retail news in context, analysis with attitude

Yesterday, Supervalu employees were sent the following email that was "sent on behalf of Wayne Sales," the company's president/chairman/CEO:

"Today, SUPERVALU announced that its Board of Directors has named Sam K. Duncan President and Chief Executive Officer, effective immediately. The board decided to install Sam in this role before the completion of the previously announced transaction to ensure a smooth transition.

"This is the right decision for SUPERVALU and one that the Board and I fully support. As Executive Chairman of the Board, I will work with Sam to prepare the business for closing. Over the past several weeks, Sam has been busy visiting stores, meeting with independent retailers, and getting to know many of our team members. These visits have reinforced his belief in the potential of SUPERVALU and he looks forward to meeting with more of you in the weeks ahead.

"Sam is a talented and highly-respected executive and I am confident in his ability to lead SUPERVALU. Please join me in congratulating Sam as he takes on his new role."

Last month, Supervalu announced that it will sell five of its retail chains - Albertsons, Acme, Jewel-Osco, Shaw’s and Star Market stores and related Osco and Sav-on in-store pharmacies - to AB Acquisition LLC, an affiliate of a Cerberus Capital Management-led investor consortium which also includes Kimco Realty Corporation, Klaff Realty LP, Lubert-Adler Partners and Schottenstein Real Estate Group, in a transaction valued at $3.3 billion.

In addition, a Cerberus-led investor group will acquire up to 30 percent of Supervalu's common stock, paying $4 a share.

It had been announced that Duncan, the former chairman/CEO of OfficeMax and the former president/CEO of ShopKo Stores, would become president/CEO. The non-executive chairman of the new board will be Robert Miller, who is the president/CEO of Albertsons LLC, the Albertsons stores that have been owned by Cerberus. The deal reunites the Albertsons chain under one ownership.

However, the fallout from the deal has raised some hackles within Supervalu, where a culture of austerity has led to most employees being denied bonuses and salary increases. Sales - who was chairman of the board that hired Craig Herkert to run the company, only to fire him and give him reported termination package worth close to $3 million - reportedly will get more than $12 million for his eight months work at Supervalu's CEO.

At the same time, three other executives who got retention bonuses last August received golden parachutes: Sherry Smith, CFO, $3.51 million; Janel Haugarth, president of Independent Business and Business Optimization, $3.65 million; and J. Andrew Herring, executive vice president for real estate, market development and legal, $2.82 million. These new amounts would be paid to the executives if they are terminated within two years of the closing of the Cerberus deal.

In Illinois, the News-Gazette reports that Supervalu has unveiled to potential lenders their vision for a smaller, more efficient company that will have three business segments: Save-A-Lot (1,300 stores in 35 states), five regional brands (including Cub, Shop n' Save, and Farm Fresh), and the wholesale distribution business, which has 19 warehouses around the country, and that it characterizes as "a stable business with strong operations."

According to the story, the company is "looking for additional places for savings," including: "right-sizing (the) organization for ongoing operations," "streamlining processes," "cutting what it pays for professional fees and services," and "trimming costs in maintenance and information technology."
KC's View:
There will be those who will say that Sales, having arranged for his big paycheck, now cannot even be bothered to work the last eight weeks before the deal closes. (I know this because I've already begun to hear from them.)

But I'm not sure this is true. I think it may be fairer to suggest that within the organization, Wayne Sales was already so morally and ethically compromised that he was useless - he was a general that lost the confidence of his forces. It was time to go.

However, if I were him, I would not spend the $12 million too quickly. I think it is highly likely that there could be a lawsuit filed that will endeavor to stop him from being paid a pot load of money, and that Supervalu may be forced to justify a compensation strategy that rewarded top executives - even failures - millions of dollars while the people on the front lines saw nothing but cuts and freezes; it can also be argued that the millions of dollars handed out to executives could have been used to reduce the cost of goods being sold to independent retailers, and to improve the service levels provided to those retailers.

(By the way ... it is instructive that Wayne Sales' goodbye note was not sent by him, but rather "on his behalf." What a crock. In another life, his name must have been Henry F. Potter...)

As for the new management ...

People as accomplished as Bob Miller and Sam Duncan don't need my advice. But if you ask me (and if you're reading this, I'm assuming you are), I think his first steps absolutely have to be people-centric. He has to let the people on the front lines know that they are the most important factor in making the company viable and sustainable, and then he has to take actions to prove it. They have to bring people in who don't drink the Kool-Aid, but who are willing to challenge conventional thinking at every turn.

If they don't do that ... if they don't marshal their forces in an effective way ... then, while Supervalu may experience some movement, there is no guarantee that it won't be marching toward a cliff.

My sense, though, is that they get this.

As a CEO friend of mine likes to say, if companies give employees more than they expect (not talking just about money here, but also responsibility, respect, the ability to innovate), then employees almost always will give back to the company more than leadership expects.

Or, in the case of Supervalu, perhaps more than they have any right to expect.