In this issue of SN, top executives outline what's on their minds regarding the second half of this year. However, there's at least one factor they don't cite that is surely top of mind: the opinion of investors.
Investor sentiment is increasingly important to chief executive officers of publicly traded retail companies. This isn't always apparent. Andrew Wolf, analyst, BB&T Capital Markets, Richmond, Va., told me CEOs may be more sensitive to Wall Street's reactions now because of the market's more positive reception to supermarket stocks. Albertsons and Safeway are outperforming the broader market year-to-date. Top executives see a chance for their company stocks to benefit from Wall Street's improved view of food retailing after a long period when these shares were out of fashion. So, Wolf surmised, it's not surprising if CEOs "respond a little more to the Street, at least tactically or in tone of rhetoric."
Here's an example cited in a recent SN article: Wolf said Kroger CEO David Dillon's recent strategy to slow down promotional price investments may be at least partly aimed at helping raise the company's share price. Dillon undoubtedly recognized, said Wolf, that Safeway's and Albertsons' shares rose when those companies "decided to defend earnings over sales."
What approaches will retailers use in the second half to remain in the good graces of investors? Gary Giblen, senior vice president and director of research for C L King Associates, New York, told me retailers may boost communication with investors, such as adding more information to Web sites. Retail companies will continue to improve the quality of board members and focus on corporate governance issues, all topics of importance to investors, he added. But forget about retailers trying to over-hype their company or stock. Giblen said CEOs are too worried about investor lawsuits over misleading information to pursue that avenue.
Is there a danger that retailers may give investors too much of what they want to hear? How do you ensure a CEO's decisions are based on what he or she believes is REALLY appropriate for the company, instead of what investors say is important?
That topic was recently addressed at a conference by Albertsons CEO Larry Johnston, who said financial analysts often don't take into account the total picture in assessing companies. Speaking at the Executive Conference of Grocery Manufacturers of America, he pointed to Albertsons' employee diversity as a factor that keeps the company vibrant. He called it an example of the "soft side" of retailing, to differentiate from the hard side, or financial performance. He added that financial analysts often don't recognize the importance of such soft factors.
So how does Johnston make progress with the soft side if investors don't grasp the importance?
"We took our executive vice president of human resources on a road show for the financial community," Johnston said. "Investors were surprised because that's not a typical thing to do. But it helped us to explain that the soft side of retail was important in an integration. We explained the soft side can deliver performance numbers."
Johnston's remarks suggest that CEOs need to educate investors about the more subtle factors impacting company performance. That point is well-taken. In the second half of this year, look for CEOs to boost these education and communication efforts. That would be a wise investment.
