Retailers in the Top 20: Pathfinders for an Industry

Three of this year's 20 Best Companies for Leadership are retailers. What do they know that could lead other retailers and businesses out of the recession doldrums?

Let's put the cards on the table: This had been a miserable two years for just about every business in the retail sector.

Sales were already trending down when the stock market plunged in 2008, and then they pretty much fell off a cliff. In 2009, a 5% loss in same-store sales counted as a good showing. Losses of 10% were not uncommon, and some retailers saw losses of as much as 20%.

All the more remarkable, then, that the three retailers among this year's Top 20 Best Companies for Leadership—Wal-Mart (WMT), Ikea, and Zappos—all recorded sales growth for 2009.

Common "Clarity"

What do these companies do differently that has allowed them to grow during the worst recession in a generation? And more important, are their business practices ones that other retailers—and businesses in other sectors as well—can emulate?

At first glance, these three retailers appear to have little in common, with obvious differences in size, scope, and philosophy.

• Wal-Mart, the world's largest retailer, with more than 2 million associates and almost 8,000 stores under 53 different brand names in 15 countries, offers an unmatched range of mainstream products in huge stores, under the "everyday low price" retail model it helped to popularize.

• Ikea, with 123,000 workers worldwide, operates just over 300 stores in 35 countries through a unique international franchise structure, in a retail niche it virtually invented: attractive, low-priced furniture assembled by the buyer.

• Zappos, an online retailer that has expanded from footwear to fashion and housewares, operates through two locations, with 1,500 employees and a creative, quirky culture that is anything but mainstream.

One common thread, however, was immediately obvious to Christine Rivers, a Hay Group vice-president specializing in retail. "All three of these companies have incredible clarity in their focus and mission," she says. "Everyone in these three organizations knows what they stand for, how they're going to market, what kinds of products they're delivering to their customer, and how those customers should be treated.

"That kind of focus can help a retailer make better, faster decisions in a challenging economy," she says. "There's no internal debate about what to do, only about how to do it best."

Leadership Emphasis

A comparison of survey results among these three companies and other retailers examined for this year's Best Companies for Leadership reveals other important commonalities, starting with the importance of leadership.

For virtually every question dealing with a company's commitment to leadership development, these three retailers scored at the top of the charts—literally. At the top retailers, 100% of survey respondents agreed with the statement "My organization did a good job developing leaders before the crisis," compared with about two-thirds at all retailers. The top merchants scored similarly on questions relating to successor management and investments in key people.

In these categories, the top retailers even exceeded other companies in the top 20. "Historically, retailers have not been known for formal leadership-development programs," notes Rivers. "But these three companies are distinguished by a very strong focus on leadership for the long term—defining successors for key positions, grooming managers to move, investing in development and retention."

The top retailers are looking forward in other ways as well, with 100% of their respondents to this year's Best Companies for Leadership survey saying that their company is focused on "positioning for the future." Among all retailers, fewer than 60% had a similar focus, with the remainder focused on either the downturn or recovery.

"Moving forward, retailers have to shift focus from cutting costs to regaining top-line sales," says Craig Rowley, a Hay Group vice-president specializing in retail. "The top retailers are already there."

Sales Revival

The key question, of course, is how to regain sales momentum. "Retailers have to reengage their customers," Rowley says. "To move from an operational culture focused on efficiency and cost-cutting to a sales culture, they have to engage their associates."

Once again, the top retailers are already there—with a focus on empowering employees that is every bit as strong as their attention to leadership development. These companies encourage independent action, new approaches, and leadership development throughout the enterprise. What's more, senior leaders back these efforts, actively helping to develop others.

These enterprisewide efforts at empowerment are undoubtedly a key to the top retailers' ability to create a motivating work climate—a necessary condition, Rivers and Rowley agree, to creating a sales culture that will power growth in the coming months and years.

"Motivating employees, creating a positive climate—these are the kinds of things that make a real difference in retail sales, whether out on the floor in a traditional store, over the phone, or in an online chat," Rivers says. "Motivated associates engage their customers and create retail experiences that bring shoppers back to the store, the catalog, or the Web site—whether the manager is watching or not."

The value of a positive climate was confirmed by recent Hay Group research conducted for a well-known retailer in the United Kingdom. The research showed a direct link between a positive store climate—characterized by one in which associates felt valued and motivated—and stronger sales. And stores with positive climates also had less turnover, lower absenteeism, and reduced stock loss.

Concludes Rivers: "The key takeaway for retailers is to improve the work climate; to focus on empowering front-line managers; and to ensure they have the leadership competencies to create a motivating environment."

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