October 17, 2016

Define Winning

Here's what I know.

When I worked at Lands' End, 10% pre-tax profit was defined as "winning".

When I worked at Eddie Bauer, "Drive Sales Profitably" was defined as "winning" ... but sales gains always trumped profit gains.

When I worked at Nordstrom, comp store sales had to increase and pre-tax profit rates had to increase. When things were humming, we were posting 10% sales gains and 12% or 13% pre-tax profit rates. Try doing that today, my friends.

Well, if growing sales causes a brand to "win", and increasing the pre-tax profit rate to north of 10% causes a brand to "win", then I can look at any year a company has, and determine if the company "won", right?

Let's look at Chicos as an example. Their numbers are freely available in their annual reports.

In 2007, net sales grew by 4.5%, and pre-tax profit was 5.2%. Was this a winning year?

In 2008, net sales were -7.7%, and pre-tax profit was -1.2%. Was this a winning year?

In 2009, net sales were +8.3%, and pre-tax profit was +4.1%. Was this a winning year?

In 2010, net sales were +11.2%, and pre-tax profit was +6.1%. Was this a winning year?

In 2011, net sales were +15.3%, and pre-tax profit was +6.4%. Was this a winning year?

In 2012, net sales were +17.5%, and pre-tax profit was +7.0%. Was this a winning year?

In 2013, net sales were +0.2%, and pre-tax profit was +2.5%. Was this a winning year?

In 2014, net sales were +3.4%, and pre-tax profit was +2.4%. Was this a winning year?

In 2015, net sales were -1.2%, and pre-tax profit was +0.1%. Was this a winning year?

At Lands' End, we'd have flunked every single one of those years.

At Eddie Bauer, we'd have considered 2007, 2009, 2010, 2011, 2012, and 2014 to be winning years.

At Nordstrom, we'd have had a spirited discussion about whether 2010, 2011, and 2012 were winning years or not.

Average those three observations, and we have a framework for thinking about what "winning" is, right?

Here's what I did. I pretended that each year was an "NFL Season". In the National Football League, each team plays 16 games. If you want to win a Super Bowl, you probably have to go 12-4 (12 wins, 4 losses). If you want to make the playoffs, you probably have to go 10-6 (10 wins, 6 losses). If you are an average team, you go 8-8 and you do not make the playoffs. If you are a bad team, you go 6-10 and your coach is on the "hot seat". If you are an awful team, you go 4-12 and your coach gets fired.

Look again at Chicos ... from 2007 - 2015. If you had to assign "wins" to each season, how many wins would you assign?

Here's your homework assignment for tomorrow. Assign wins/losses to each season at Chicos, from 2007 - 2015. Tomorrow, I will share with you the equation I created to assign wins and losses.

P.S. Hillstrom's Rebuild is available on Amazon - click here to purchase.