The job of serving as a successful retail CEO carries responsibilities above and beyond those of leaders of less public-facing businesses. I qualify as successful because, as history has shown, the garden of retailing is littered with the dead bodies of failed CEOs. Those are CEOs who were never qualified from the outset, or who were unable to master “The Retail CEO’s Dilemma.”
A particularly challenging dilemma facing a retail CEO’s management of assortment strategy, leadership and execution is discerning the difference between catering to a broad group of customers’ needs and wants and pandering to a lesser number of them. Common sense and good judgment play a very important role here.
A Retail CEO’s Constituents
A retail CEO is responsible for the care and feeding of four principal constituents: customers, shareholders, associates and vendors. Though all four are vitally important, first and foremost is a need to serve customers. Without the successful creation, presentation and sale of an assortment of merchandise and services, a retailer has no viability. Ultimately, merchandise assortments create the basis for a retailer’s brand identity and brand positioning in the marketplace. And those assortments are dynamic; they must change every day, every month, every season and every year based upon the success and failure of the business. And they also have to deliver in light of ever-changing consumer needs, wants and preferences, competitive challenges, and the ever-present specter of adverse weather, marketplace disruptions, and now, politically induced mayhem.
Setting Boundaries
A particularly challenging dilemma facing a retail CEO’s management of assortment strategy, and execution is discerning the difference between catering to a broad group of customers’ needs and wants and pandering to a lesser number of them. Common sense and good judgment play a very important role here. Just as it would be unwise, logically, to offer a large array of New England Patriots jerseys in your Kansas City stores, an overlarge display of LBGTQ+ merchandise in support of Pride Week in all stores, would be, and in fact was, equally unwise, as Target discovered. Making the vast majority of your customers consistently happy with your assortments is a ticket to everlasting success. Pissing off a discernable number, for whatever reason, is never a good idea.
Serving the Short Term
Like it or not, a retail CEO (or any CEO for that matter) serves at the discretion of their company’s owners — its shareholders. “Doing the right thing” in support of the long-term health and success of the business often does not readily align with shareholder expectations. This dilemma is particularly pronounced in companies owned or controlled by shareholders whose expectation of performance is calibrated in quarters rather than years. In fact, many retail CEO’s tenure and compensation are aligned with shareholders’ expectations that are most definitely inconsistent with the long-term health and well-being of their enterprise. I think this dilemma is particularly evident in retail companies that have been hollowed out through lack of investment in stores, operating systems, facilities and human talent – all short-term strategies activated to prop up poor operating results.
Political Pressure
Now add to add to our retail CEO’s challenge to meet shareholder’s profit expectations is the added pressure of this president’s on and off again tariffs. Whether real, subject to exception, or just bluffs, a CEO must come up with an actionable plan to deal with affected overseas-sourced merchandise. Clearly, shareholders are not likely to be willing to see their holdings diminished in value because of tariff-driven losses in profitability. Therefore, a retail CEO’s dilemma is to determine how to pass tariffs (whether real or threatened) onto customers in the form of higher retail prices. This is a double-edged sword, as we know in most cases, higher retail prices cause sales to decline.
Workforce Dependency
Retailers, more than many other business sectors, are far more reliant on associates who create, support and propel their company’s efforts. Retailers don’t manufacture most of what they sell; they don’t hold proprietary patents or rely upon industrial processes. Instead, retailers rely upon the efforts of large numbers of people, working in concert, to build assortments, keep them viable and profitable, and to delight customers enough to keep them coming back to shop time and time again.
Therefore, a retail CEO’s dilemma is also centered around the creation of, and sustainment of, a positive associate culture coupled with the paradoxical need to limit workforce expense and expand productivity. Associates’ compensation, benefits, working conditions and supervision are always large expense components of a retail operation compared with many other industries’ labor burdens. Attacking associates’ costs too aggressively in search of operating “savings” has been the death knell of countless retail companies and their CEOs who have mismanaged this dilemma.
Think of the ill-advised decision of now-defunct Circuit City, which in search of expense reductions eliminated all associate commission compensation which it deemed to be too expensive. This promptly killed its business. Think of the ugly and unnecessary demise of Sears Roebuck which historically had a committed and productive workforce both centrally and in stores that acted as champions of the company’s brands. All became completely disenfranchised as support for their efforts disappeared. Think, also, of the dilemma that Macy’s new CEO faces as he attempts to rebuild a central merchandising, marketing, planning and control organization, as well as store-based selling team whose productivity had essentially disappeared. All this while fending off the ever-present threat of hostile shareholder engagement. A poster child for the successful behavior and performance of a workforce, in contrast, is Costco. Costco has always provided its entire workforce with premium compensation, benefits and working conditions and in return has enjoyed extraordinarily low associate turnover and high productivity, along with attendant incredible customer loyalty and satisfaction.
Cultural norms are exquisitely difficult to create and oversee. Let a selling culture go to hell, as for example Starbucks did, and your army of eager and committed frontline associates begin to treat the management of your company as an enemy. It can take decades of enlightened leadership to build a successful organizational culture and only a year or two of poor decisions to destroy it.
Supply Networks
The last, but not least, dilemma that a retail CEO must face is his or her company’s relationship with its vendors. Granted, there is, always has been, and always will be, tension between retail buyers and wholesale vendors. Left unchecked, a failure to recognize a need for vendors to be successful in their own right is always the source of an impending upset. Years ago, at the outset of my retail career while working as a buyer at Abraham & Strauss, (then the largest division of Federated Department Stores,) I reported to a legendary Divisional Merchandise Manager who was a proponent of truly ruthless vendor negotiations. He was a take-no-prisoners kind of guy. But at the same time, he believed that vendors must be treated as true business partners – partners who could be counted on for support through good and bad times — especially bad times. His credo was “You have to dance with the ones who ‘brung you’ to the party.” This was seemingly inconsistent with a never-ending need to deliver results and was always a dilemma to be carefully considered and managed. Dealing with this inherent paradox properly has, in my experience, always served a retailer well. This was particularly evident during the years of Covid 19’s worldwide service and supply disruptions and its aftermath, where retailers, who had always maintained balanced vendor relationships, were well served – others much less so.
And then there is the truly ridiculous position that newly created Saks Global has recently taken. The company’s CEO publicly broadcast, by way of a unilateral proclamation, the conditions under which vendors who have not received payments for merchandise (long after those payments were due) will receive those payments, how they will receive them, and what the company’s payment terms will be going forward. Add to that a thinly veiled threat to “play ball” or lose future support. You just have to know how poorly this vendor dictum has been received. Saks Global is in for a series of rude awakenings when it discovers how little future support they will receive when they are in need. Negotiate fiercely, you bet. Make arbitrary demands, never.
Mastering the CEO’s Dilemma
I served for several decades as a retail CEO and as a result, I think I’m qualified to comment here as I have. Like all retail chief executive positions, dealing with constant never-ending challenges is a mainstay of one’s job description. I’ve chosen to describe these challenges as a series of dilemmas. However, all a CEO’s actions taken with regard to assortment, customer engagement, expense management, and vendor relations really are issues to be managed with care rather than merely as problems to be solved. Confront these dilemmas properly as I have presented them, and success is at hand. Fail at this and success will always loom darkly ahead.
