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U.S. retail execs migrate to Canada

By Susan Thorne

Southerly winds of change are being felt in the executive offices of many Canadian retailers.

As CEOs change companies, recruiters are increasingly luring U.S.-based candidates to fill jobs north of the border.

New faces have appeared recently in the upper administrative levels of several leading department store and junior department store companies. George Kosich's appointment as CEO at Eaton's in June, one day after accepting an early retirement package from rival Hudson's Bay Co., Canada's largest retailer, sent out shock waves. He was replaced as Hudson's Bay president by William Fields, a prominent former Wal-Mart Stores and Blockbuster Entertainment executive in the United States, who now oversees the company's 100 The Bay department stores and 300 Zellers stores.

Ira Pickell was appointed head of Hudson's department store division in February. He had served as CEO at Seattle-based Bon Marche, owned by Federated Department Stores Inc.

Sears Canada hired Paul Walters, a former head of Zellers and an ex-Hudson's Bay employee, as company chairman in 1996.

There have been other switches. With the purchase of Kmart Canada by the Hudson's Bay Co., announced in February, Kmart president George Heller replaced Millard Barron as president of Zellers. Hudson's is merging the 112 Kmart Canada stores with its 298 Zellers. This is expected to make Zellers a stronger competitor against Wal-Mart.

The changing of the guard among top executives reflects the high degree of change in retailing in Canada in recent years, particularly among mass merchandisers. New retail categories, from category killers and big box stores to mail order and Internet shopping, have transformed the market. The arrival of Wal-Mart has had a big impact on all retail categories since the Bentonville, Ark., discounter came to Canada in 1994; department and discount stores in particular are seeing a shakeout. Some of the new CEOs are clearly being brought in to meet the challenge and get flagging companies back on their feet.

The T. Eaton Co. Ltd. sought court protection from its creditors last year when its operating losses reached more than $200 million and the company announced plans to close several of its Eaton's department stores. Mr. Kosich was hired to give confidence at a time of crisis, suggested Richard Talbot, a retail consultant with Thomas Consultants International, Mississauga, Ontario. "I think Eaton's wanted a stopgap to provide credibility -- a sort of Cool Hand Luke or an old general to steady the troops."

Eaton's is closing 21 stores and shifting its merchandise focus to clothing, accessories and cosmetics; furniture, appliances and electronics departments will be dropped in 21 stores.

Mr. Barron's mission is to stop the slide of Zellers, Canada's largest discounter, which is being seriously challenged by Wal-Mart in all product categories. After years of steadily rising profits, Zellers' pretax profits dropped to $116 million in 1996, compared with 1993's $256 million. Mr. Fields, who had a 25-year career at Wal Mart and is credited with developing the sophisticated distribution and inventory control systems of that company, is being called upon to rejuvenate the Hudson's Bay Co.'s stalled sales performance after a less-than-successful brief stint at Blockbuster.

Thomas Consultants' Mr. Talbot said the mandate in these two hirings was to compete more strongly against U.S.-based retailers.

"The reasoning was that the only way to do this is to hire the best from the United States, who know how to compete there," he said.

At Sears, meanwhile, Mr. Walters is reorienting the company's 110 stores with a stronger focus on soft goods, but the company has recently opened 11 Whole Home Furniture stores in Canada, with seven more to come this year.

This is a strategy deployed successfully in the United States which appears to be working for the Canadian market, as well. Financial results for the quarter ended Jan. 3 showed a record profit of $77.1 million for Sears and an overall jump of 16% for 1997 over the previous year.

It became obvious during the recent flurry of hirings that Canada's talent pool of well-qualified retail CEO candidates is small, making recruitment possibilities within the country limited. Rob Moore, a spokesman for the Toronto-based Hudson's Bay Co., said that aside from the small scale of Canada's retail environment, one reason for this is that retailing tends to hire from within its own ranks; appropriate expertise generally cannot be readily transferred from other fields.

"You find that a lot of [retail] executive CEOs started on the shop floor, then became managers and regional managers, and so on," he said. "It's a detail-oriented field and you need both knowledge of how to relate in service as well as inventory management. So you don't usually see the CEO of Ford become the CEO of Macy's, for example."

Department store company CEOs have an even more specialized combination of skills, said Michael Stern, president, Michael Stern Associates Inc., Toronto, executive recruiters.

"You want someone who is in a position to run your company, with leadership and strategic vision, but they'd better know about large scale merchandising and some of the basics, too," he said. The particular talents needed are different from those in other retail sectors, he pointed out. A big box store, for example, doesn't have the customer service emphasis of a department store.

Knowledge of the shopping center leasing situation is also important for department store heads in Canada, because there are a limited number of regional malls offering sites for department store anchors. Mr. Moore said that such knowledge was a factor in the Eaton's situation, because Mr. Kosich could readily assess the shopping center presence of both companies.

But in a small country, the situation can quickly become inbred, with executives going over to former rivals. Is it smart to hire from your competitor, as some retail companies have been doing?

"Yes, I think it is," said Mr. Stern. "I think knowing about your competitors is one of the key elements, but only one."

However, there needs to be a reasonable fit between the two companies in such cross-hiring, he argued. When rivals have widely different corporate cultures, like PepsiCo and Coca-Cola, adjustment from one to the other may be difficult.

The downside of hiring from a rival was illustrated by Mr. Kosich's switch from Hudson's Bay to Eaton's last summer. That move was followed by accusations from Hudson's that he was trying to lure certain of its staff members to join him at Eaton's. In September, Hudson's Bay initiated a lawsuit, charging Mr. Kosich with breaching an agreement not to recruit its employees or use confidential information gained during his 37 years with that company. The suit was settled a short time later through a personal commitment between Mr. Kosich and Hudson's Mr. Fields.

Other recent cross-border recruitments include Stephen Bachand of Canadian Tire, who has put that company on a sound footing since taking the reins four years ago. Mr. Moore says cross-border recruitment is being helped by the new openness and international character of Canada's retail market, which is no longer controlled just by Canadian interests as it was 20 years ago.

"I think that people are responding to that," he said. "With new situations, you often look to new sources for help, and there's a richer retail industry just to the south of us."

For department stores in particular, potential CEOs are much more plentiful in the United States, said Mr. Stern. "You've got Marshall Field's, Target and others, and there are also [candidates] who used to head department stores and now do something else. A marketplace 10 times your own size is bound to have more options, more selection."

U.S.-based CEOs are prestigious and highly valued in Canada, too. Mr. Stern said they are widely regarded as more capable and seasoned than their Canadian counterparts, "having won their spurs in a more competitive environment."

But they come with a higher price tag. It is difficult to find people who are willing to come to a small market and to a different country, he added, estimating that an American CEO might be paid up to 50% more than an equivalent Canadian recruit. And not all candidates are appropriate, since they need to be familiar with Canada's distinctive market, Mr. Stern said. "You hope you get somebody who doesn't think Canada is the 51st State."

Canadian retail companies tend to have strong feelings about importing U.S. executives, Mr. Stern added.

"You either love 'em or hate 'em," he said. "There's not much of a gray zone: Companies either want them or are turned off by their cost or unsuitability."

Hudson's Bay doesn't consider nationality an issue when it comes to employment, Mr Moore said. "When we hire, we will hire the best. We don't have a mandate to hire Americans, or Canadians, for that matter."

Canadians recently stepped into two key retail positions. In December, Brent Ballantyne, a former senior food industry executive, was appointed as new chairman at Eaton's, while in January Toronto-based Dylex Ltd. named Marc Chouinard, a senior executive within the company, as president of its BiWay stores discount chain.