Home improvement laggard Rona Inc. has trodden a well-worn path in looking for its turnaround saviour – by raiding the executive ranks of another retailer, and in a much different product category.
Retail skills are known to be highly transferable, but the new CEO, Robert Sawyer, possesses specific credentials that will serve him well in Rona’s time of crisis, observers say. He is a seasoned supermarket executive, as former operating chief at Metro Inc., and that may be the ideal background to tackle a tricky turnaround.
Still, Mr. Sawyer is joining Rona amid a tough retail environment. Consumer spending is slowing and home sales are expected to decline, along with renovations, this year and next.
“As talented as Mr. Sawyer may be, he cannot change the macro headwinds buffeting the company,” said Irene Nattel, retail analyst at RBC Dominion Securities.
Investors are impatiently awaiting improved results. Rona’s bottom line and stock price have been battered by intense competition from giant home-improvement rivals and a problematic expansion strategy.
Rona, whose former long-time chief executive officer Robert Dutton was shown the door last November, is struggling to downsize its unwieldy operations after years of small acquisitions and mixing big box and smaller stores.
Its board of directors has set out a strategy to sell off underperforming superstores and non-core businesses while focusing on its most promising diminutive outlets. Last month, Rona announced its latest restructuring plan, starting with 200 layoffs across Canada and a refit to become smaller but more profitable, raising operating profit by $35-million to $45-million within two years.
Mr. Sawyer is a strong choice and a positive step forward for the company, but he “will be faced with immense challenges at Rona,” said Mark Petrie, a retail analyst at CIBC World Markets. “The business outside of Quebec has chronically underperformed, and the company has struggled to make progress.”
But Rona is betting Mr. Sawyer’s experience is what’s needed to pull off a turnaround.
As part of their day-to-day business, supermarket executives deal with a constant barrage of tight inventory turnovers, narrow margins, complex distribution, and a wide range of products and supply channels, giving them a degree of nimbleness that travels well.
“By having the sophistication and mastery of a level of detail to run a large grocer, it gives them skill sets for any retail environment,” says Paul McElhone, a former clothing retailer and executive director of the School of Retailing in the University of Alberta’s business faculty.
Thus, in the practice of retail life-saving, former grocery executives bring the fast-reacting instincts of paramedics to the exercise, as much as the broader surgical abilities that any turnaround CEO needs to command.
Mr. McElhone says a grocery business, for example, executes an average 52 inventory turnovers a year, and probably does 100 to 150 turns a year in some of their produce aisles. These are the tightest turns in the industry, many times what would be experienced by a home renovation company.
“Because of the perishability of their inventory, supermarkets have to be a bit faster than anyone else,” says Ken Wong, professor of marketing at the Queen’s School of Business in Kingston, Ont.
Thus, in an age of already rapid executive mobility, there are a number of examples of ex-food merchants recruited to run seemingly unrelated businesses facing major challenges. Rona’s rival Lowes Cos. Inc., as it tries to make headway in Canada, and particularly Quebec, has tapped the supermarket trade for its new Canadian president, Sylvain Prud’homme, who has long experience at Loblaw Cos. Ltd., as well as stints with Sobeys Inc. and Wal-Mart Canada Corp.
The poster boy for itinerant grocers is John Lederer, who was ousted from the top job at Loblaw in 2006, only to emerge as the turnaround star at New York pharmacy chain Duane Reade Inc., now part of Walgreen Co. He currently runs Chicago-based food service company US Foods, and sits on the board of Tim Hortons Inc., another retailer facing competitive challenges.
And Mr. McElhone sees a similar pattern in the success of Christine Day in moving from fast-moving, high-turnover beverage retailer Starbucks Corp. to head up yoga/athletic apparel vendor Lululemon Athletica Inc. of Vancouver.
“She brought the whole science of business to Lululemon,” he says – although the familiar part was that both retailers operate in the luxury end of their categories. (And even Ms. Day is not immune to a supply snafu, such as the recent problem with defective yoga pants.)
These days, the retail industry is experiencing more cross-category management movement, because, as stores try to diversify their appeal, there is a constant blurring of merchandise boundaries, Prof. Wong of Queen’s says. Grocers are now selling apparel, pharmacists market food, and electronics shops dabble in cosmetics.
The advantage of hiring CEOs from outside is they bring a fresh set of eyes to a business like Rona, which had been run by a long-serving, formerly entrenched management. There is a tendency, Prof. Wong says, to feel so overwhelmed by the complexity of the business that managers believe they have no time to develop a new vision.
In this atmosphere, there is a clear advantage for an executive who does not hail from the specific business, but understands the high-pressure demands to innovate. “There is no room for error,” Mr. McElhone says. “If you are not producing, you are gone.”