While the national unemployment rate has been falling for the past few months, the job security of retail CEOs has been somewhat shaky. The CEOs of Groupon and Toys ‘R’ Us recently exited, with failed omnichannel strategies cited among the reasons for their ousters. The CEOs of Radio Shack and J.C. Penney are changing courses to stem losses.
While they are still have their jobs, Yahoo’s CEO is taking flack for her new “no telecommuting” policy and the CEO of Abercrombie & Fitch continues to stir up controversy. The craft chain Michaels Stores recently named a new CEO after a seven-month search and is rumored to be ready to launch an IPO that, if successful, will thrust him into the world of the increased scrutiny faced by public companies.
Retail has a long history of high turnover at the top. In the 2011 Russell Reynolds Associates’ U.S. Retail CEO Study, 59% of respondents said they had a change of CEOs from 2006 to 2011. The study, which examined 81 multichannel retailers in the U.S. between 2006 and 2011, found that 27% of retail CEOs left after serving three years or less. The survey found that retail CEOs exits at a much higher rate than in other industries, with 42% of retail CEOs leaving after serving five years or less, compared with an overall average of 32% CEO turnover at Fortune 1000 companies during the same period.
What Is Driving Retail CEO Turnover?
What is behind this recent rash of shake-ups? One common theme is that as we continue to crawl out of the recession, boards of directors are giving CEOs in general, and retail CEOs in particular, less time to right the ship.
“At the end of day, boards are looking at top-line growth,” said Craig Rowley, VP and Global Practice Leader for the retail practice at consulting firm Hay Group. “They are looking at controlling costs, delivering profits and the potential for the future. Before the economic downturn, a board might have given a CEO nine to 18 months to see if a new strategy worked. Today, with the GDP at less than 2% growth, they are much less patient.”
Rowley noted that e-Commerce is increasing the pressure on retailers. “For retailers with good e-Commerce strategies, it may be a case where they are driving more traffic to their web sites —where they are selling things for 15% off — and as a result maybe their store comps are down, which are the things that boards look at,” he said. “And for the retailers that don’t have good e-Commerce strategies, the news is even worse.”
Competition from all channels and all angles is making life tough for retail CEOs, experts agreed.
“The common thread I see in [in Yahoo, Radio Shack and Groupon] is that these are three organizations struggling to remain relevant in the shadow of companies employing much more successful strategies,” said Dave Kaminsky, Analyst with Mercator Advisory Group, an independent research and advisory services firm. “Yahoo lags behind Google, Radio Shack behind Amazon, and Groupon behind every organization offering deals in complement to their primary businesses, such as financial institutions offering discounts linked directly to consumers’ credit cards.”
Role Of Technology In Retail Shake-Ups
Technology played the most direct role in Radio Shack’s inability to compete with e-Commerce giants such as Amazon, but it also is at the heart of Yahoo’s predicament with telecommuting, Kaminsky explained. “Corporate environments are still getting used to what technological conveniences can and cannot be effectively adopted, and telecommuting is a great example of this. Seeing as innovation is one of the primary areas where Google has outpaced Yahoo, it is difficult to argue with the reasoning behind Marissa Mayer’s decision.”
Groupon’s biggest mistake — much more so than its transition to mobile — was failing to accept Google’s offer in the fall of 2010, Kaminsky noted. “The daily deals industry does not provide much barrier to potential new entrants. Once everyone noticed Groupon’s ability to profit, there was nothing stopping other organizations from providing similar services.”
As far as Groupon’s adoption of mobile goes, although the company has seen an increase in mobile purchasing of deals, a lot of that is a result of the greater trend towards using mobile devices for e-Commerce. “ In other words, the increase in mobile deals is more a result of people buying a deal on their mobile device that they would have otherwise bought on a PC, rather than Groupon using the mobile platform to drive new business,” Kaminsky said. “Groupon’s attempt to do the latter, Groupon Now, was a good idea in theory, allowing consumers to select deals based on their location at any given time, available for immediate use. However, the majority of consumers have yet to form the habit of using their mobile devices as a primary financial tool, so most consumers haven’t been interested in pursuing this type of service. If anything, it is easy to argue that Groupon Now was before its time.”
While a good number of CEOs have made the headlines lately, many say it is not a new phenomenon and one that is expected to intensify going forward.
“The truth is that boards have been replacing CEOs for decades if the company is not performing and the tenures of CEOs and CMOs are getting shorter and shorter,” said Becky Stein, Senior Client Partner for the consumer and technology sectors at Korn/Ferry International, an executive search firm. “The pressure now is increasingly public.”
Stein said this generation of CEOs did not grow up in a digital world, but that the next generation of leaders will have a different view of e-Commerce. “This generation of CEOs are digital immigrants,” she said. “If you do the math, we’re one generation away from digital natives running retail.”