2002 Volume 5 Issue 2

Conversation with Trader Joe’s John Shields

Conversation with Trader Joe’s John Shields

Former Chairman and CEO of Trader Joe

John Shields recently retired as Chairman and CEO of Trader Joe’s (TJ’s), a specialty retail grocery store chain. Trader Joe’s deliberately offers a limited range of products. Many are quite unique, and most are sold under TJ’s brand. They do not deal in commodity items. They do not offer discounts or sales promotions, but prices are very competitive. Shields graduated from Stanford University (BA, 1954 and MBA 1956) and then served in the military for two years. Following that he joined Macy’s California, a department store chain, in their executive training program, rising to the position of VP of Operations. In 1979 he left Macy’s to join Mervyn’s Department Stores to help in their national expansion program. In the nine years he was with them, Mervyn’s expanded from 36 to 175 stores. His retirement from Mervyn’s in 1987 lasted for five weeks. He was approached by an old friend from Stanford days who had founded the Trader Joe’s chain, Joe Coulombe.. What was initially a consulting assignment led to Shields becoming CEO of TJ’s a year later when Coulombe decided to retire. During Shield’s tenure TJ’s grew from 27 stores to 174 stores, and from $132 million to $2 billion in sales. He was voted the Master Entrepreneur of the Los Angeles Area in 1993.

John Shields
John Shields

GBR: I would like to begin by asking you to look back over your career in terms of how you developed your management philosophy. Who was most memorable to you as a mentor, and what did he or she do that was so meaningful to your development?

JS: It would be Jim Lundy at Macy’s. After I had served some time on the Executive Training Squad, I was transferred to the women’s budget sportswear department as an assistant buyer. A fellow named Jim Lundy was the divisional merchandise administrator for women’s wear. Jim was brilliant and a risk taker. He really became my mentor. After I had been on the job about nine months, Jim and my buyer went to the Far East on a buying trip for about two months. He left me completely in charge of the department. I was free to buy new items, take mark-downs, choose what we would advertise — all that kind of thing. It was a great learning experience. Fortunately the business went up about 20% while I was doing that. The neat thing about Jim was that he was never afraid to let me make mistakes and learn from them. When I made a mistake he would never say anything, but he had this big blood vessel that would come out on this forehead when he was mad. When you saw that you knew you were in deep trouble. But he would never say anything really negative about it. He was great help to me.

GBR: Is that similar to the kind of style that you used as you were helping others develop?

JS: Exactly. I watched people over the years do the reverse –be very negative to the people they were mentoring — and I saw that the results were terrible. So, yes, I tried to be very positive in that role.

GBR: You have spent your professional life in retailing, but before coming to Trader Joe’s you worked with large department stores. Trader Joe’s is quite different from those stores. In fact, as a retailing concept, Trader Joes’ is quite unique. Was that concept in place when you came there, or is that part of your vision?

JS: When Joe Coulombe, who was two years of ahead of me in school, was beginning to fool around with the initial concept of the company, it was called Pronto Markets. They were very small convenience type stores. I helped Joe write the original business plan, what we called at that time, the “White Paper.” So almost from the very beginning I was in on the concept. Over the years Joe would send me the monthly reports and a whole series of things, so I really followed the company very closely. Joe had some of the initial ideas of the company. I took some of those, expanded them, and added my own ideas. Trader Joe’s has just been an evolution.

GBR: Let me move to the topic of your management style. What is “the John Shields’ decision-making style?” Do you tend to be decisive or do you tend to be more analytical, seeking a lot of information before you make a decision?

JS: I think that the leader of an organization has to make the final decision,. There is no question in my mind about that. The real challenge is to get your people to buy into the decision. Before I would make any final decision, I would try to get as many facts as I thought were necessary. You are never going to get all of the facts, so don’t procrastinate and wait for them; that just is not going to work. Then I would try to get my people together and we would talk through the decision. I wouldn’t kid anybody about my point of view. I would always try to persuade them to my way of thinking, and usually it was successful. However, in those instances when I could not sway them, I would still make the decision that I thought was the right decision. That is just the way I did it.

GBR: Were there times when it was their input, defended by others, that actually moved your decision?

JS: Oh, without question. And I am sure I made better decisions when we would challenge each other and say “Hey, is that really the right thing to do?” or “Why don’t we try this?” I am sure that I have made a lot better decisions as a result of their input. No question about it.

GBR: One of the major challenges any CEO faces is how to manage his or her time. There are so many demands from so many people, both from inside and outside the organization. What did you find helpful in managing your time?

JS: Believe it or not, it was a talk by Lou Holtz, the football coach at Notre Dame. He emphasized the phrase or acronym “WIN — What is Important Now.” And I said “Gee, that is really interesting.” So I started using that. I tried to focus on it and to train my people to do the same thing. Usually there were really only two or three things that were important at any one time. If we just concentrated on those and got all of the static out of the way, this would work very, very well. I still recommend that people do that.

GBR: Let me move to the area of managing conflict. You use a participatory style — you talk about getting people involved, getting people to buy in. But when you ask for input, you get differences of opinion. How do you both encourage differences and at the same time try to narrow down the options to get to the decision?

JS: Another great question. Conflict is just a part of life. I think that in many organizations conflict is destructive because the leader does not have a clear view of what he wants the organization to achieve. Or, if he does have a clear vision, he has not successfully communicated it to the organization. What you get then is not really conflict, it is chaos. But I think that when an organization has a clear vision, then the conflict is limited to how we approach this problem or opportunity. If you have the right people, they will usually agree on the solution. If you have that clear vision and a focused organization with the right people, you can have very positive conflict.

GBR Putting it all together, what guiding leadership principles do you have for our readers?

JS: The first one is that you have to have absolute integrity. If you don’t have this, just forget about everything else. You have to be fair with your people and with your customers and your suppliers. Then I have always emphasized hiring the best people you can and educating them. Third, you have got to have a passion for what you do. You just can’t accept being second-best. You have to constantly say, “We want to be Number 1.” It goes back to having that clear vision of what you want to accomplish — I think that defines the organization.

GBR The answer about integrity is very interesting. We are currently dealing with the Enron scandal. Clearly the word “integrity” seemed to be foreign to their culture.

JS: That is absolutely right. If you don’t have integrity, it is going to come and catch you. You can get away with it for a while, but somebody is going to trip you up someplace. If you don’t have integrity, your employees are going to quickly grasp it, and they are going to leave if they are smart.

GBR: Related to that answer, I would like to go back to an earlier discussion about leadership style. Much of the professional management literature over the last two or three years has held up Enron as a model for empowerment or internal entrepreneurship. How do you determine the amount of freedom that you give people? And how do you put accountability in place to make sure it does not get out of hand.

JS: That is a tough one. You are walking a tightrope all of the time. Whether you hire from the outside or develop from the inside, you still have to really say, “Do these people really have integrity? Are they honest? Do I trust them with things?” If I had an employee that I felt that I could not trust, we would part company. It think it has to start there. And you have to really communicate that to the organization — and I mean day-by-day rubbing it in — that we are not gong to cut corners. We are going to be fair with the customer. We are going to be fair with our suppliers. That does not mean we are not going to drive hard bargains, but we are going to be fair. We are going to keep our word. Once the organization really understands that these are the moral principles that are going to guide the organization, then you can do a lot of delegating. You can follow-up on activities, not on a cursory basis, but just checking occasionally, and say ” Hey, are we on the right course?” I would guess that over the last 13 years I have probably had maybe two people who really disappointed me in that respect. But I thought it very important to keep delegating because that kept people feeling that they were in charge of their areas and that was pretty desirable for their personal feelings about themselves. It is a tough line to walk though. I will admit that.

GBR: The next couple of questions are around challenges and the most difficult decisions for the CEO. What was the most challenging task that you undertook as CEO?

JS: This was probably the decision about whether or not Trader Joe’s could expand. I became the CEO in January of 1989. As early as 1991 I became concerned over the long-term growth of the company. I have always thought that an organization must be a growth company, and I was very concerned about where we would expand geographically. We were a west coast company. And at that time I thought the west coast could probably support 100 Trader Joe’s stores. So I said, “Fine, what do we do after that?” We had the Pacific Ocean on the west, Canada in the north, Mexico to the south, deserts and mountains to the east. And I did not want to attempt any international expansion. So that left really only the lands to the east. Realistically there are not any population centers to the east until you get to the Midwest. That meant we had to make a geographical leap to the east. Very few retailers have successfully done this. Most who have tried that big a geographical leap have stumbled, and stumbled badly. As a matter of fact, while I was at Mervyns we tried to do the same thing, expanding from the west coast to Texas, and it was a disaster. So I had been hurt by that, and I wanted to make sure that we did not do the same thing.

After a serious study, we became convinced that the 500 mile corridor from Boston, to Washington DC was truly Trader Joe’s country. It has more colleges and universities than any other area of the US. We spent almost a year putting together a business plan to expand. We were very conservative. We estimated that we would lose money for the first three years, but we projected that we could break even at the end of the third year. And we had a cash cow on the west coast, so we could make the expansion without any outside funds. I still had real reservations whether we could transfer the company culture 2500 miles away. The culture of the company is very important to Trader Joe’s, and we spent a lot of time on this issue. We finally decided if we could move a cadre of about 25 existing employees to the east coast, we could do it. So, in September of 1996, we opened our first two stores in Boston. That was a gutsy move, 2,500 miles away. Three years later we had 27 stores from Boston to Washington DC, and we broke even, right on schedule. By the end of 2001, we had 48 stores, now going from Chicago to Boston to Washington These stores are very profitable, so in retrospect, it was the right decision. But it was very challenging.

GBR: To follow up on that, what was your most difficult decision?

JS: That is an easy one to answer because it still lives with me. In the fall of 1997 I thought that I had chosen my successor. He had been my right-hand man for nine years, and I was looking forward to retirement in a couple of years. We went on a trip to Boston in late September 1997. One night over dinner he revealed that he only planned to be the CEO for five years, and then he wanted to teach at the college level. So while he was being the CEO at TJ’s, he wanted to go back to school part time and get a Ph. D. This hit me like a ton of bricks. I wanted the next CEO to be in place for at least ten years. This was the first time he had ever told me about this. It became clear to me that I had not made the right choice. Or asked the right questions. Within a month he departed the company. It was very traumatic, and it forced me to work about three more years than I wanted to. But actually everything has worked out for the best and probably it was the best for the company.

GBR Those are tough decisions. The last question really summarizes a lot of the points that you have talked about. That is, if you were to describe four or five of the key management principles that guide your business philosophy, what would those be?

JS: Well, I don’t know that I can keep it down to four or five, but I’ll try. Let me go back again to start with integrity. You have got to be ethical. I think you have to have a clear vision and communicate that vision to the organization. I believe strongly in listening. I would spend two days a week out visiting the stores, listening to our employees and our customers. I always go back to hiring the best people you can and giving them the education and the tools they need to do the job. I have always encouraged people to be entrepreneurs. And I guess the last thing that I am famous for saying is, “Have fun.” I really mean it .I remember that I used to go to all of the pre-store openings and I would talk with the new people for about two hours, and I always ended up saying, “Look, at the end of thirty days, if you are not having fun, please quit.” And they would look at me with these big eyes, and I would say, “No, I really mean it. You spend most of your life at your job. If you are not having fun, get out of here.” And I really sincerely feel the same way. I am almost 70 years old and I still think you have to have fun doing what you are doing.

GBR: That sounds like a wonderful philosophy. Thank you for your insights and time. We have certainly enjoyed it.

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Author of the article
Mark Mallinger, PhD
Mark Mallinger, PhD, is a professor of applied behavioral science at the Graziadio School of Business and Management’s at Pepperdine University. He teaches in the full-time, fully-employed, and executive programs. Dr. Mallinger is a management development consultant and has published works in a number of academic and practitioner journals.
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