Why Retail Boards Are Choosing Less Risky CEOs

Retailers such as J.C. Penney, Target and Gap are recognizing that they’re at a crucial crossroads for their companies. As a result, boards are appointing traditional CEOs known more for their accomplishments at traditional brands, rather than recruiting leaders known for being visionaries or inclined to take creative merchandising risks.

All eyes are now on these organizations to see whether this new generation of CEOs—with their proven operational abilities and command of incremental improvements rather than sweeping paradigm changes—is up to the task of carrying their companies through a weak sales period.

The latest case in point is J.C. Penney. The big box retailer turned to traditional-retailing veteran Marvin Ellison—the executive vice president of U.S. stores for Home Depot—as its next CEO. After a long transition, Ellison will replace current Penney CEO Myron Ullman, who has been trying without success to stabilize and revitalize the iconic soft-goods retailer during his second tenure as chief.

“The selection of Marvin Ellison builds upon Penney’s need for operating effectiveness and Ellison’s record of operating” at Home Depot, said Joseph Pastore Jr., a Pace University business professor. “It also re-affirms the fundamental principle for performance in mass retailing: low margins/high volume based upon cost-effective, low price, nationally branded product offerings.”

The Wall Street Journal called Ellison’s recruitment part of “a broader shift in retail in which some big companies have favored detail-oriented operators over executives mainly lauded for brilliance in merchandising, as the industry faces giant new challenges in managing its supply chains and keeping customers from defecting to the web.”

LEARNING FROM THE MISTAKES OF OTHERS
Ullman both preceded and followed Ron Johnson, the man who was hailed as a visionary as chief of Apple’s highly successful retail stores and, when recruited by Ullman for his iconoclastic tendencies in 2012, was expected to bust up and renew the stalling Penney business model.

Instead, observers say Johnson tried to do too many of the wrong things and did them too fast. He was ousted last year.

Ellison, on the other hand, was best known at Home Depot for tightening up areas such as loss prevention and global logistics before he took over as executive vice president of the chain’s 2,000 U.S. stores. He also has been a key figure in integrating Home Depot’s e-commerce with brick-and-mortar operations.

There are several takeaways from the J.C. Penney experience. First, Ullman (and Johnson before him) tried to make sweeping changes at a time when its brand was not resonating well among its target audience. A better strategy for others would be to check your brand strength and determine whether there have been any changes in your audience makeup and behavior before taking on any projects. That will help align the right message to the right audience.

Second, incremental steps rather than sweeping changes would have allowed the company to achieve small wins and build on them. Successful companies generally focus first on the customer groups with the most growth potential, and tailor solutions to the needs and value of each customer group.

As CEOs watch to see how these and other new appointments will work for their respective organizations, they should consider how they would handle similar situations within their firm. Retailing is a volatile industry right now, but no industry is safe from turmoil. Learning from the lessons of others in quiet times can help CEOs be strategically prepared during the rough patches.