Has the CEO Become Redundant in Retailing?

Implications: With both the psychographics and economics of retailing changing, the role of the chief merchandisng officer may make  the CEO redundant in 21st century retailing.  Here's why.

Analysis: On reflection, a part of JC Penney’s current success may be their decision to organize their business in terms of a President and Chief Merchandising Officer rather than the traditional president/CEO structure.  Historically, merchants ran retail businesses.  After all buying the right product and merchandising stores is the principal activity of a retail enterprise.  It’s the process that generates revenue and creates gross profit.  That isn’t to say other functions such as finance, administration, and distribution isn’t also important.  But realistically, while they support and enhance the profitability of the firm, product is what the consumer’s buy and it’s the right product that keeps customers coming back. 

Unfortunately, executive suites and board rooms don’t reflect that reality.  The business of buying and selling product all too often seems to get lost in ‘Ivory Towers’ of executive retail management.  Presidents, CEOs, and board chairman are frequently not qualified to be retail merchants.  Yet they are responsible for setting company strategy and directing the development of retail business plans.  So it isn’t surprising that many retail companies are strategically mediocre at best and in decline at worst.  It's striking how many troubled retailers have non-merchants at the helm.  For instance, Sears Holding is probably the best and biggest example of a retail business in jeopardy that is being run by a non-merchant.  RadioShack is another example.  Almost two year after taking charge, Julian Day hasn’t been able to revive the company’s product offer.  GAP appears to be following RadioShack into product obscurity under the leadership of Glenn Murphy and don’t forget about Wal-Mart where the lack of a merchant has probably contributed more than anything else to the company’s top-line sales problems. 

These are some of the exceptional examples of companies where lack of product vision at the executive level may be contributing to their decline, but there are plenty of other examples, for instance, Pier One, Chico’s, Ann Taylor, and Zale to name just a few.  Most recently, Zale’s CEO Neil Goldberg was quoted as saying the company would “focus on free cash flow for the rest of the year [FY2008]”.  That probably goes without saying in a declining economy.  However, if I were a shareholder, I would have been more impressed with the new CEO if he had spoken as merchant ratehr than a finance officer. 

Trudy Sullivan, President and CEO of Talbots is a good example of what a President and chief merchandising officer is all about.  According to a Wall Street Journal article, Sullivan said of the company’s new turnaround plan, "Our new mandate is to evolve our merchandise to be a more modern, timeless interpretation of 'classic,'". 

I’m certain Ms. Sullivan recognizes the role cost-cutting in a successful turn around.  But, equally important, she knows that expense management in combination with the right merchandise changes will “boost profitability [most] dramatically”, that according to Todd Slater of Lazard Capital Markets.  Whether Sullivan’s turnaround plan will be successful is unclear.  But her focus on product and background as a successful apparel merchant should improve the likelihood of success; giving shareholders and prospective investors added confidence in the company’s future. 

Unfortunately, that can’t be said about the leadership and prospects for many of retailing’s most problem plagued companies.  Perhaps the role of CEO has become redundant in the face of the product challenges retailers struggle to understand in today's marketplace.  May be the new role of 'president and chief merchandising office' is the new organizational model for a successful 21st century retail company.