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A recent report from Citi Research explored the hiring of retail CEOs with no retail experience and concluded that such hirings in recent years have shown a mixed performance.
The research, led by analyst Paul Lejuez, explored the recent CEO hirings of:
- Bath & Body Works’ Gina Boswell (formerly president of customer development for Unilever U.S.)
- Under Armour’s Stephanie Linnartz (formerly president of Marriott International)
- VF Corp.’s Bracken Darrell (formerly CEO of Logitech)
- Gap’s Richard Dickson (formerly Mattel’s president and COO)
The findings were based on the past performance of 10 CEOs:
- Chip Bergh (Levi’s, formerly P&G)
- Ron Coughlin (Petco, formerly Hewlett Packard)
- Christine Day (Lululemon, formerly Starbucks)
- Mary Dillon (Ulta, formerly U.S. Cellular)
- John Donahoe (Nike, formerly ServiceNow)
- Ron Johnson (JC Penney, formerly Apple)
- Hubert Joly (Best Buy, formerly Vivendi)
- Tom Greco (Advance Auto Parts, formerly PepsiCo)
- Patrice Louvet (Ralph Lauren, formerly P&G)
- Paul Pressler (Gap, formerly Disney)
Citi’s research found the majority of the 10 executives were able to increase sales and expand margins over their tenures, but only three — Christine Day, Mary Dillon, and Hubert Joly — saw better stock returns relative to the S&P 500.
Lejuez notes that it’s “tough to draw many generalizations about whether being from outside of retail is good (fresh ideas) or bad (don’t appreciate retail basics),” but some advice was offered to the new crop of outsider CEOs based on past missteps.
Citi’s advice included “be prudent if changing pricing architecture,” noting the backlash JCPenney faced when it eliminated promotions. Lejuez also highlighted the importance of having a “clean balance sheet” to remain flexible.
Finally, Lejuez noted that retail is not as easy as it looks. He writes, “Retail is a business driven on consumer tastes and preferences, which can be fickle. Particularly in apparel retail, we have heard CEOs in the past talk about turning the business around by doing the basics better — getting the product right at the right place at the right time. In theory, this is simple but the execution is much tougher.”
A shift to hiring more “outsider” CEOs was noted in articles from 2016 in the Harvard Business Review and 2019 in the Wall Street Journal in large part to drive digitally led transformation.
“If your business model is working well and is just about doing things faster, more cost-effectively, better, smarter, then your internal talent bench is the lowest-risk path,” Betsy Atkins, a three-time CEO, serial entrepreneur, and founder of Baja Ventures, told the Wall Street Journal. “When the business model is shifting and the internal skills may not be able to keep up with the rate of innovation and change, I think that’s when companies look for an outside CEO.”
A study from researchers at the University of Zurich, Frankfurt School of Finance and Management, and Bocconi University in Milan found outside CEOs tend to underperform due to challenges grasping the dynamics of the new industry they’re joining, and they often face greater scrutiny and less support from stakeholders.
BrainTrust
Lucille DeHart
Principal, MKT Marketing Services/Columbus Consulting
Doug Garnett
President, Protonik
Ken Morris
Managing Partner Cambridge Retail Advisors
Discussion Questions
What advice would you have for newly hired retail CEOs with little prior direct retail experience? When do such outside hires make sense?
Poll
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Fresh leadership can transform a business—for better or for worse. It’s hard to understand the nuances of retail unless you’ve lived it and breathed it for a while. That being said, retail is now, for the most part, multichannel. Things are changing constantly, and centering the business around the customer is essential. So, my guess is that the success of a “retail outsider” will be driven more by their ability to innovate and stay customer-focused than which industry they’re from. Maybe even more important is their ability to keep the key executives in place so they have good mentors to show them the ropes of retail. You shouldn’t jump into a pool without knowing how to swim—get someone to show you how to swim first.
Perhaps the most value for the retail organization is the new perspective and insights the “outsider” CEO brings with them. This is akin to hiring a consultant who is outside the organization’s political realm. Even better and becoming more common these days is finding a fractional consultant who can come in for quick spurts or sprints. They can often see things and make or suggest quick fixes that can have dramatic impact, without the cost or commitment.
The honest answer to this is: it depends. Someone from outside of retail can succeed in a leadership role, just as someone with a great deal of experience can fail. It all comes down to the individual and the circumstances. The benefits of an outsider can be a fresh perspective and new ideas. And on that front, I actually think it’s not always a good idea simply to hire from within: Macy’s does this and it leads to group think and a lack of vision.
Retail CEO’s need to be hired with a demonstrated history of change management. And not enough retailers can proudly point to that on their resume. CEO’s without retail experience have multiple layers of deep retail experience below. The CEO’s outside perspective can then pressure test that deep experience, along with a deep dive on current market and consumer behavior, to arrive at a forward plan. For many retailers change is the whole point. Change management as a primary criteria broadens the pool of CEO candidates.
The answer to the question depends on the skill set of the individual CEO. (And I would add to the list the recent tenure of Michelle Gass at Kohl’s, whose track record after joining the company from Starbucks was a decidedly mixed bag.) Being an effective CEO hinges on leadership, which in turn depends on putting together a great team and listening to the internal talent who have grown up “in the business.”
There’s a back handed compliment – He/She never makes the same mistake twice, but sure seems to make all of them once. That’s the danger of an external CEO. That was an interesting article, particularly the caution on changing the pricing structure of a Retailer, to which I would add don’t look to change the target customer/market quickly either. The failures tend to make big headlines and the successes rarely do. I agree with the others who point out that an important role of the CEO is to assemble a great team, from which the experience likely resides. A new CEO who brings in their own team and removes the corporate experience is looking for trouble.
Surround yourself with fresh retail talent. We are in a new consumer-centric world and a multi-touch environment that requires both operational talent and visionary concepting. I have always been a fan of looking outside of your industry to get new ideas, but you need the knowledge to be able to effectively apply them to your business.
New retail CEOs be cautious with pricing changes, keep finances clean, understand retail intricacies and execute retail basics well. Outside hires make sense during industry shifts requiring innovation beyond internal skills. New retail CEO without direct retail experience should learn from successes like Ulta’s Mary Dillon, Best Buy’s Hubert Joly and other successful predecessors.
“10 executives were able to increase sales and expand margins over their tenures”,“Sales and margins expanded under” …FTFY. (For those who think it’s merely “semantics”, I say au contraire, it’s important to recognize corporate performance is a team effort).
It seems dangerous to generalize, but I think an outside hire makes sense when the company is basically well run, and some particular skill is needed…hence the specific reference to digital; or maybe I should change that to might make sense, since it’s no given, and most of us – myself included – went with “detrimental”,
In some cases, an exec really was a disaster, and so thoroughly ruined everything that “a fresh start” is seen as the best appoach. Whether (even) an outsider, however brilliant, can acomplish a miracle is a ‘case-by-case’ situation…but it’s no surprise that a number of companies – I won’t name names (and don’t need to) – fit this description and have a revolving door not just at the HQ entrance, but the top as well.
There is no answer. However, far too often outsiders are brought in through a naive “greener pastures” mythology. After all, we know the devils within our company and don’t know the devil we are hiring who comes along with a new CEO. (Not that the CEO is a devil — but there are always unintended consequences to a hiring. We know more about those unintended consequences from inside our company. That can make an outsider seem shiny and more trustworthy.)
So there is no universal answer. However, if they are not experienced with retail we should have extra concern. They should be challenged to determine whether they have instincts which will matter for the unusual world of retail.
A good CEO needs strong business and leadership skills, regardless of the industry they’re in. Often these skills are more innate. Retail expertise, however, can be learned. CEOs without prior retail experience need to lean into their existing skillset, own what they don’t know and then put in the effort to fill gaps where needed as quickly and efficiently as they can.
These types of “outside hires” can prove beneficial when brands are looking for innovation. A fresh perspective can often foster new ideas and prompt change, and is less likely to get caught up in the weeds. As long as they don’t ignore key retail fundamentals, they should be able to bring a brand from point A to point B.