Retail execs face the chopping block

NEW YORK (CNNMoney.com) -- It's only January but several retailers are already in spring cleaning mode and they're dumping senior executives, including their CEOs.

On Wednesday, struggling apparel retailer Gap Inc. (Charts) announced a shake-up in its management ranks less than a week after the company, which operates Gap, Banana Republic, Old Navy and Forth & Towne divisions, posted disastrous December sales.

Gap said Denise Johnston, president of Gap Adult, would leave the company effective Jan. 12. Joining her is Old Navy's executive vice president of product design, Ivy Ross, who leaves the retailer effective Jan. 17.

And Gap's CEO Paul Pressler may be on shaky ground himself. Early this week, fresh rumors ran rampant about Pressler's future at the company after a news report said the company was exploring strategic options, including sale of the company. [Full Story]

In December, department store chain J.C. Penney (Charts) sacked its chief operating officer, Catherine West, after just six months on the job.

Last week, home improvement chain Home Depot (Charts) "mutually" ended its six-year relationship with CEO Robert Nardelli. Analysts said Nardelli had become a lightning rod for shareholder activism who criticized him for his "generous" compensation package relative to Home Depot's weak stock performance and slowing profits. [Full Story]

While investors are cheering the latest round of retail executive housecleaning - Home Depot's stock jumped over three percent on news of Nardelli's departure - industry experts caution that filling these slots may prove harder to do.

Hal Reiter, CEO of executive search firm Herbert Mines Associates, said he's been thinking about this issue for the past two months.

That's partly because his firm, which specializes in filling the top executive slots at retail companies, is currently conducting the CEO search for beleaguered home furnishings chain Pier 1 Imports (Charts) whose CEO, Marvin Girouard, is expected to retire next month.

Reiter's concern is that executives like Nardelli, West, Pressler and others whose experience is outside the retail industry seem eventually to run into problems in their new jobs. Nardelli came from General Electric (Charts) with no retail background. West came from Capital One and Gap's Pressler was chairman of Walt Disney Parks & Resorts.

"In retailing, having a lack of merchandising expertise can be a serious problem for any new executive, because selling business-to-business is very different from selling business-to-consumer, even though the ultimate consumer may be the same," said Reiter.

"Our preference is to always look for a candidate with retailing experience but the problem is that the inventory of such candidates is not very high. It's not sufficient for the demand," Reiter said.

Love Goel, CEO of Growth Ventures, an investment firm focused on retailers, has been studying retail's CEO shuffle for a while.

He lists three reasons why retailers are being forced to mine talent from outside the industry.

First, retailers traditionally have done a bad job of developing in-house talent. "The management culture at a retail company is usually the opposite of what you see at GE or even at consulting firm where effort is made to foster home-grown talent," Goel said.

Secondly, consumer products companies like Clorox or Procter & Gamble are very good at developing competitive strategy. By contrast, retailers are very weak at it, he said. And third, retailers generally shy away from innovation.

As competition increases, retailers can't ignore the pressure to innovate in order to stay relevant to the need of a global marketplace. "This is why companies like Home Depot and Gap have to look outside the industry for management talent," said Goel. "The guy from the outside may be weak in merchandising and marketing but he's good at developing business strategy. But the dilemma for him is that the day-to-day dynamic of running a retail company is very difficult for an outsider to quickly learn on the job."

Burt Flickinger, managing director with consulting firm Strategic Resources Group agreed.

"There have been some substandard executive searches," Flickinger said. "Pressler had a tough situation coming into the Gap. The company was facing store saturation at home and he couldn't translate the Disney magic into his new job."

If these analysts are right, Home Depot investors might be concerned about Nardelli's successor, Frank Blake. Afterall, Blake doesn't boast an extensive retail resume either. He previously served as deputy secretary for the Department of Energy and held a variety of positions at GE.

Flickinger and others do point out one difference, however. "Blake's been at Home Depot for four years already. He's had time to become an active student of retailing. Nardelli never was," Flickinger said.

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