s eye for merchandising hasn’t hurt his stewardship of J.C. Penney Co. since becoming its chairman and ceo, but neither has Alan Lacy’s earlier focus on finances kept him from moving Sears, Roebuck & Co.’s assortments and marketing forward. Questrom and Lacy were appointed to the ceo posts of their respective stores two years ago. Searches are under way for a new ceo at Gap as well as at J. Crew.
It’s not that the need for merchandising talent has declined — if anything, it’s greater than ever as the differentiation of assortments becomes more crucial — but it’s just that retailing in the 21st century involves so much more. Most recently, corporate scandals, including questions surrounding Kmart Corp. and Martha Stewart, have placed a premium on management integrity and organizational transparency.
“We have been so locked in as merchant as leader that we forget that it takes more than a great merchant,” Steve Skinner, a partner in the retail industry group at Accenture, said. “Some retailers have subscribed to the single leader model and have exposed themselves to a potential leadership vacuum.”
Todd Slater, retail and apparel analyst with Lazard Freres, said: “There still is a need for a great merchant, but the great merchants of the past and present are not necessarily the great ceo’s to manage the intricacies of big global brands. I think the disciplines required to manage have changed.”
Asked what would make an effective retail ceo today, Slater suggested people with experience in information technology, global brand management, hiring and firing, real estate, capital allocation, acquisition and turning troubled operations around.
Saying top retail executives are hard to come by, Dana Tesley, retail analyst at Bear, Stearns, said: “As companies become larger, the skill set needed to manage multiple divisions at a global company is different than running a smaller one in its early stages.” In addition, with scandals running rampant throughout corporate America and many retailers growing into global organizations from village stores, several industry observers noted that it is more important than ever today that leadership be credible and ceo’s demonstrate high integrity and the right values.
“Today’s world is paying a premium for leadership that has the right kind of obvious values in terms of corporate governance and trust to manage a company to satisfy the shareholders,” said Bob Kerson, a managing director at Korn/Ferry International, based here, where he leads the global retail-fashion practice. “As companies get larger, ceo’s need to lead a team and execute a strategy that creates market share and gains marketplace presence in an industry that is not growing.”
To avoid such a leadership void, one of the number one requirements, observers say, is for companies to start paying serious attention to the next line of professional management through more rigorous training and recruitment programs.
While some retail firms have indeed invested in cultivating management through training, notably Federated Department Stores, retail analysts and consultants say the rest of the fashion crowd has fallen behind other industries like the financial and technology sectors. Few seem to understand the value of and time needed for updated recruitment and training to bring about the best and brightest to help execute the ceo’s vision. Some retail companies have curtailed spending in this area when profits and sales began to dwindle over the past several years.
“The training is based on 1960 to 1970 curricula as opposed to the 21st-century tools like the digital delivery of industry information or getting these tools into the hands of the people at the branch level,” Skinner said.
To respond and maximize a company’s chance to succeed, Skinner said the retail industry needs to do a better job at figuring out how to find a great team of leaders, including the need for executive leaders whose sole job is to insure the most efficient workforce possible and working with top store managers who would report directly to the ceo and the board, as opposed to having a single individual drag a company across the finish line of corporate objectives.
Skinner also suggested retail companies need to groom successors and go beyond “the usual suspects” in their search for leadership. “It is sometimes good to bring an outside view in to inject some outside thinking about managing a brand,” he said, referring to Lou Gerstne, chairman and ceo of IBM who previously served at the helm of Nabisco, and John Sculley, the former ceo of Apple who came from Pepsi. Home Depot ceo Robert Nardelli had been among the contenders to succeed Jack Welch as ceo of General Electric Co., a job that went to Jeffrey Immelt.
Hal Reiter, ceo of Herbert Mines Associates, the company given the new search for Drexler’s successor, agreed: “Retailers are looking outside the box and hoping they find additional talent in affiliated businesses like entertainment and beauty, due to the lack of in-the-box candidates who are not available or not tied up by contracts.”
Although merchandising know-how is always a plus, Reiter said the retail industry has gotten so big, complex and competitive that the ceo needed to handle Wall Street, the balance sheet and supply-chain issues, as companies’ shareholders have come to expect, must be “right- and left-brain leaders.”
Korn/Ferry’s Kerson said: “You can always find the good merchant within the organization, but what is more difficult to find is great leadership, high integrity and great values that will encourage others to follow,” he said, referring to Nardelli at Home Depot and Sears’ Lacy.
“It used to be enough to have the best collection and the best merchandise,” Jan Koors, vice president at Pearl Meyer partners, an executive compensation firm based here, said. “Now that is what gets you in the game, but it is not enough to make you win. There are things you need to play and things you need to win, and having a great merchant just lets you play.”
In terms of how a ceo’s pay package is set up, Koors noted that she is seeing more focus on the bottom line and the balance sheet instead of the top-line growth.
Elaine Hughes, principal of E.A. Hughes & Co., thinks that retailing could prove more attractive to recent college graduates, as Wall Street jobs are neither as numerous nor attractive as they once were.
“Bright kids aren’t opting for Wall Street-type jobs, but rather would snap up opportunities where they feel they have integrity,” she said. “If the industry creates interest, there is the opportunity of grabbing them now.”
“Now is a great time for the retail industry,” Accenture’s Skinner said. “It is a great time to tap into the great sources of talent at the campus level and invite them to a safe environment that is not subject to the whims of capital spending constraints and Wall Street excess.”
Numerous individuals, including several with in-depth retail experience, warn that any deemphasis of what consumers need and want could create even greater problems for retailers.
Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates, a management consulting firm, said: “As much as people want to say it is important to have people that are adept in administration and keeping up with the cutting edge of management technology, the roots of our business are still in product and merchandising, and the truly great chief executive will be jack of many trades and master of most.”
He characterized as “a little naive” the notion that a general manager type can solve the problems and address the challenges of a fashion-oriented company. “Anyone can come in to develop the technology and structure that makes analysts comfortable, but in the end, a fashion-oriented company’s challenge is to develop creative new ideas and products,” he noted. “The ceo of that company ought to have something in his blood, in his genes and in his experience that includes that kind of knowledge and experience.” Emanual Weintraub, a consultant, strongly disagrees with the concept of a management void in retail. “At the top level, people running retail are pound for pound as good or better than their counterparts in other American industries,” he said. “They do have fewer accounting tricks and are running legitimate honest businesses.
“Kohl’s is innovative, Limited has had more ups than downs, and J.C. Penney has the merchandising prince. Yes, Kmart has had bad leadership, but they are right behind Arthur Andersen.”
Retail consultant Walter Loeb agreed: “The age where the ceo merchant is gone, to be replaced by financial people, is a bad reality of a company not in control. Ultimately, it is the merchant that makes the company vibrant and exciting and not the financial detail.” Harry Bernard, executive vice president of Colton Bernard, the San Francisco-based apparel industry consultancy, said: “I don’t think people are looking outside of retail to replace the merchant ceo. If they are, I think they are foolish. The merchant is the heart of the business.”
To insure that merchandising remains alive and well, Bernard said retailers need to improve development programs in apparel rather than recruiting people who are focused solely on operational and bottom-line considerations.
“What is retailing?” Bernard asked rhetorically. “It is the display of merchandise in the most attractive way to compel a specific, targeted customer to come into the store and purchase merchandise at full price.”
One such training program that could be described as the Harvard of retail schooling is run by Federated. “Federated’s training program meant you can be seen as more desirable,” said Bernard, who embraces a concept in which merchants drive the business in association with operational and financial experts.
The Federated Leadership Institution has developed the top 1,000 people in its organization, specifically its store and divisional merchandise managers as well as people higher up in the organization. The idea was born from the need to do a better job of grooming senior management and to better understand how their jobs coordinated with overall objectives of the department store company.
Shari Hollock, operating vice president for organizational development at Federated, said the program, resurrected over the past 10 years, has changed along with the demands of retail management positions. Intensive training now includes technology, financial and personal assessment as well as skill and style instruction in a weeklong experience, some of it with computer business simulation programs.
In addition, Hollock said Federated has ongoing training for its merchants consisting of 70 courses on buying and planning and 50 job-specific courses on the store side of the operation.
“We are recognized for what we are able to do with our senior leadership program and to take the leadership model and adopt it to lower-level management,” she said.
Leigh Manhein, an alumnus of Duke University and now an associate buyer and designer of handbags at Saks Inc., said she was enticed by both the financial and creative sides of retail she learned through Saks’ training program, which she said has improved since she graduated three years ago.
“It used to be three months, now it is a year,” Manhein said, noting that the extra training time — six months from one week — is spent in stores as department managers.”