RETAILING’S BLACK HOLE
Byline: David Moin
NEW YORK — Where’s the talent? Where’s the bench strength?
They’re sorely missing from retail companies, and as the nation’s retail leadership ages and succession questions arise, the problem only gets more pressing.
“It’s the Achilles heel of many companies,” said David Clark, Federated Department Stores’ vice president of executive and organizational development. “Companies have grown so quickly over the last decade through mergers and acquisitions, creating larger jobs with broader responsibilities that are harder to fill,” Clark said.
“You really need exhaustive bench strength,” he stressed. “Every company is vying for talent.”
“Succession planning at every level within the industry, from the ceo down to buyers and below, is drastically lacking,” said Robert Kerson, chairman of Levy-Kerson, a leading executive search firm. “Every company has got to have its backups — their promotable lists.”
It’s getting costlier and messier to get the talent, as chief executive officers want more than just a million in salary, and salaries of $300,000 to $500,000 alone just don’t cut it for high-level merchants. They want stock options, equity, guaranteed wealth and exciting assignments. Also, there are more dual-career couples in the U.S., meaning fewer people are willing to relocate when job opportunities arise.
At the buyer level, it’s a burnout ordeal. Long hours, reams of paperwork and low morale have pushed annual turnover rates at some chains to the 25 percent or higher level. Moreover, retail training programs have dwindled and recruitment efforts have slowed, leaving a diminished talent pool.
What it all adds up to is a desperate retail industry, challenged more than ever to fill slots. And stores often are coming up short.
Consider The Talbots Inc.
Last July, Clark J. Hinkley, executive vice president of manufacturing and special services, was removed as chief operating officer, chief merchant and a board member. Apparently, there was no one on board to step up. Instead of triggering a smooth management change, Hinkley’s shift triggered a six-month search.
“We’re actively interviewing,” a Talbots spokeswoman said. Meanwhile, the merchandising organization reports directly to Arnold B. Zetcher, president and ceo, instead of Hinkley. When asked if there is a talent drain, Zetcher said through the spokeswoman, “I don’t feel that way at all” — about Talbots or the industry overall.
At Bloomingdale’s 59th Street flagship, there’s been no general manager since mid-August, when David Fisher shifted to running the men’s and children’s wear businesses, after executive vice president Stuart Glasser suddenly resigned to run the Casual Male Inc. big and tall chain.
“I don’t have in my own mind yet who should run the New York store,” admitted Michael Gould, Bloomingdale’s chairman and ceo. “There are some issues” involving the selection. He wants someone with both merchant and people skills. He’s moving on it, but cautiously, considering the importance of the post. “Hopefully, we’ll know soon,” Gould said.
Other retailers are also getting caught shorthanded.
When Jack Shea, ceo and president of Spiegel Inc., resigned in June, following the catalog’s declining fortunes, an office of the president consisting of senior vice presidents — Harold S. Dahlstrand, human resources; Michael R. Moran, general counsel, and James W. Sievers, chief financial officer — was set up to fill the void.
Spiegel has no plan to find a new ceo, but originally, the highly regarded Rick Fersch, president and ceo of Spiegel’s Seattle-based Eddie Bauer division, reportedly was in line for Shea’s job. But Fersch decided to stay in Seattle, partly due to strong ties to his church there.
“That’s speculation,” said a Spiegel’s spokeswoman. “Everybody has a lot of respect for Rick. Eddie Bauer is our strongest unit. The issue is, he’s driving and growing the business. Why mess with that?”
Succession is a messy issue and it’s bound to get messier. Observers say management is too thin, not enough responsibilities are shared and not enough time and money are spent cultivating talent. They believe that if someone of the stature of ceo Millard Drexler left Gap, the stock would go into a tailspin because there’s no perception that the company has talented understudies waiting in the wings.
However, “Many companies, not just retailers, are run by ceos with a short-term view of their organizational needs, who don’t delegate the kind of responsibilities that foster new talent and leadership and allow others to share the spotlight,” Kerson said. “The board has an obligation to shareholders to make sure the processes are in place to develop talent and to identify people with potential.
“Unfortunately, many boards are driven to act only at the 11th hour.”
Retailers dispute that.
“We do have a succession plan. We review it annually within the board,” said a spokeswoman for Sears. “In the event of a loss of a ceo for whatever reason, or other executive officers, we have succession plans that enable the company to function without interruption. Specifically, ceo succession is the responsibility of the board of directors, so that process would start with a nominating committee being convened and that could be done on very short notice.”
Does Sears have a second-in-command to succeed Arthur Martinez, in the event that he left? The spokeswoman wouldn’t say. “Again, it’s a board decision and reevaluated each year,” she said. “It may not be the same [person] from year to year.” Some analysts suggest Robert Mettler, president of merchandising, is the logical number two at present.
A Gap official wouldn’t disclose whether Gap has candidates to succeed Drexler, but the official did say the company engages in succession planning. “We believe we have a strong management team, but we would never comment on the details,” the official said.
Analysts see plenty of talent under Drexler, but not necessarily ceo material. Management includes the reserved Robert Fisher, who runs the Gap division. His skills are more financial and administrative, similar to those of his father, Gap founder and chairman Donald Fisher.
There’s also Jeanne Jackson, the successful Banana Republic ceo, but she is more involved in the administrative side of the business than merchandising. The real merchandising talent was Marie-Holman Rao, who left two months ago to join Limited Inc. as president of Limited Design Services. Banana Republic did not name a new president.
Other standouts at Gap include Lisa Salamone, a senior merchant at the Gap division, and Jenny Ming, senior vice president of merchandising at Old Navy.
Yet, as one executive familiar with the Gap infrastructure observed, “There’s a long way to go if they ever had to replace Drexler.”
“You want to know that if someone gets hit by a truck or decides to sit out their career on the beach, you’ve got the backups,” said Gould. “The goal is to be always looking inside your company for talent. It’s one of the things I do on a regular basis.”
But throughout the industry, “I don’t think there is a lot of talent,” Gould observed. “Really great people are not easy to find.”
Nor are they easy to retain.
Last Friday, Rose Marie Bravo shocked the industry by quitting her post as president at Saks Fifth Avenue to be ceo of Burberrys Worldwide. Sources speculated that management differences at Saks, an opportunity to run her own show and a big financial package drove her to Burberrys. Saks, moving expeditiously, contended that no search was needed to fill the void, with its chairman Philip Miller immediately stepping in to play a larger role in marketing and merchandising, and two senior vps in those areas getting elevated to executive vice presidents.
At Bloomingdale’s, Gould said that to groom talent he often moves people from operational jobs to merchandising positions, or vice versa; for example, Lisa Gavales, a senior vice president, last month shifted from the merchandise planning and MIS areas to covering home furnishings. “People have to know they can grow in scope,” Gould said.
Search consultant Kerson agreed. “Team-building must be incorporated into the strategic growth plan and the plan has to include not just an orderly process for ceo succession,” he said. “There has to be a plan for buyers, divisional merchandise managers, general merchandise managers, chief financial officers. Planning at all levels has to be done. Companies have got to continually evaluate and assess management at every rung.” Succession planning, according to several consultants, should include:
A system of rewards for accomplishments, such as exceeding plans or finding new initiatives.
Identifying emerging talent.
Carving out career paths in advance and placing staff on realistic career schedules.
“Paint a future,” Kerson said. “Succession planning is a tricky business, sometimes kept under wraps, but critical to the future of any company.”
A few people inside executive suites are beginning to recognize this. “Four years ago, we did not have an HR [human resources] professional at all,” said Arnold Kanarick, Limited’s executive vice president and director of human resources. “In the last few years, we’ve been playing catch-up. Succession planning in this company wasn’t done. The cupboard was really bare.”
There were good merchants within Limited’s ranks, but generally, they weren’t presidential material, Kanarick added, meaning they lacked the skills or presence to run a division.
There have been changes, Kanarick noted. Chairman and ceo Leslie H. Wexner holds annual leadership reviews and planning meetings at each division that include Kanarick, the division’s ceo, and its vice president of human resources. “We look at where the business is and where it is going, and actually question who in the organization is capable of taking it there,” Kanarick said.
In addition, Limited has “a new generation” of human resources chiefs — 20 instead of 16 earlier in the Nineties, 18 of them new to the job or new to the company.
“The name of the game is not recruitment. What you really want to think of are the career opportunities when you join the company, and what culture is there to support career growth,” Kanarick said.
Recently, Limited has been reorganizing management the way it turns inventory, tapping top talent to run the divisions and design products.
Last June, Limited promoted Kenneth B. Gilman to chief administrative officer, establishing him as second-in-command of the $8 billion specialty store giant. He continues as vice chairman, and could be considered a contender to one day succeed Wexner, the 59-year-old visionary Limited founder, who’s likely to work well beyond the traditional retirement age. Yet one former Limited executive insisted, “There’s no way Wexner wouldn’t pick a merchant” as a ceo.
Looking into the future, it’s likely that Gilman, 51, will end up as president, a post that’s vacant, and a new ceo will be plucked from one of the divisions, according to retail observers. Among the most highly regarded merchants in-house are Michael Jeffries, who reinvented Abercrombie & Fitch into one of the country’s hottest specialty chains, and Rob Bernard, who just stepped in as Limited Stores ceo, but is said to be high on Wexner’s promotable list. Bernard moved up from Cacique to running the much larger Limited division, and is being primed for roles of increasing responsibility.
“If he does good things at Limited Stores, he’ll be a very serious player. He’s smart, articulate and has good entrepreneurial skills, with a manufacturing and retailing background. That’s what Wexner likes,” said a source.
Others with star quality at Limited include division ceos Beth Pritchard, who has catapulted Bath & Body Works into a cash cow, and Grace Nichols, who has transformed Victoria’s Secret Stores into a world-class brand. Outside the store ranks, watch for Edward Razek, president of Limited Brand and Creative Services and Marie Holman-Rao. There’s also Michael Weiss, Express ceo, but Express has been dragging, tarnishing some of Weiss’s star merchant status.
At May Department Stores last spring, Gene Kahn, one of the industry’s most respected department store merchants, was promoted to vice chairman, overseeing four divisions, which established Kahn as the second-highest-ranking merchant, next to chairman and ceo David Farrell — who, like Wexner, is seen running the ship well after he hits retirement age.
However, when Farrell does leave, one former May Co. executive suggested that he give the nod to Jerome Loeb, president. “Farrell really likes him, he’s the right age, he’s bright and he would partner with Gene Kahn,” said the source. “Kahn’s a real merchandising talent, in terms of store presentations and timing of promotions.”
Marshall Hilsberg, veteran ceo of May Co.’s Lord & Taylor division and a strong retail leader, is still considered a strong candidate as well. However, “Moving to St. Louis [where May Co. is based] would be an issue for Hilsberg,” said a source, who added, “Marshall reports to Gene. That tells you something. It’s a huge comfort for shareholders knowing there’s a great talent like Gene Kahn sitting behind David Farrell.”
Meanwhile, Federated Department Stores isn’t taking any chances. After James Zimmerman became chairman and ceo of Federated Department Stores last May, succeeding Allen Questrom, officials put together a secret list of executives to groom as candidates to succeed Zimmerman. Terry Lundgren, Federated’s president, likely heads the list of several division heads.
Of course, Zimmerman, a career Federated man who is only 53, is not about to leave soon, but it has become Federated policy to put together lists of possible successors for top executives.
Federated’s Thomas Cody, executive vice president of legal and human resources, along with Zimmerman, Lundgren and Clark, visits each division twice a year. “We do a complete review of human resources and talent,” Clark explained. “It’s an exhaustive review of the performance and potential of the executives and all of the backup talent. If the ready-to-wear gmm [general merchandise manager] of Macy’s East or Macy’s West were to leave, we want to have that backup list developed,” Clark said. Financial performances over several years, leadership qualities, interpersonal skills and job experiences are appraised.
The company also has a backup list for Michael Steinberg, the astute, 69-year-old chairman and ceo of Macy’s West division, who came out of retirement to run Macy’s West in 1994. Jerry Sullivan, 57, is currently number two as president of Macy’s West, but as one Federated source said, “He’s not a merchant.” While Zimmerman, a financial and operations executive, succeeded Questrom, a merchant, as corporate ceo, when it comes to division commanders, “Federated has taken the attitude they want merchants,” the source said.
“Our industry has to more aggressively continue to fill the pipeline of senior merchants that is rapidly depleting,” Kerson said. “In order to do that, greater emphasis has got to be placed on initial training and development of young executives and comprehensive succession planning at every level, so when the unforeseen happens, companies are prepared.”