The turnover of retail CEOs reached its highest level since 2012 last year. Why are retail’s leaders sent packing so frequently?

  • CEO churn at its highest level since 2012 with 55 leaders replaced in 2019
  • “Boards are hanging CEOs out to dry,” warns non-exec director
  • Some departures due to “people realising things were not as they first appeared”
  • Hiring practices changing, with more than a fifth of CEO appointments coming from a finance background

Being a retail chief executive is like being a Premier League manager. It’s unforgiving, it’s harder than ever to compete with the big boys and a disappointing set of results can lead to those in charge packing their bags.

And, much like in the world of football managers, the tenures of those at the top are getting shorter than ever.

The churn in retail CEOs is at its highest level since 2012 after 55 leaders were replaced in 2019, up from 44 the previous year, according to headhunter Korn Ferry’s UK Retail CEO Tracker. More than a third (38%) of those uprooted spent less than three years in the hot seat.

CEOs are not given enough time to prove themselves, believes Christine Cross, non-executive director of businesses including Coca-Cola and Fenwick.

“It takes a full year to get your arms around a retail business because it performs differently at different times of year. Then say you spend a year doing refinements, you’ve only got one year and you’re out,” she maintains.

Korn Ferry managing director and sector lead for retail in EMEA Sarah Lim says the short tenures are indicative of “sector stress”. “If shareholders aren’t seeing results coming in after 18 to 24 months they get nervous, particularly if they’ve taken a risk and hired laterally,” she observes.

Hung out to dry

The Korn Ferry report highlights that 80% of CEO exits in retail last year were driven by company performance.

Dramatic turnarounds take time, says Cross, and importantly, the people leading them need support.

“Boards are hanging CEOs out to dry and are not giving them help and guidance in shaping the business,” she says. “There’s been a lot of boards that have knee-jerked and sacked the CEO when the business hasn’t been going well.”

Despite helping founder Ray Kelvin build Ted Baker into a huge global success, former finance boss Lindsay Page spent just eight months in the top job at Ted Baker before a slew of profit warnings prompted his resignation. Meanwhile, Office boss Lorenzo Moretti lasted just a year and shirt retailer Charles Tyrwhitt hired its fourth chief executive since 2017 last year.

Lindsay Page was given just eight months at the helm at Ted Baker

Lindsay Page was at the helm of Ted Baker for just eight months

Cross says turning around troubled businesses is tough in today’s market and she believes many chief executives – both new and experienced – are struggling. However, they are not leaning on their boards for support for fear of being sacked.

“So many boards are just content rocking up to board meetings, drawing a salary and rotating the people at the top. It’s outrageous,” she argues.

“Non-execs need to roll their sleeves up and support management when it comes to problems rather than saying ‘you solve it or we’ll find someone who can’.”

Fran Minogue, founder of headhunter Clarity, agrees that some retail CEOs have been made the “fall guy”.

She says: “There are such big structural problems in retail that sometimes the CEO can be the scapegoat. There have been cases when what needs to be dealt with are leases, rents and space, but that’s too hard to solve so the chief executive gets chucked out instead.”

Add to that the level of scrutiny of retail businesses, particularly public companies, and there is lots of pressure to change a business if it’s underperforming.

“There are such big structural problems in retail that sometimes the CEO can be the scapegoat”

Fran Minogue, Clarity

“So much of the top job is about expectation management,” says Lim. “To avoid scrutiny you need the business to be a great burning platform going in, which creates enough time to make changes without the ire of investors and press.”

That investor ire can put pressure on boards to change leadership. However, sometimes keeping faith and backing a chief executive in the face of criticism can pay off.

Take Asos. The etailer issued three profit warnings in eight months and pressure piled on boss Nick Beighton, whose job looked increasingly at risk.

However, Asos chair Adam Crozier, who joined just as the wheels started to come off the online fashion titan, stayed loyal to Beighton. The etailer’s stellar performance over Christmas would suggest that Crozier made the right decision.

The wrong fit

Although chairs and non-execs may be pressing the eject button too soon, some experts believe cutting loose can be the right move because some CEOs do not have the right skills to navigate today’s fast-changing retail world.

Minogue says: “The amount of change in the industry is unprecedented: how we shop, how we source, how we buy. I’m not surprised that the churn in consumer behaviour is making its way back into the business.”

“The way consumers are buying is changing. The old skills – the retail ops and B&M skills – that naturally took people to the board are not necessarily the skills you need now.

“Historically, retailers bought stuff, put it out there and consumers bought it, but they didn’t really understand their customer. Now there’s a science to it and the people who understand that science and how to apply it are not traditional retailers. They’re Tim Steiner, Henry Birch or Alex Baldock. They’ve come from a different world and they’re not going back.”

Where does the CEO now come from?

Data and analytical skills are not all that’s required for today’s CEO. With many retail businesses struggling, restructuring expertise is a necessity.

The fashion and luxury world had more CEO changes than any other sector last year, which Cross put down to boards appointing product people to the top job.

“Are B&M directors right for challenging turnarounds when what you really need is a financial restructuring mind?” she asks.

It would appear retail boards are starting to agree with Cross. The number of chief executives hired in the past year from function backgrounds like commercial, trading or buying and merchandising fell from 46% of total hires to 34%, while those from retail and operations roles dropped from 22% to 13%.

However, there was one function that was more likely to become a CEO last year: finance directors. More than a fifth (21%) of retail CEO appointments came from a finance background last year, up from 15% the year before.

“We normally see finance directors appointed into CEO roles when companies are going through particularly difficult financial times and there’s a heavy emphasis on the role of banking relationships with institutional shareholders,” says Lim.

“The CFO has long-standing relationships in the City so are often seen as the safest candidate. In times of uncertainty, the perception is that the safer bet is to go internal.”

However, Cross argues that finance directors often lack the people skills to lead turnarounds and that such appointments feel like a stop-gap to simply “get businesses out of a hole”.

Cultural fit

Leading a business through challenging times does not just require a chief executive that possesses particular skills. They must also be the right cultural fit.

Earlier this month, it was revealed that Selfridges managing director Simon Forster left the business after little more than a year at the helm. The Daily Telegraph reported that his departure was down to concerns over the department store’s direction and culture under his leadership.

“Ninety-five per cent of what makes appointments successful is culture fit,” says Minogue, who thinks boards often do not invest enough time to ensure that is right.

The problem can be exacerbated when retailers hire from other industries, even though that is becoming more common.

“Often boards sack a CEO and look to replace them with a big-hitter, a Superman – but Superman doesn’t exist”

Christine Cross

“People don’t do enough referencing about how leaders work – what their operating model and leadership style is like – during the process of identifying new talent,” says Minogue.

“If they’re not from the sector, you need to find ways of checking them out and assessing whether they fit with your model and culture, or whether your culture can adapt to them.”

The fact that many new CEOs are brought in to instigate change can also cause friction at all levels of the organisation, including the board.

John Colley spent just two months at Hobbycraft before deciding

John Colley spent just two months at Hobbycraft before deciding “the fit wasn’t right”

“People think they want change, but sometimes when they get it they don’t like it. You need to make sure that your company is really ready for change,” advises Minogue.

And the chief executive needs to be sure the company is the right fit for them too. Lim says the growing turnover rate of CEOs is also driven by some executives deciding the role is not right for them.

Just look at John Colley. Colley, now executive chair of Majestic Wine, left the chief executive post at Hobbycraft in late 2017 after just two months. He said at the time: “It is a unique business with great prospects; however, the fit wasn’t right for me.”

Lim says a number of exits in 2019 were due to “people realising things were not as they first appeared”.

“They’ve found the investment wasn’t there or the trading performance was much worse than they were led to believe and they decide they’re out quite quickly,” she says.

Changing how retailers operate

The CEO churn rate is so high because many boards are searching for talent that simply does not exist, says Cross.

“There aren’t many true multichannel CEOs on the market,” she says. “Often boards sack a CEO and look to replace them with a big-hitter, a Superman – but Superman doesn’t exist.”

Minogue agrees that finding the right chief executive is a tough task and the analytical data-crunchers that many retailers now need are often not natural business leaders. If that is the case, Minogue recommends building a team around that chief executive that has the leadership or people skills that they lack.

Cross goes one step further and advocates spreading leadership responsibilities across a team, particularly in turnaround situations. Managing big retail transformations “shouldn’t be on one person”, she says.

Turnaround specialists such as Hilco do not hire one individual to revive a business, argues Cross; they put a team of experts in charge.

“They bring in a financial restructuring expert, a digital expert, someone who knows about productivity. It’s a team of experts. It’s very hard to find an individual that can stretch across all those areas,” she says.

Retailers should adopt a similar leadership team approach and pay structures should change to reflect this, says Cross.

“If you look at salary structure, it’s all on the CEO. That needs to change,” she says. “The CEO needs to recruit a senior management team that complements their skills and makes up for their deficiencies, and their remuneration should be brought into line with the CEO’s.”

Cross also believes that retail boards need to be shaken up more often to bring fresh ideas to the business.

“As we head into a new decade, one thing is for sure: retail will change unrecognisably over the next 10 years and those who lead our industry will need to do so too”

Sarah Lim, Korn Ferry

She advocates slimming down non-executive roles and instead investing in a team of advisors to the chief executive, who work alongside them to find solutions to big company problems.

Those advisors could be brought in for specific problems or longer-term projects. For example, Shop Direct had a digital advisory board, made up of experts who helped it progress its transformation to an online business.

All in retail are trying to get to grips with a new environment in which competition is intense and operating models are not fit for a world where shops are dwindling in importance.

Lim says: “As we head into a new decade, one thing is for sure: retail will change unrecognisably over the next 10 years and those who lead our industry will need to do so too.”

But those leaders need support to navigate changes and, crucially, they need time.

Cross says the industry needs to move away from a high-pressure, high-stakes, no-mistakes management culture. After all, the strategy of chopping and changing managers has been far from successful for football teams – ask any Manchester United fan.

“Retailers can’t just be as good as their last game,” says Cross. “There are myriad things that will hit you, from the weather to Black Friday.

“They need time, they need support and real backing from their board, otherwise the business will keep on going around in circles and will never get out of the bad run of form.”

If retailers want to avoid relegation, they need greater continuity at the top.