Byline: Valerie Seckler

NEW YORK — The heat is on.
The chief executive suite, that is. And for retail ceo’s, particularly players in the volatile apparel arena, the pressure is higher still — and it’s expected to keep climbing through 2002, executive search and compensation experts told WWD.
The ailing global economy, investors’ escalating demands on stock-price performance and consumers’ continuing shift to mass retailers from higher-priced stores are creating a climate in which chief executives have a diminishing time frame in which to succeed. Just Monday, Kmart Corp. announced the dismissal of its chief executive officer Charles C. Conaway. The retailer, now in Chapter 11, has lost market share since Conaway joined as its chairman and ceo in June 2000. Conaway was succeeded as chief executive by Kmart’s current chairman, turnaround specialist James B. Adamson.
“Across U.S. industry, the grace period for ceo’s is getting shorter,” noted Jan Koors, vice president at Pearl Meyer Partners, an executive compensation firm based here. “Investors are again seeking the same kind of growth they did in the Nineties, when they looked upon quarter-over-quarter results to drive stock prices.
“Boards are increasingly looking for ceo’s to generate stock-moving [financial] results — and they can’t miss too many quarters before they lose that seat,” Koors added. “They’re quick to pull the plug.”
During the past five years, in fact, Pearl Meyer’s annual study of ceo turnover at 200 of the country’s 500 largest, publicly held companies, has found more than half of those top spots have turned over, some of them more than once.
Most ceo’s of American industry average around three or four jobs in the top spot at various companies during their career, said search firm sources. The rate tends to run higher in retail, let alone apparel retail — where a bad season or two is sometimes enough to turn a ceo from hero to goat.
“Ceo turnover is happening with greater frequency, and in retail, it’s happening even more often,” said Bob Kerson, a managing director at Korn/Ferry International, here, where he leads the global retail-fashion practice. “Retail is an emotional business, which brings a lot of pressure on chief executives of companies like the Gap.
“I expect ceo turnover in retail to accelerate further when the economy comes back,” Kerson added. “If companies don’t gain market share when it picks up, the ceo is going to become vulnerable.”
In the meantime, WWD has calculated the odds of a sample of 22 apparel ceo’s losing their job this year, using the Dismal Scientist Layoff Calculator at The calculator estimates the probability based on a handful of data: the executive’s industry, occupation, and performance rating (top third was chosen for all ceo’s); the zip code where the ceo’s company is based, and the firm’s stock ticker symbol.
The median chance of losing one’s job in the U.S. this year is 5 percent, according to the dot-com device.
As for retailers, new Kmart ceo Adamson tops the WWD chart with a 4.1 percent probability of losing his new post this year. Conaway, prior to his departure, also was in the shakiest spot, according to the calculator. But both still fall shy of the median. (By comparison, a retail salesperson employed at a Kmart store in Troy, Mich., where the discounter is based, has a 7.1 percent chance of being laid off this year; a logistics manager at a textile company in Gap’s zip code has a 7.9 percent probability of losing their job in 2002.)
Millard S. Drexler, president and ceo of Gap Inc., also rates relatively high chances among apparel retailers of being let go with a 3.8 percent chance. Drexler has come under intensifying pressure as Gap’s weak performance in recent quarters is eroding even his considerable cachet.
But Drexler may have a bit of breathing room near term, according to sources, who said Gap’s board is stacked in his favor. His time may be running short, though. As reported in WWD, some observers believe Gap has to show some signs of a turnaround before late fall or else Drexler could be out.
“Mickey Drexler needs to produce in a hurry, if he’s going to stay on at Gap,” declared Bob Buchanan, a vice president and senior retailing analyst at A.G. Edwards in St. Louis. “He has failed to communicate with a new, younger customer [16-30 years old], half the age the flagship [Gap] chain used to go after.
“It’s not like when Mickey was the customer,” groused Buchanan, who’s had a “sell” rating on the stock for 13 months.
“In apparel, a ceo puts such a mark on the image of a company that when the merchandise goes wrong, they’re blamed for not nailing it,” pointed out Koors of Pearl Meyer. “Retail is a business with a very short-term focus. It’s one of the few businesses where you get daily sales reports. You are your most recent season.”
Also seen as potentially vulnerable this year are ceo’s of department stores, which are losing share to mass chains, and of regional chains, in any channel, because they lack the scale and financial wherewithal to survive and prosper in today’s pressure-cooker economy. For example, search consultants said rising financial pressures could be felt by The May Department Stores Co. chairman and ceo Eugene Kahn, who, they said, has yet to distinguish himself, and James Zimmerman, chairman and ceo of Federated Department Stores, where sources cited a need for more dynamic management. Kahn and Zimmerman each rated a 3.7 percent probability of losing their posts this year, according to the layoff calculator.
“It’s clear that market share is shifting from the higher-cost to low-cost chains, and to the extent you’re a Lee Scott at Wal-Mart, you’ve got pretty good job security,” said Buchanan. Perhaps pointing to the increasingly tenuous nature of job securities for retail ceo’s, however, Scott rated the same 3.7 percent chance of losing his post this year as his contemporaries at the higher-priced department stores. But while the chances are the same, Wal-Mart’s bigger market share and stronger financial results make his removal less likely.
“Typically, when there’s a change in strategy, the value of a chief executive changes and a new ceo is often adopted,” said Kerson of Korn/Ferry. “We’ve seen that at Sears, J.C. Penney, and, most recently, at Kmart.” When Conaway first took Kmart’s helm, observers questioned whether someone without any experience in the apparel business was the correct choice to turn around the discount giant, which sells loads of apparel along with the general merchandise.
Less vulnerable near term, said sources, are top executives of publicly traded firms that are closely held by families, including those at regional chains, such as William Dillard 2d, ceo of Dillard’s Inc., and Nordstrom chairman Bruce Nordstrom.
If a chief executive is dismissed, said Herb Mines, chairman of retail search firm Herbert Mines Associates, “It is very much a decision of the board and audit committee.” Whether or not the shareholders become involved in the matter depends on whether the stock is widely or closely held. “A widely held stock is not as likely to see a shareholder revolt, when a change at the top is sought,” Mines related. “But once particular shareholders have a 10 or 15 percent stake, they can wield influence.”
“Boards are becoming better judges of chief executives because of all the pressure being put on them today to move the company’s stock,” stated Eric Segal, president of Kenzer Corp., an executive search firm here. “The quarterly meetings are becoming more serious; there are more emergency meetings, and people aren’t accepting ceo positions as readily. In pure apparel retail, fashion and demand for fashion are the biggest factors in determining a company’s success.”
One wild card looming on the horizon for retail ceo’s, though, could be the Enron effect.
“The Enron scandal and questions it has raised about public accountability has created some concerns regarding retail,” offered Korn/Ferry’s Kerson. “I think we will see a couple of accounting scandals in the apparel retail industry.”