Some months ago Michael Luscombe ruminated aloud about life after Woolworths and ignited a continuing wave of speculation about his retirement as chief executive. The speculation was confirmed yesterday with the announcement that he would be succeeded as CEO of the nation’s largest retailer in October by chief operating officer Grant O’Brien.

Given that by October Luscombe will have been at the helm of Woolworths for five years, and has worked within Woolworths for 33 years, the intensity of the discussion about his departure has perhaps been surprising, although the backdrop of a revitalised major competitor and difficult retail conditions may explain that.

The real surprise isn’t that Luscombe has confirmed that he is going to retire but rather the choice of his successor. Woolworths’ director of supermarkets, Greg Foran, had been widely tipped to succeed him, which would have been a natural progression within a group where food and liquor is its core.

Instead, James Strong and the rest of the Woolworths board, having conducted a conventional search process that included the consideration of external candidates — probably a reasonably cursory consideration, given Woolworths’ traditional preference for internal appointments and the presence of several obvious candidates within its ranks — chose Grant O’Brien.

O’Brien is another Woolworths’ veteran, having been with the group 24 years. His experience, however, has been quite diverse and, separate to the hands-on retail experience, has included strategic roles.

He established the national marketing strategy Woolworths’ adopted when it shifted from its former state-based structure; created its customer research department and is credited with devising the country’s first supermarket loyalty program. He also helped develop the group’s multibanner liquor strategy and oversaw the integration of the ALH group.

More particularly, O’Brien was appointed general manager of new business development in 2008 and was therefore the key figure in developing the strategy that resulted in Woolworths, in partnership with Lowe’s of the US, entering the hardware sector.

That strategy, under which the joint venture plans to open 150 big box format stores within five years, has the potential to reshape the group and the competitive playing field with the retail operations of its rival, Wesfarmers, for whom Bunnings is a powerhouse.

It is the strategic dimension and experience that O’Brien will bring to the role that makes him an interesting choice.

Luscombe’s predecessor, Roger Corbett, ruthlessly and relentlessly took advantage of the instability, lack of retail experience and capital constraints of the then Coles Myer to build a position of self-reinforcing dominance over his major rival.

Luscombe, who outwardly at least doesn’t appear quite as obsessively single-minded and uncompromisingly aggressive as Corbett — which might explain why he was comfortable openly canvassing life after Woolworths — has been confronted by quite a different and more challenging competitive landscape.

Wesfarmers’ acquisition of Coles, Target, Kmart and Officeworks; the independence its has given them; the new and very aggressive management teams it has recruited and the disruptive strategies that Coles and Kmart in particular have employed have challenged the business model Corbett established, which produced powerful gains in market share and shareholder returns.

Where once Woolworths dictated terms to Coles, it now finds itself in the unaccustomed position of being forced to react to Coles’ initiatives in a retail environment that is itself quite challenging and volatile and under unusually fierce and potentially threatening scrutiny from legislators and suppliers.

Despite having to downgrade expectations of its most recent result earlier this year, Luscombe has, despite the financial crisis and the new competitive settings, been able to produce consistently solid earnings and sales growth while generally protecting his superior margins and shareholder returns metrics.

It can only get tougher for O’Brien, given the momentum that has been building within the Wesfarmers’ brands and the different timeframes those brands are being given to meet more demanding expectations of their returns on investment relative to Woolworths, which gets measured on a quarterly basis.

As occurred with Luscombe’s appointment, which caused several disappointed aspirants for the job to depart the group (Myer’s Bernie Brookes and Bill Wavish among them), O’Brien’s slightly surprising emergence will presumably cause some of his disappointed peers to reconsider their futures. That’s not necessarily a negative for a new CEO in an organisation that traditionally has been able to regenerate its leadership from within.

In any event, given that he will be deputy CEO to Luscombe until October, he will have time to sort through the repercussions from his elevation and consider the shape of his own senior executive team and the extent to which he needs to alter Woolworths’ retail strategies.

The key priorities will be how to respond, if a significantly different response is deemed necessary, to Coles’ aggression and accelerating momentum and to ensure that the hardware strategy — which will colour  Luscombe’s and O’Brien’s legacies — is really well executed.

This article was originally published on Business Spectator.