Harry & David’s failed Mr. Fix-It

April 1, 2011, 9:15 PM UTC

How Steven Heyer went from gunning for the top spot at Coca-Cola to overseeing the gift basket retailer on its way to bankruptcy.

When Steven Heyer took over as CEO of Harry & David in February 2010, the private-equity firm behind the struggling fruit and food gift-basket retailer lauded him as having “unparalleled experience as a brand builder” and “tremendous strategic vision.”

Heyer says that Ellis Jones, CEO of Wasserstein & Co., which purchased Harry & David in 2004, asked him to help turn the company around — both executives had sat on the board of the investment bank Lazard. Jones gushed in a press release at the time that “Steve’s proven track record of growing businesses by increasing consumer loyalty and customer demand makes him the ideal person to build on the iconic Harry & David brand.”

It didn’t quite work out that way. The company filed for bankruptcy protection earlier this week.

After only a year on the job, Heyer turned over the CEO title to Kay Hong, a turnaround and restructuring specialist at Alvarez & Marsal. Hong has also been named chief restructuring officer, while Heyer remains the company’s chairman. Heyer says there was never the expectation that he would act as CEO for the long term, and that he was part of the decision to bring in Hong. Wasserstein and Harry & David both declined to comment.

On paper, Heyer seemed like the right man for the job: a seat on the board at Lazard (LAZ), a stint as the CEO of Starwood Hotels & Resorts Worldwide (HOT), and a run as the No. 2 executive at Coca-Cola (KO), where he was brought in from the outside at a senior level — a rare move for the beverage giant.

At Harry & David, Heyer points to his attempts to turn the retailer around — he worked on package redesign, improved the quality of the company’s products, and replaced senior management. The company launched its first business-to-business catalog and signed on new customers.

But it wasn’t enough. “What we discovered was, there was more that needed to be fixed than anybody knew,” Heyer says.

Some question whether Heyer was the right person for the job at all, despite his impressive resume. Harry & David was in a different financial situation than Heyer’s past employers. “If you look at where Steve Heyer had been previously, they’re all sort of growth companies and companies doing well and looking to expand,” says Andrew Ward, a professor at Lehigh University’s business school. “Someone who’s good at turning an organization around is not the same as someone who’s good at growing an organization that’s already successful,” he adds.

And while Heyer is a great brand guy, it’s not clear his expertise was the right fit for Harry & David. “The direct marketing business is a different kind of a process than normal marketing,” says Chuck Jaeger, a professor at Southern Oregon University’s business school who has worked as a consultant for Harry & David. “They had a huge mismatch between the experience and knowledge of the hire and the requirements of the company.”

Tony Cox of 5th Food Group, a consultancy focused on Internet and catalog marketing for specialty food companies, says a resume that includes running a hotel company might not transfer into an understanding of the nuances of the specialty food business. “That doesn’t have a lot to do with fruit baskets and fruit towers,” he says.

Heyer contests critics who say he didn’t have the industry background. During his time running Booz Allen Hamilton’s consumer practices business, he says he did a lot of work for catalog businesses. And at Young & Rubicam he notes that he was responsible for Wunderman, which specializes in direct marketing.

Although Heyer had always been flagged as a rising star, he was reportedly difficult to work with. In 2004 after Coca-Cola’s search for a new CEO, Fortune wrote, “When Heyer arrived in 2001, he appeared at first to be another magic bullet. It didn’t take long, though, for the brash executive to run afoul of the culture… Heyer was hard driving and harsh. Worse, he had a sense of entitlement.”

Heyer arrived at Coca-Cola from Turner Broadcasting System, which, like Fortune, is owned by Time Warner (TWX).

After losing out on the top spot at Coca-Cola, Heyer left in 2004 for the top job at Starwood. (Starwood signed a deal with Pepsi (PEP) after his arrival, ending an exclusive with Coke. Coincidence?) Starwood did well financially under Heyer’s watch for two and a half years, but he clashed with the board and left under a cloud of controversy.

Part of his problems may have been geographical. Heyer never relocated to Starwood’s New York headquarters while CEO, instead remaining in Atlanta. And he was criticized for failing to move to Harry & David’s Medford, Oregon headquarters. “You can’t turn a company around like that,” says Jaeger. Heyer says that up until December he spent 65% to 70% of his time in Medford and when he wasn’t in Oregon he was traveling on the company’s behalf.

What’s next for this former Fortune 500 CEO? Heyer says now that he’s not as involved in the day to day at Harry & David, he’s back to working on several business endeavors that he put on hold, such as Next3D and Avra Kehdabra Animation.

As for Wasserstein, which hired Heyer, the New York Times has reported that the private-equity firm had recouped 1.25 times its first investment. Harry & David in turn was left saddled with a debt load that only made it more difficult to turn the company around.

Hong is an interim CEO at Harry & David, but it’s unlikely we’ll see Heyer back in the corner office at the company anytime soon. “I’m at a stage in my life where I’m involved in enough other things that I basically passed off on partners for the last year,” he says. “I have no interest in continuing to play that kind of hands-on role.”

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