Ever since the pandemic, retailers’ lack of staffers to operate the registers, unload the trucks and get merchandise on the shelf has dominated the conversation.
The Bureau of Labor Statistics reported the retail sector lost almost 800,000 jobs in 2020, compared to about 200,000 jobs lost from 2017 to 2019. And at the end of December 2022, one million retail jobs were open.
But an even more critical labor shortage has arisen since the pandemic with greater impact on retailers’ future: vacancies at the C-suite level and most importantly CEOs to lead the companies. VF, Adidas, Calvin Klein, Puma, Designer Brands, The RealReal, Stitch Fix and Rite Aid have permanent vacancies ready to fill.
Churn in the C-suite is growing across all industry sectors, Korn Ferry reports. The average tenure for CEOs among the 1,000 largest U.S. companies is 6.9 years, down from 8 years in 2017, with the longevity among all C-suite executives dropping from 5.3 years to 4.9 years.
Undeniably, the pandemic disruptions and its immediate aftermath have resulted in the current abundance of retail CEO vacancies. But major retailers may find a greater need to overhaul their C-suite as future events unfold.
“Boards of challenged retailers are looking for a silver bullet CEO who has instant credibility with the Street,” observed Catherine Lepard, executive search firm Heidrick and Struggles managing partner of its global retail practice.
“Every company is competing for the rarified CEO with an excellent track record. But that pool is small, and there’s not much incentive for some of these CEOs to leave their high-performing companies to do something messy,” she continued. Messy is an understatement.
While retail boards may blame company CEOs for shortcomings in company performance and demand a new leader, the problems may go deeper.
Rather than being part of the solution, are the boards part of the problem?
More Challenges Ahead
Describing the last three years as a roller coaster of extreme highs and lows, BDO partner and retail consumer products national industry leader Natalie Kotlyar said:
“First, retailers had to contend with store closures and a supply chain that came to a screeching halt. Then 2021 was a great year for retail, followed by 2022, which was burdened with continued supply chain disruptions, inflation, geo-political tensions, and rising interest rates.
“All these things are converging, along with more uncertainty as retail slows. Many retailers are asking whether they have the right senior people in place.”
She points to BDO’s latest CFO outlook survey that found one-third of retailers expect to restructure or reorganize in 2023, compared to 26% the previous year.
Further, nearly half (48%) expect to take on more debt, rising from 39% last year. Their existing cash and credit lines are also strained, with 45% having less than three months of availability, and 43% between three-and-six months.
With the possibility of a recession on the horizon, and S&P Global Purchasing Managers’ Index (PMI) signaling the steepest downward trend on earnings since the 2008-2009 global financial crisis —excluding the pandemic lockdown period— the quest for new retail C-suite talent will likely increase even more.
It will take a superman or woman to navigate the challenges ahead, and they are in short supply.
With slim pickings for the ideal candidates to fill open CEO slots, increasingly, board members are stepping into the breach, as Gap Chairman, Bob Martin did on an interim basis after the board lost confidence in Sonia Syngal. Its search for a permanent replacement continues.
The same tactic was used by Kohl’s after Michelle Gass moved on to Levi Strauss. Board member Tom Kingsbury stepped over on an interim basis with the company just announcing that the appointment is permanent. But he is nearing 70 years of age, and may not have the longevity that the company needs to carry it forward, no matter how well-qualified he is.
A similar stop-gap approach was taken at Victoria’s Secret & Co. after Amy Hauk’s abrupt departure from its flagship Victoria’s Secret brand.
VS&Co. CEO and board member Martin Waters took on her job. But there’s only so much one person can do, and he may be spread too thin given the continuing troubles confronting the brand and the challenge of transitioning newly acquired Adore Me.
Korn Ferry’s John Long, North America retail sector leader and senior client partner, observes that retail corporate boards are fortunate to have capable members with operating experience who can step in. But he also suggests that the boards have slighted their duties by not doing their due diligence in succession planning ahead of the need.
“Succession planning is a key board responsibility. When a board member fills in, it’s a sign they were not properly prepared,” he shared with me.
“One tell is the vacancy happened unexpectedly. And the other tell is the board has not engaged in the succession process. They were not properly prepared, so they didn’t have much of a choice. But it’s certainly not a best practice,” he said, and added:
“The time to start looking for a CEO replacement is when the new CEO starts the job.”
“In my experience, boards are occupied by people who see the seat as a source of revenue and status that legitimizes their career and success,” said Mark Cohen, director of retail studies at Columbia Business School. “With few exceptions, board members rarely get into the weeds,” with one of the weeds being succession planning.
“Boards tend to focus on shareholders and their fiduciary responsibilities – full stop. That’s because the deliverables are analytically determined and they have to sign an attestation to the SEC on a regular basis,” Cohen continued. “Customers and associates get short shrift.”
Everyone, top to bottom, must answer to the customers who pay the bills. When coming before the board, the CEO represents the voice of the customer and the staff who make good on the promises made to the customer.
Tensions inevitably arise if the board is putting growth and profits before people. And the person the board depends on most to deliver is the CEO, both the one currently holding the seat and the one who comes next.
“The linchpin between successful enterprises and ones that fail or do poorly is the quality of its leadership. The marker for success or failure is the leadership, and the leadership includes the board,” Cohen continued. “Major retailers have tremendous resources available, but not necessarily in leadership positions.”
One-Size Doesn’t Fit All
Korn Ferry’s Long believes the spate of recent CEO openings was inevitable after the pandemic because it was too risky to make abrupt changes during and immediately thereafter. But now, with the crisis in the rear-view mirror, boards and shareholders demand growth and are questioning whether the executive in charge is the right person to deliver it.
The typical replacement fix is to find a merchant prince and princess, but they may not be the right choice for this time.
“A strong merchant isn’t necessarily always going to be the best person to be the CEO and make the pivot,” he said. “Retail used to be all about the product. Today, it’s more about being tethered to the customer, being able to see around corners and where the future lies. That may not be a merchant.”
“CEOs need to understand the multi-channel environment and how customers’ needs can be served across them in a dynamic way,” he continued.
Complicating the succession choice further is the company’s life stage, whether the retailer is in its innovation, growth, maturity or decline phase. The retail life cycle theory was first introduced in 1976 by the late Ohio State University professor William R. Davidson et al., and it has stood the test of time.
The leadership skills and talents needed in one retail life cycle phase are not necessarily appropriate for another. For example, Jeff Bezos saw Amazon moving from its growth into the maturity phase and selected Andy Jassy to succeed him.
“Hiring a growth CEO when the business is in its late maturity or decline phase may be misaligned,” Long said. “A growth CEO might be aligned enough to work in the maturity phase, but almost never in a decline phase because the company is well past ‘stall speed’ and in need of much more of an all-out nuts-to-bolts transformation than merely lighting a spark in the cylinders.”
In these later stages of a retailer’s life cycle, cost cutting, tight inventory control and managing for efficiency are needed, but that may not be the skill set a growth-oriented CEO brings.
J.C. Penney made such a mismatch when hiring Ron Johnson, who was keen on transforming the company and generating rapid growth. But the company was in its maturity phase when he needed to shore up operations and reduce costs first.
Bed Bath & Beyond made a similar mistake by choosing Mark Tritton. He may have had the potential to be a great growth CEO, but he wasn’t the right person for the time and the life cycle stage the company was in.
“Boards have to hire the right person who’s going to institute the right agenda based upon where the business is today and what’s needed tomorrow,” Long reiterated.
“It sounds very sexy to hire a growth person, but they may not be the one to deal with the unsexy business of unwinding stores or selling through inventory. But those unsexy things can get you ready to go back and earn the right to do the sexy things later.”
No Time Like The Present
Likewise, preparing succession plans that won’t pay a dividend until years down the road may not be a sexy part of the board’s job, but it’s one that must be attended to before it becomes mission-critical.
“Every single company has to go through a CEO succession at some point in its lifespan. It’s better to make those decisions before there’s an urgency,” Long said.
Because of the increasing complexity of successfully operating in a multi-channel retail environment, retail management has become highly specialized, filling senior management positions with highly trained and professionally qualified experts. But they may not have the visibility across the many related functions required to lead a retailer in the 21st century.
“The very best boards have processes in place, both internally and externally, to identify talent because any board wants multiple options. Internally, they have development plans to adequately prepare people for the holistic responsibilities required to be the CEO. Externally, they need to be looking for talented people they might be able to attract.
“But my experience is not enough companies have these processes in place ahead of time,” he concluded.