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Perspectives on Retailing

Summer 2003 Number 5

About the Author

Melanie Kusin is a Senior Partner in Heidrick &

Struggles’ Global Consumer Practice, which

serves fashion and retailing, media and

entertainment, and consumer product companies

worldwide. She served as Global Managing

Partner for the Consumer Practice since joining

the firm in 1996 through 2002. Melanie’s personal

search practice focuses on serving clients in the

consumer product, fashion, luxury, and retail

industries. Over the past twelve months she has

completed CEO searches for publicly traded

corporations, private equity firms and financially

distressed companies. She also fills Board seats for

major public corporations along with advising on

succession management. Prior to joining Heidrick

& Struggles, Melanie spent over a decade at

Russell Reynolds Associates as Managing

Director. There, she headed the global Consumer

Sector from 1993 to 1995 and co-led the retail

practice. Before she began her career in executive

search, Melanie was in account management at

Ogilvy & Mather, managing client assignments

for General Foods, Clairol, and International

Playtex.

The Center for Education

and Research in Retailing

Kelley School of Business

Continuous

Learning Key to

Reinvention

Tomorrow’s Retail CEO needs

a diverse background to thrive

by Melanie Kusin

Following the end of the U.S. war

with Iraq, a National Retail

Federation (NRF) spokesperson

said research indicates the

industry is “returning to normal.”

Well, “normal” for the retail

industry comes complete with

Indiana University

and

KPMG

the everyday chaos of cutthroat

competition, never-ending

discounting wars and fickle

consumers.

Despite the optimistic prediction,

the job of the retail chief

executive officer is as tough as

ever, and will remain so as long

as consumers struggle to resume

pre-economic slump spending

habits in an economy that

stubbornly refuses to recover.

Big retailers are looking hard at

themselves. Regional players are

collapsing. It’s a very painful

time for the industry. All these

organizations are under intense


scrutiny. Ironically, the

environment was preceded by the

economic freight train of the mid

to late 1990s in which almost all

retailers prospered, even those

whose management mistakes,

inefficiencies and poor decision

making were masked by in the

high tide of a great economy.

The current economic malaise has

focused attention on retail CEOs

who can truly shine even when

most consumers are extremely

discerning with their

discretionary income.

An informal analysis of which

retail organizations have

succeeded over the past year or

so indicates that it takes a new

kind of chief executive to win in

today’s environment. What had

been working in retail—

leadership supplied by

“Merchant Princes and

Princesses” CEOs who made

management decisions based

mostly on instinct—can not be

expected to work as well over the

long term. Yes, there are CEOs

out there who seem to defy the

odds and still autocratically

oversee an organization, but for

most, this type of top-down

approach is nothing more than a

death spiral.

Our prediction is that the

Merchant Prince/Princess in five

years will no longer be running

most retail organizations. Many

of them have failed to change a

retail sales model based on old

assumptions about consumer

behavior. Consumers, however,

have changed radically over the

course of several decades. Take

the casual approach to workplace

attire, for instance, as well as a

much more active senior

population as just two examples.

This new reality—built over time

but ignored by many old-school

CEOs for so long—calls for new

retail models to emerge that cater

to complex consumer demands.

There’s been an emergence of a

new brand of chief executive who

has a broad range of experience

outside the retail world, gained in

industries such as manufacturing,

financial services and packaged

goods. More than their pedigree

differentiates them from previous

CEOs. The success of these

leaders is tied to their ability to

develop a creative culture within

their companies that allows for

re-invention, repositioning and

innovation from top to bottom.

They have great ability in

channeling up ideas from within

their own companies, as well as

knowing how to borrow from

best practices forged within other

industries.

These leaders realize that they

alone cannot bulletproof their

company from competition and

changing market conditions.

They have placed a priority on

fostering a diverse culture in

which solutions come from

anyplace—inside and outside

their company.

Take Me To Your

(New Type of) Leader

Take Liz Claiborne CEO Paul

Charron, whose company has

increased sales an average of 9.1

percent over the past five years,

2

due in large part to a strategy that

includes expanding the range of

products sold. Before running one

of the largest apparel and

accessory companies in the world,

Charron’s non-retail background

included leadership positions in

packaged goods companies such

as Procter & Gamble and General

Foods before moving into home

and then apparel manufacturing

and retailing.

Likewise, AutoZone’s Steve

Odland is another example of a

highly successful CEO with

limited retail experience—and no

automotive experience.

Previously, Odland held

leadership positions with grocery

retailer Tops Markets, the

Foodservice Division of Sara Lee

Bakery and a consumer packaged

goods foods company, Quaker

Oats. Odland has guided

AutoZone, the country’s leading

auto-parts retailer, to a 10.5

percent growth in sales, 102 new

stores and a 52 percent annual

return to shareholders, all in fiscal

year 2002.

Among the leading CEOs who

were raised in the retail

environment, Wal-Mart CEO

Lee Scott and Michael Duke,

president of its Store Division,

stand out for where they came

from within the company. Scott,

with Wal-Mart since 1979, was

an executive vice president of

logistics, before jumping to the

merchandising side in the mid

1990s, while Duke previously

held top positions in

Administration, Logistics and

Distribution. Together they’ve led

Wal-Mart to 12.3 percent growth

in 2002, with record sales and


earnings. Over the last six years,

Wal-Mart has grown at a

compound rate of 15 percent per

year. Fortune magazine in the past

year recognized the efforts of

Scott and Duke—and the entire

management team—when it

named Wal-Mart “America’s

Most Admired Company,” as

part of the magazine’s annual

rankings.

Disney’s Andy Mooney, chairman

and president of the company’s

Consumer Products group, was a

chief financial officer and later a

chief marketing officer at Nike

before applying his deft

leadership touches to one of the

fastest growing divisions of

Disney. Under Mooney’s

management, the Disney

Consumer Products business has

turned around through a variety

of initiatives, including the

creation of a new line of toys and

clothing called “Princess” that

draws from heroines of several

Disney cartoons, such as Beauty

and the Beast, The Little Mermaid

and Aladdin. The strategy is a

departure for Disney, which

previously relied on only current

box-office hits for the generation

of new products. Despite the fact

that Disney is attempting to sell

its stores—and is faced with

closing them altogether, Mooney

and his team have strengthened

the Disney brand at the retail

level, shifting its focus to stores

like Target, Wal-Mart and

Toys ‘R’ Us.

What these and other successful

chief executive officers have in

common is the desire to

constantly feed their intellect.

The new breed of CEOs benefit

greatly from watching other

industries and are willing to

consider new ideas. Moving

away from the Merchant Prince/

Princess model, there’s a

realization among themselves

that they don’t have all the

answers. If that seems

counterintuitive, consider this:

The CEO with a diverse, nonretail

background is more likely

to glean practices not only from

their former industry, but all

industries. Additionally,

corporate leaders who truly

believe they don’t have all the

answers are more likely to foster

their staffs to come up with the

solution.

AutoZone’s Odland, for example,

had exposure to many of the

disciplines relevant to leading a

retail operation, without the retail

experience. Odland has

championed market research in a

way not previously used at the

auto parts retailer. He’s not the

only one. Scientific study, or at

least an analytical approach—as

opposed to the leader’s gut

instinct—is being pushed by the

new generation of chief

executives more frequently.

Developing a Creative

Enterprise Within the

Organization

Because demographics, consumer

needs and their tastes are

changing constantly, re-invention

is a permanent aspect of the retail

industry landscape. It puts

continuous pressure on retail

CEOs and their staffs to properly

position their organizations. The

new-school chief executive has

realized that a key to reinvention

3

—and success—is in creating a

“learning organization” filled

with staff from diverse

backgrounds and industries that

have been exposed to many

different types of solutions. These

are the people who can best bring

new perspective to an existing

problem.

It all starts with the CEO. The

diversity of background of the

chief executive has everything to

do with the stability of the

organization and its ability to

grow and change.

In many instances, old-school

CEOs failed to find the solution

to a critical issue, and didn’t have

the people on their staffs who

could. Part of the problem lies in

the insular nature of most oldstyle

retail organizations. With a

management team that had

similar experiences, of course it

was difficult to find someone

with a fresh perspective. Another

problem is that often leaders from

“operational” departments—

information technology,

distribution, finance—were

isolated in their “silos” and not

given the chance to provide

input.

Forward-thinking leaders now

realize that they need the

perspective of their entire

management team, but also that

each member of the team should

be “cross-pollinated” by exposing

them to other parts of the

organization. The head of

marketing should be intimately

familiar with shipping; finance

should be aware of marketing’s

role; a merchant should be

immersed in supply chain.


Today’s successful CEO class

knows that they need to develop

future leaders by giving them a

diverse, multi-functional

experience.

CEOs are being measured on

their performance, and on their

ability to develop a creative

enterprise. The valued chief

executive should be able to talk to

20 people in an organization and

discover how creativity happens

in the company. CEOs need to

know: Where did the ideas come

from? How are they championed?

Are people here allowed to take

risks? The valued CEO gives his

people the platforms and the

safety nets to learn how to take

risks. The failures that inevitably

occur on the road to success

should be celebrated when

learning takes place. But this all

comes back to—is it a learning

organization? Leaders have to

have guts to do this and enough

prudence to know when to fly

with a new idea and when to cut

their losses. While failure today is

general, it’s not accepted in the

greater process as a way to learn

when it should be.

New leaders are not virtuosos;

they are quarterbacks who create

and direct dynamic organizations.

So how does the CEO of today

get new perspectives? There’s a

sea of change, the old rules don’t

work. The CEO needs to spend

time out of the retailer, out

around the globe looking at new

communities, looking at other

industries, becoming a student of

economics and politics, who then

brings the learning home. This

also includes examining leading

companies in other industries that

have already developed solutions

to similar challenges. In sectors

such as healthcare and banking,

there are best practices happening

all the time.

Although it starts and ends with

the CEO, there’s plenty of room

for contributions from key

departments and divisions

throughout any organization. It’s

OK for the CEO to be vulnerable.

It’s OK—even encouraged—for

them to say that they don’t have

all the answers. Without that

attitude, corporate leaders are not

going to listen to the people in

the field, to people in other

industries. They’re going to

assume they know better—and

shut out valuable input. CEOs

who can derive strategic input

from as many sources as

possible—not just from leaders of

the most prestigious units—are

the ones more likely to succeed.

It takes a lot of guts to be a great

leader today in another way as

well. There’s an old story that has

stuck with me for many years.

A venerable chief executive of

a struggling southern textile

company, Milliken, called

together all of his 2,000

employees. As I understand it,

they all sat in the cafeteria while

the CEO stood up on the table

and trumpeted,“I am the

problem.”

Over the next two years, Roger

Milliken led a journey to reengineer

the company from top to

bottom. At the end of that time in

1989, the company won the

coveted Malcolm Baldridge

4

Award for excellence. At that

time, Total Quality Management

was a statement of excellence.

The chief executive’s behavior—

being open and vulnerable—is

telegraphic. I don’t see a lot of

that courage these days.

To gain and embrace new

perspectives means to adopt

learning. To not resist, but

embrace the enemy, embrace

technology, create an organization

where creative people flock to

you. The firm of choice is a

golden asset. Today, where do

people want to go? When you

have great creative people

knocking on your door, great

things start happening.

Key Challenges Facing Retail

CEOs

To succeed in 2003 and beyond,

these retail leaders will need great

people creatively addressing a

number of issues. Among

retailers’ concerns are declining

consumer confidence, fewer

tourists, a lack of pricing power

due primarily to deflation and

overcapacity, and a general

economic malaise.

Retail CEOs will be asking

themselves and their

management teams:

• How do we succeed when the

consumer mindset is to wait

for the next sale? In an

environment where the price

of many goods has fallen,

combined with the need to

price competitively, margins

are being pared to the bone.


• Should we move more

aggressively into private label

as a way to avoid the vicious

cycle of discounting?

• Should we be introducing or

expanding our current food

format?

• For Big Box retailers, should

we move toward smaller, more

efficient store formats, and if

so, in how many locations?

Macy’s and Saks, for example,

have proposed smaller-format

stores as an attempt to keep

pace with fickle shoppers.

Similarly, one industry

consultant says that malls have

lost their edge and retailers will

move toward stand-alone

environments to order to

integrate themselves into a

community’s village square.

When doing so, how to do

balance the needs of the

customer, the needs of your

organization and the needs of

the neighborhood?

• How should we respond to the

continuing maturation of the

Internet? Is it a selling tool, a

place for customers to perform

research, or a customer service

vehicle?

The Hows of Hiring

Shame on the CEO search team,

the human resources executive

and others involved in senior

management hiring decisions

who continue to hire within the

familiar retail box. Odds are that

most retail organizations are

loaded with smart people who

possess retail experience. In some

cases, retail experience is

absolutely required. But, would

the business be better served by

getting top people from outside

the industry, who have

experience meeting the same

types of challenges facing

retailing? It may provide the

missing competitive advantage.

If a new type of chief executive

is needed to revitalize the

organization with innovative

ideas and programs, we’d argue

that the onus is on the hiring

group to think out of the box

when searching for candidates.

The same goes for the CEOs,

once on board, and tasked with

assessing and rebuilding their

leadership teams. They will be

recruiting people out of other

industries, integrating them into

their organization, and then be

better staffed to rewrite their own

playbooks.

Changing, growing, innovating

are all risk-laden tasks. Future

retail chief executives realize that

they don’t have to re-invent the

wheel. They know that by

borrowing best practices from

other industries they can mitigate

the risks during the “innovation”

process. In this way, they can

introduce what some would

consider a new concept with

comfort in the knowledge that it

has worked in another industry.

These “borrow mongers” find a

consistent source of ideas from

other industries and fields, and

are actively recruiting top people

from those fields to keep those

ideas flowing through their

organizations.

At Heidrick and Struggles, we

know first-hand how well

5

received a fresh, outside

perspective can serve a company.

We speak often with board

members—who most of the time

are CEOs of companies in other

industries—and find interesting

their impressions about a

retailer’s business once they join

the board. Their insights carry

weight because they don’t have

retail experience, and are viewing

the company’s challenges

unencumbered with biases or

past histories.

Aside from hiring people from

outside, the new breed of CEO

will also take advantage of

internal “repotting” of their

management teams. By that we

mean moving a top executive

from one department into

another, at least temporarily, in

order to gain a fresh perspective

on the issues facing that

department.

The process itself can be

extremely revealing to a CEO to

see if there’s a “learning” culture

within the company (i.e. the

transfer produces a series of new

ideas or insights) or if a political

culture exists (i.e. characterized

by turf-war struggles). If the latter

is the case, it doesn’t mean

repotting doesn’t work. It only

indicates that the CEO needs to

further infuse a learning

mentality into the organization.

No Longer the Cult of

Personality in the CEO

For too long, boards of directors,

companies, employees and

shareholders alike have been

sold on the CEO’s “cult of

personality” in which this


demagogue-like, larger-than-life

character served as the

organization’s heart, mind and

soul. Think Kenneth Lay, Bernie

Ebbers and Richard Scrushy. The

CEO was believed to be visionary

and all knowing. Like we said

earlier, the Merchant Prince and

Princess will be long gone, we

predict, unless they adopt some

of these newer practices.The

management model used by

Merchant Princes and Princesses

today likely will fail for a number

of reasons. Not only do the

fortunes of the retail company

hinge on the decisions made—or

at least heavily influenced—by

the “Merchant Prince/Princess,”

their leadership teams and staffs

become mere corporate

bystanders, spending most of

their time working to fulfill one

person’s vision. These

organizations fail to capitalize on

the collective brainpower that

they have painstakingly

assembled. The result is anything

but the learning organization that

is most desirable.

At Heidrick and Struggles, we’ve

seen a real humanization of the

chief executive. While it can

sound trite, lately it’s been all

about putting a human being in

the corner office. The need to

continuously learn, to be secure

enough to borrow ideas from

other industries, to fully

empower and utilize your entire

management team, to celebrate

your failures when they teach

you—it’s all back to being a

human being.

One CEO who recently celebrated

his first anniversary in his

position was thumping his chest

about how well things were

going; how the business was

streamlined; and how new people

were coming in. He felt so plucky

about everything, this chief

executive put his email address

out to the company to invite

people to offer their feedback on

his performance.

To his surprise, he received a

particularly scathing note from a

field manager. An old-school

corporate leader may have cast

aside this note as the ramblings of

a disgruntled employee. Our

new-school CEO took a different

approach: He traced the

anonymous email to an employee

in the Topeka, Kansas store. Our

CEO traveled to Topeka, walked

into the store unannounced,

introduced himself to the store

manager, and said the he’d like to

have 30 minutes to chat. In that

face-to-face interchange, our CEO

learned that his well-oiled retail

machine was broken in some

fundamental ways. He set about

recovering the frayed

organization. This lone gesture

sent ripples through the entire

organization, placing all store

managers on high alert for CEO

sightings.

Good corporate leaders are those

who are not directing from the

top down, but who are allowing

their people to be more

accountable and responsible.

These chief executives are making

clear that their management

teams and staffs are accountable

and responsible for the overall

success of the organization. CEOs

follow up with their actions, by

6

listening to them; hearing their

concerns and ideas. We’re not

talking about touchy-feely

management theory here. These

CEOs have implemented this

strategy for bottom-line reasons:

as part of their search for answers

to their most critical challenges.

It may be easier to be an

authoritarian, isolated individual

pulling the levers than it is to put

it all out there, show some

passion and admit you don’t

have all the answers. But

vulnerability and emotion seem

to be carrying the day in a lot of

places.

There’s a newfound appreciation

for quiet, unassuming CEOs, like

Procter & Gamble’s A. G. Lafley.

A.G. is a quiet guy and a great

listener who allows those who

work for him to feel enjoined

with him in tackling major

problems. He’s not cut in the

same mold as corporate leaders

who take a misplaced sense of

pride in a management

philosophy best articulated when

they say of one of their leadership

team: “I’ll give the guy enough

rope to hang himself.”

Can old-school chief executives

learn this new trick? Of course.

And if they can’t get there on

their own, there are many

executive coaches who are

helping corporate leaders make

transitions to new behaviors. But

given the sea of chaos the retail

industry operates in, CEOs will

need to embrace these concepts

and make them a part of their

everyday management style. In

fact, we work with three CEOs


who run “black hole” companies

in which there’s no template or

example for how to turn these

organizations around. Using the

right approach, these CEOs have

said that they have never had

more fun in their lives. “You

know we’re all in it together, the

team is working like crazy, we’re

gonna fix it,” said one of them.

Conclusion

For all the talk of CEOs with

diverse backgrounds, the

borrowing the best practices

from other industry and of

cross-pollination, this corporate

leadership approach is not a

guarantee to increase market

share. We fully believe, though,

it provides the best blueprint for

moving forward, for consistently

making critical decisions and for

reinventing the company on a

regular basis.

The economy will eventually

rebound. Spending levels will

resume over time. And some

CEOs will slip back into their old

habits. And most likely, if the

economy is robust enough, their

mistakes and mismanagement

will be masked, at least in the

short term.

It’s our belief, though, that the

current economic stagnation has

been longer and tougher than

previous recessions—and has

made an indelible impression on

the current class of CEOs and

those senior executives on track

to take over CEO slots. These

corporate leaders have learned

from the past two years and

processes put in place recently

are likely to take hold—such as

the use of quantifiable research;

or the consideration of a wider,

more diverse set of candidates

for key management hires.

7

About Heidrick & Struggles International, Inc.

Heidrick & Struggles International, Inc. is the

world’s premier provider of executive search and

leadership consulting services. Currently,

approximately 1,300 Heidrick & Struggles

search professionals and employees operate from

locations primarily in North America, Latin

America, Europe, and Asia Pacific. For 50 years,

Heidrick & Struggles has specialized in chief

executive, board member and senior-level

management search assignments for a broad

spectrum of clients: multi-national corporations,

mid-cap and start-up companies, nonprofit

entities, educational institutions, foundations,

associations and governmental units. The

company is expanding its range of

complementary services to offer solutions to

senior management teams for their leadership

needs, including executive assessment, interim

executive placement, and professional

development. For more information about

Heidrick & Struggles, visit www.heidrick.com.


About the Center for Retailing

The Center is sponsored by major retailers and consulting organizations. Center activities include creative, industry

focused research and state-of-the-art educational programs that emphasize student development, instructional

development, and advancing the discipline. Perspectives on Retailing is a critical issue report that is delivered to chief

retail executives, key industry organizations and leaders of the academic community.

The mission of the Center is to forge a partnership with the retailing industry that will:

• develop teaching materials and sponsor programs and events to increase student awareness of opportunities in

retailing as well as to better prepare them for the most challenging and significant entry level positions;

• instill in our students the business-oriented values, perspectives, and skills needed to assume leadership positions in

the industry;

• stimulate the creation and dissemination of innovative approaches to business challenges experienced by retailers

through a focused program of research and communication.

The Center is positioned as a source of talented individuals and as a source of knowledge and innovative ideas. As a

source of talent at both the undergraduate and graduate levels, our position is to provide a broad-based education in

business strategy and practice. We want our students to be regarded by the retailing industry as creative problem solvers

and solution-providers in contrast to narrowly trained functional specialists. As a source of knowledge and ideas, our

position is to focus on the interface between the customer and the retailer. The defining criterion for our research

activities is the extent to which the issue or topic has a direct effect on the customer’s experience, in both traditional and

non-store environments. We have a special interest in exploring new technologies for understanding, interacting with,

and serving customers.

About KPMG

KPMG LLP is a recognized leader in the retail industry, providing services to a significant number of the Fortune 100

retail companies and the top 100 retailers. KPMG LLP is the accounting and tax firm that understands business,

particularly the distinctive needs of market leaders. The firm offers clients a powerful combination of people, products,

technologies, and results-oriented strategies to help them meet their challenges and improve performance. KPMG LLP is

the U.S. member firm of KPMG International. KPMG International’s member firms have 103,000 professionals, including

6,500 partners, in 152 countries.

KPMG LLP is proud of its long-standing partnership

with Indiana University Kelley School of Business,

Center for Education and Research in Retailing. Since

its inception, KPMG’s Americas Partner in Charge -

Retail - Mark Larson has served as a Charter Member

and Member of Executive Advisory Board. KPMG’s

sponsorship of Perspectives on Retailing furthers

KPMG’s invaluable relationship with IU’s Center for

Education and Research in Retailing.

For additional information contact:

Dr. Theresa D. Williams Professor Frank Acito

Director Faculty Chair of the Center

(812) 855-1289 (812) 855-1013

thdwilli@indiana.edu acito@indiana.edu

Keep informed by visiting our web site at: http://www.kelley.indiana.edu/retail

For additional information contact:

Mark Larson

Americas Partner in Charge

Retail Industry

303 East Wacker Drive

Chicago, IL 60601-5212

mlarson@kpmg.com

Visit KPMG’s web site at: http://www.us.kpmg.com

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