Back in August of 1992, Arthur C. Martinez was heading off for a 10-day vacation at his summer home near Bar Harbor, Maine. Vice-chairman of Saks Fifth Avenue at the time, he was close to signing a deal to become the next CEO of P.A. Bergner, a Midwest department-store chain that needed someone to help pull it out of Chapter 11, and he figured that a few days' rest would do him good.
Then Martinez got a call from a headhunter. Sears was shopping for a CEO to head its merchandise group. He told the recruiter to forget about it. He was on the verge of joining Bergner, and besides, Sears was in sorry shape. It would lose $3.9 billion in 1992, and its people seemed resistant to change.
The headhunter persisted. Would Martinez at least sit down with Sears CEO Ed Brennan for a few minutes? Martinez relented. Days later, the Sears corporate jet touched down at a tiny airport in rural Maine. Brennan and Martinez talked for a few hours, but still Martinez wasn't swayed.
The pressure from Sears continued. Donald Rumsfeld, a Sears board member, chairman of its search committee, and now U.S. Defense Secretary, called Martinez and told him it was his patriotic duty to consider the job at Sears, an American institution. Sears was ready to offer a compensation package similar to Bergner's, the headhunter added.
Martinez' interest was piqued, but he didn't have much time. He was supposed to meet soon with Bergner's representatives. He read up on Sears in the Bar Harbor library, then got on a plane to visit the company's directors. He asked them the tough questions: Could they handle change? Would he be given the room to get things done?
Martinez apparently got the answers he wanted. One day before his scheduled meeting with Bergner, he accepted the offer from Sears. "This would be the professional challenge of a lifetime," he writes in his forthcoming memoir, The Hard Road to the Softer Side (Crown Business, November 2001).
Over the next eight years, the Brooklyn-born Martinez would turn around the moribund retailer. In 1993, Sears returned to profitability, and two years later, Martinez ascended to CEO. His new book, written with journalist Charles Madigan, covers such issues as the controversial closing of Sears' catalog business, the creation of the "Softer Side of Sears" advertising campaign, and the difficulties in changing a corporate culture that won't let go of the past. He also doesn't shy away from discussing the problems Sears encountered later in his tenure, including the company's mishandling of customer bankruptcies.
Last fall, Martinez retired from Sears, handing the top job to Chief Financial Officer Alan Lacy. He now sits on a number of corporate and nonprofit boards, including those of PepsiCo, Martha Stewart, and the Urban League. Recently, he met down with BusinessWeek Online reporter Jennifer Gill to discuss, among other things, his career path and and the retail outlook for the rest of the year. Here are edited excerpts of their conversation:
Q: You were reluctant to go to Sears. What changed your mind?
A:"Professional manager" would be the nicest way you could describe me. I didn't found a business. I'm not an entrepreneur. When you spend most of your life as a professional manager -- and you're offered the biggest professional challenge you could possibly imagine -- you say no only for one of two reasons. You don't think it can be done -- that the company or the situation is beyond saving. Or you don't think you can do it.
I was perhaps ego-driven enough to say that I thought I could do it. And I thought it could be done. [Being CEO of Sears] would be a wonderful pinnacle to achieve in my career, to take something of that size, scope, complexity -- but also relevance to the American consumer -- and try and make it right.
Q: In your book, you write about changing the culture at Sears. What are the biggest hurdles in changing a corporate culture? How did you get people to buy in?
A:First, I wouldn't say that I succeeded entirely. There's guerrilla warfare still going on, shall we say, on issues like this. I think [I started] by appreciating the ingrained nature of the business practices in an organization with 325,000 people, that was largely designed by a former military officer, General Robert Wood.
The military system, while it produces great leaders, [also] produces a lot of followers, people who wait for orders. That was very much the mindset at Sears: "We're an army of 325,000 people and will do what you tell us, but don't ask us to give you any advice or input on what we ought to be doing."
One of the biggest hurdles was making people believe that I and the senior team that I put together were genuinely interested in their ideas. That's probably the most important thing in terms of changing a culture: Engage people, particularly on the front lines, in solving business problems for them, their customers, and the company. It's not useful to walk stores and hear what needs to be changed if things don't get changed. Then you're a false prophet.
The other part of it is creating disciples among senior management. Part of the triage that I went through when I got [to Sears] was figuring out who among the then-senior management team could act in a way that I was looking for and who couldn't. I always thought it was critical to have people from inside the company who demonstrated the capacity for change. They became bell cows for the organization. If I could get them thinking in a different way, it was going to be a lot easier than bringing in a whole bunch of new people and saying: "O.K., do it my way."
"I never thought I wanted to be the CEO of anything"
Q: You spent eight years at RCA before joining Saks Fifth Avenue as its chief financial officer. How did you get into retail?
A:The industry dynamics [in retail] weren't a lot different [from the music business]. Both are businesses dominated by big egos: Designers in one case, artists in another. And they are driven by rapid product obsolescence. Fashion today, gone tomorrow. Hits today, gone tomorrow.
I went to a lot of schools on recruiting trips for Sears, and [students] always asked me: How did you get where you are? I never started out thinking that I wanted to be the CEO of Sears. I never thought I wanted to be the CEO of anything. All I wanted to do was make $12,000 a year, which was pretty good money back then.
I hate to not preach company loyalty, but I do preach serendipity. If an attractive situation where you can learn something presents itself, take it. Frankly, my career is marked by a lot of serendipity. I found some great people to learn from and wound up with some great companies.
Q: When did the search begin for your successor at Sears?
A:I had a very good board, and we had a conversation every year about the subject. As my biological clock was ticking along, we would have them more frequently and intensely. I decided about a year and a half before the event that I was ready to move on.
I felt that we had three very qualified executives inside the company, each of whom had different skill sets. I also believed then, as I do now, that it's the board's role, not the outgoing CEO's, to pick his successor. The CEO can have input, and I had a point of view about everyone, but [the search] had to be board-led and board-run.
I think we did a picture-perfect job of looking at the talent that was in the industry and putting our own people up against a very well-defined spec in terms of the job. The happy outcome is that somebody from inside the company was chosen.
I had hired [Sears CEO] Alan Lacy six years before. He didn't need me to tell him anything about the business. He needed some advice on a few things that you keep in your private desk drawer -- board relations and all of that. There was some discussion about how long a transition was appropriate. I said, "let's just give it a very short period of time, and then I'm out of here."
That's the clean and right way to do this kind of thing. There are too many horror stories of CEOs who stay on the board. The best thing I could do was give Alan running room and not have him worry that I was looking over his shoulder. He knows how to reach me. Because I'm retired doesn't mean I'm dead.
"Putting on plaid pants and heading to Florida is not a terrific idea"
Q: You're 62. What advice would you give other CEOs or senior-level executives who are nearing retirement?
A:Somebody referred to it as the abyss of retirement. The nomenclature is unfortunate, because it makes it sound like you go into a sort of half stupor. I felt I wanted to achieve two or three things when I retired. No. 1, I hadn't had more than a week's vacation in 25 years. My wife and I wanted the chance to go see things that we never could do in depth before. It sounds trite, but I did want to spend more time [with my family]. I had a first grandchild, and I wanted to get to know her a little bit.
But I also wanted to keep my wheels turning up here. And so I involved myself on some corporate boards and intensified my time with some of my not-for-profit commitments. Putting on plaid pants and heading to Florida is not a terrific idea for anybody at any stage of their life.
Q: We're moving into the busiest and most important season for retailers right now. What's your outlook?
A:Not a good one. Unfortunately, I'm a pessimist. We were headed into a recession prior to September 11. Confidence numbers were coming down. The auto numbers were starting to come down. There's no question that we were on a slippery slope.
It all got accelerated by September 11. Now we have an even more jittery consumer. I also think there's an attitudinal change that these terrible events have created. There's less self-indulgence. Less extreme shopping. More time with home and family. That will have a long-term, pervasive effect on consumer spending.
[For retailers], it will be a bad fourth quarter and a bad Christmas. [The economy] will come back next year, [but] it may not be until the second half. I think retailers have to think carefully about how different consumers will be, even after the economy starts to come back. I sense an attitudinal change after a decade of spend, spend, spend, which is what the '90s were all about.
The luxury-goods people have a real problem on their hands. There have been a lot of wealthy wannabes -- people who had good bonuses, good jobs. The world was their oyster, and so Gucci and all of those folks were riding a very strong curve. The wannabe crowd is going to go away very quickly. The better department stores are going to feel the effect disproportionately.
The relative winners are the value-driven retailers. Classical discounters like Wal-Mart and Target are best-positioned in this environment because so much of their business is done off household staples. To the extent that you have more of your merchandise in postponable purchases, the harder you're going to fall.
Sears is somewhere north of the value retailers. When you look at the predominance of the big-ticket business at Sears -- the washing machines, the appliances, the consumer electronics -- I think that's going to hurt for awhile.