BUILDING BETTER MANAGEMENT
Byline: Vicki M. Young
NEW YORK — Retail and apparel companies will need to seriously address issues ranging from entry-level training to senior-level succession planning if they are to generate the types of leadership necessary for a new century or, for that matter, the aftermath of the Sept. 11 terrorist attacks.
Having historically been led by merchants and more recently by financial specialists with pencils that are sharper than their eyes in many cases, a new, more visionary executive is needed. Unfortunately, few companies have the procedures and mechanisms in place to either cultivate or find that person.
In the retail industry, where executives tend to focus more on short-term sales goals and next season’s merchandise buys, succession planning for top positions has fallen to the bottom of the priority list, and the evaporation of training programs for entry-level and middle-management positions has only compounded the problem. The search for the next management wiz has also been complicated by confusion about retention of promising young employees.
Under these circumstances, where does one look for the next great chief executive officer or general merchandise manager, one with the right combination of vision, leadership and operating skills to propel a company into the future? More important, if such an individual exists within an organization, what must a firm do to retain the executive and not lose him or her to the competition?
A group of executive search specialists — known colloquially as headhunters — assembled for a WWD Financial Forum to tackle these issues in the aftermath of the terrorist attacks. All noted that consumer shopping habits are likely to change as the public absorbs both the enormity of the atrocities and the long-term effects on their lives and priorities. Adjusting to these changes, both the obvious and the subtle, will require exactly the kind of leadership that has proved to be so elusive for many retail firms, participants said.
Participants in last month’s forum were: Elaine Hughes, who heads up E.A Hughes; Eric Segal, president of Kenzer Corp.; Robert Kerson, president of global retail-fashion practice at Korn/Ferry International, and Stuart Kagel, vice president and chief operating officer of 24Seven Inc.
According to Kerson, activity in the executive search business is likely to accelerate in the months to come, with firms doing more than providing jobs. “We talk more and more about succession planning. It is not just at the chief executive level. If a general merchandise manager moves, who is the backup? Succession planning must be done at all levels. If the ceo departs, and the company goes through an eight- or nine-month process to find the successor, nobody suffers but the shareholders. Those pieces have to be in place long before the question comes up,” he explained.
Hughes observed that General Electric had a myriad of internal candidates who could have succeeded the recently retired Jack Welch. In the retail and apparel industry, however, replacements for top-level positions tend to be filled from outside the company. Segal pointed out that the problem lies with the culture within the retail and apparel industry that has helped cultivate existing practices and attitudes. “The responsibilities of ceos and chief operating officers in large companies are much greater than ever before. Successful companies run like a silo, and the ceos run up and down. Now there are multiple silos, and with consolidation going on, those silos get greater in number. What we’re looking at is a very different type of ceo in the future, someone who has the ability to be both myopic and peripheral. We need an individual who is not afraid to hire individuals who could replace him. In the past, they have not given any thought to who is going to step up. The long-term planning of next month and the short-term of this week has been the much more dominant player,” Segal said.
Stuart Kagel, whose firm does both full-time placement and freelance assignments, added, “Information is extremely powerful if harnessed and can generate tremendous return-on-investment implications that very few companies are willing to take care of. We deal with an industry that historically spends an enormous amount of time and energy on the integrity of the products that they present to the public. What about the energy to make sure that the people that are involved in these companies pass the same rigorous quality control standards?”
The participants agreed that the discontinuation of training programs that were once available, and which provided an enormous pool of executive talent, has compounded the problem of finding qualified executives to lead their companies and the industry into the new century and beyond.
According to Kerson, “The big issue that every major department store faces today is that the training programs are gone. Even if they start now and put those programs back in place and fund them, there’s a payback that’s probably four or five years out before they start to see real value added.”
Segal noted that when he entered the executive search business in the early Seventies, consolidation in the retail and apparel sector and other factors contributed to the feeling that retail would be the last place one would hang his or her hat professionally.
“So companies cut off the training and figured out how to operate to survive. Once these companies came out of it, they asked themselves ‘Where do we go from here?’ and realized that they didn’t have the talent to give them their tomorrows. The first thing that happened was the increase in salaries. The dollars dramatically increased because of the lack of talent. Now we could be in a position where we potentially cost ourselves out of the market. Even if we do survive, what would we be willing to pay for a ceo’s replacement?” he observed.
Hughes pointed out that supply and demand has been a problem for retail and apparel companies for quite some time. That problem was complicated in the mid-Nineties when large department store groups made it clear that they considered it a conflict of interest for vendors to raid stores’ executive ranks for talent.
According to Hughes, “For years, retail was where the supply came from. That has become even more critical because successful apparel companies have their systems run parallel to retail. Most of the apparel companies have totally dismissed any training programs, so they rely on training to come out of retailing. When you’ve been told that you have a conflict of interest when you hire from retail, the manufacturer has a problem on its supply side. This means that those individuals that have garnered credibility in their job functions still get the most money. Instead of being able to choose from six or eight qualified individuals, there are even fewer to choose from and everyone is chasing the same ones.”
Kerson noted that retention may be as big a challenge as succession. He described the work environment today as an era of free agency, with the average career involving six or seven job moves. Companies are retaining employees for short periods of time, but only until the employee decides it’s time to go elsewhere for the next challenge, the recruiter said.
“Retailers and apparel firms,” he noted, “need to provide challenges. An individual who gets up to the more senior level, whether ceo or chief financial officer, wants the challenge and the ability to make a difference.”
Hughes pointed out that companies, as part of succession planning, also need to promote from within. If a company constantly recruits from outside, she said, they’re likely to be sending the wrong message to their employees. Particularly affected may be the middle manager who wants to become a division president and is left wondering why no one in the firm is moving up.
According to Kagel, the freelance business has been strong, with a surge over the last six to eight weeks. He described the ability to be flexible and respond to short-term needs on the merchandise level as “frenetic.”
“The marketplace, as it retrenches, will be more focused on temporary staffing. The good news is that 70 percent of the part-time workforce convert to full-time staff positions. Companies have a security in trying the dress on before they buy, if you will. No one can afford a bad hire,” Kagel observed.
He noted that while his firm can address training for freelancers, there’s still a need on a larger scale to help candidates develop the skill sets that enable them to migrate from one company to another. A wide range of experiences help them hit the ground running in their new positions.
The participants noted that, particularly among the retailers, the qualities of the typical ceo have changed considerably. Historically, stores have been run by merchants. Today, with so many stores being part of publicly held firms, many at the ceo level are more focused on bottom-line financials, a shift that is both good and bad for the retail industry. As Segal pointed out, finding and bringing onto the store shelves that great new product used to be almost the equivalent of finding the keys to Fort Knox. “Today, if you come in with this great item, well, that’s not the question that you were asked. It was, instead, show me the money,” Segal said.
So what are possible key criteria required for tomorrow’s retail and apparel executives? “The real characteristic you need to look at in difficult economic times,” Kerson said, “is not necessarily the best merchant or the best marketing person. What you need is someone with the ability to lead and motivate the team.”
Hughes pointed out that today’s future leaders and senior level executives also need to recognize the importance of sharing credit. Top-down dictatorships are no longer the model that makes companies great. A spirit of cooperation in the way a business is run better achieves a firm’s objectives today, she explained.
An objective not found in most help-wanted ads also needs to be addressed. “The executives have to make the effort to make the retail and apparel industry enticing,” Hughes said. “When will the industry make this a place for people to come to? When is the ceo going to show that kind of leadership? They have to think, I’ve got my general managers. Now how am I going to back them up, review them and train them? We need a recognition that leadership is by example, not by ego. So far, I’ve not seen that recognition.”
The Sept. 11 terrorist bombings also pose added challenges for the retail and apparel industry, both for those aspiring to senior-level positions and the companies casting their net for new talent.
“How does the industry change in light of current economics and the recent tragedies? As horrific as they were, shopping patterns of consumers, I believe, are going to change. There is an opportunity for savvy merchants today to look at their businesses and say, “Let’s reposition ourselves because there’s going to be a fundamental shift in the way consumers will shop and how they want to live their lives,”‘ Kerson predicted.
He isn’t sure yet what those changes will be, although they could range from less spending on apparel to more time spent at home. Major department stores, he advised, might want to look at people’s values today as opposed to what they were before the terrorist attacks.
“I think the values have changed dramatically,” Kerson observed. “A lot of the things that we’ve talked about, unfortunately through this horrific experience, have changed. Somewhere along the way, there’s a business opportunity related to the fundamental shifts. The question is, How will merchants capitalize on it and can they figure out a way to sustain it? “
Segal noted that it may be too early right now to pinpoint what direction those changes will lead consumers.
“We have a long way to go, a lot of concessions have to be made. You look at industry after industry — the airlines, Broadway and travel. We hear of cost cutting to keep an industry going, and donations of proceeds to relief funds. We’re looking at a consumption that’s going to change. What is going to be the result of it and how deep is it really going to go, we just don’t know yet,” he explained.
Segal noted that some recent changes, such as the airline industry dropping Saturday-night stay-over requirements while at the same time providing reduced rates, were already in place before the events of Sept. 11. Those changes, he said, were part of the backlash from consumers who had decided they weren’t satisfied with the way things were. Looking ahead to what’s needed to survive and move things back to a sense of normalcy, Segal said, will require more than simply individual effort.
“A spirit of cooperation is needed with everyone doing what they can to help each other out. As for manufacturers and retailers, it would be very nice to see them on the cutting edge for once instead of waiting to see what happens and then reacting to those events,” Segal concluded.