An untapped opportunity at Sam’s Club
The leadership transition Costco announced this week was hardly unexpected considering outgoing CEO Jim Sinegal is 75, but it does underscore what arguably has been one of the greatest distinctions between Costco and Sam’s clubs for the past 25 years, namely the stability of senior leadership.
Sinegal founded Costco along with company chairman Jeffrey Brotman in 1983 and the pair have been running the show ever since. Conversely, Sam’s Club has been led by approximately 10 different senior executive during approximately the same time although they didn’t always carry the title of CEO. Beginning with Ron Loveless, leadership transitioned for brief periods of time to Nick White, Al Johnson, Dean Sanders, Joe Hardin, Mark Hansen, Tom Grimm, Kevin Turner and Doug McMillon. Current president and CEO Brian Cornell joined Sam’s Club about two and a half years ago after Doug McMillon was named president and CEO of Walmart’s international division.
The changes in leadership caused varying degrees of turmoil as each successive executive brought new ideas to the organization, their own philosophy about warehouse club retailing and thoughts on how to growth the business by appealing to different member segments and managing expenses. Brian Cornell and EVP merchandising Linda Hefner are no different. They are leaving their mark with the eValues program, an emphasis on fresh food and health and wellness businesses and an aggressive push to encourage upgrades to the $100 Plus membership level. And they are getting results with same-store sales growth accelerating for the past six quarters and further gains expected.
Despite Sam’s current success, how likely is it that either Cornell or Heffner will be in their current roles even three or four years from now? Walmart’s practice of shuffling senior executives every few years, as an intentional strategy and corporate necessity, virtually assures that Sam’s club will be operating under new leadership within a few years.
Conversely, Costco appointed as its CEO Craig Jelinek, a guy who joined the company the year after it was founded 1983. He began as a club manager and held a variety of operations roles over the years. Costco telegraphed its succession plans back in February 2010 when Jelinek, 58, was elevated to the role of president and COO and given a board seat after serving the previous six years as EVP merchandising. Even though Jelinek and Sinegal worked closely over the years, the company isn’t taking any chances on a greenhorn who only has 28 years at the company. Sinegal is sticking around in an advisory capacity until January 2013 and he will in all likelihood continue to serve on the company’s board even though he is up for re-election at the company’s January 2012 shareholders’ meeting.
It is hard to find two companies more diametrically opposed in their approach to leadership than Sam’s Club and Costco. Yet for all of the self-inflicted management turmoil Sam’s Club has endured over the years and the stability that Costco has enjoyed, it is surprising the performance gap between the two isn’t wider. Just think where Sam’s could be 10 years from now if Cornell, Heffner and company were to continue driving business results and stick around longer than some of their predecessors.