February 10, 2010

Gliebers Dresses: An Announcement

You are listening to a special Gliebers Dresses Executive meeting, where Mr. Glieber is set to make an announcement.

Glenn Glieber (Owner): "Folks, I gathered you together this morning to make an announcement. Thank you all for joining me at this early hour."

Meredith Thompson (Chief Merchandising Officer): "Kevin, is that you?"

Kevin: "Yes, it is me."

Glenn Glieber: "Folks, I want to introduce you to Fitz Gleason. Fitz is a Principal at Gleason Investments, a Private Equity firm that specializes in the acquisition of Catalog brands. I asked Mr. Gleason to consider the acquisition of Gliebers Dresses. Mr. Gleason believes that Gliebers Dresses may be a good fit within his portfolio of Catalog brands, and would like to explore the opportunity to acquire our brand."

Meredith Thompson: "You are selling Gliebers Dresses to a Private Equity firm? Isn't that what people do when a company is distressed? We're not distressed, are we?"

Fitz Gleason (Principal, Gleason Investments): "First of all, I would like to thank all of you for the opportunity to consider acquisition of your fine brand."

Lois Gladstone (Chief Financial Officer): "Wait a minute, just wait a minute. No disrespect, Mr. Gleason, but we've largely fixed this business, Glenn. Pepper's new catalog strategy is trending +11% to last year. Our loyalty program has the potential to catapult us into new levels of sales opportunity. Sure, we've lost money for several years in a row. That doesn't mean we're distressed, however."

Fitz Gleason: "Team, I don't think we're focusing on Gliebers Dresses as a distressed company. Gleason Investments has a long and proud history of helping Catalog brands achieve improved performance through operational streamlining, backend efficiency, merchandise analysis and strategy, marketing excellence, financial prudence, and overall brand alignment."

Roger Morgan (Chief Operations Officer): "Let me understand your role, Mr. Gleason. Woodside Research recently released a report suggesting that Private Equity firms would aggressively pursue purchase of distressed Catalog brands in 2010, in order to extract value from brands struggling to meet the needs of a modern customer. Are you suggesting that Gliebers Dresses struggles to meet the needs of a modern customer?"

Fitz Gleason: "Mr. Morgan, I haven't even had an opportunity to properly introduce myself yet, much less address a comment from an obscure report from a research organization looking to profit off of theoretical predictions that may or may not come true."

Pepper Morgan (Chief Marketing Officer): "Why don't we give Mr. Gleason the opportunity to share his views with us first, before judging his intentions?" (Pepper glares across the table at Roger. Roger simply shrugs, in response to Pepper's glare. At the same time, Lois is busy rubbing her right hand across her thigh in a tense, back and forth motion. Meredith's right foot can be seen tapping the floor).

Fitz Gleason: "Thank you Ms. Morgan. Look, I am strongly considering purchase of your business. During the next few weeks, I will spend time with each and every one of you. I want to thoroughly understand how you manage business today, so that I can determine an appropriate purchase price, so that I can properly assess how the management of this business will be addressed going forward."

Roger Morgan: "I can't believe you are doing this to us, Glenn."

Meredith Thompson: "Frankly, I'm in shock. I wish I'd have known about this before sitting down here today. Anyway, Mr. Gleason, can you describe some of the things your organization does in order to improve business performance?"

Fitz Gleason: "Certainly Ms. Thompson. Let's look at Marketing. I tend to combine customer databases across my brands, for the purposes of cheap customer acquisition. Why pay a co-op six cents or twelve cents or twenty-four cents per name when you can walk up to the Gleason Investments trough and pay nothing for access to names from our family of Catalog brands? Our statisticians can mine the data in a way that allows you to find the best prospects for your business. That's money that simply drops to the bottom line."

Roger Morgan: "You would combine our customer database with other companies? Oh boy. Neptune Research issued a research report that suggests customer privacy is violated when database information is combined across brands. And when customer privacy is violated, customer trust is eroded. And when you erode customer trust, you lose loyalty. Frankly, that doesn't sound like a good outcome ... reduced loyalty in exchange for saving a few pennies here and there."

Fitz Gleason: "Mr. Morgan, thank you for your concern. Let me make something clear. In my world, we don't reference research reports. We either stand by our own personal convictions, or we get out of the way. Another thing we do at Gleason Investments is to focus on departmental accountability. In other words, the Operations Executive cannot cross the firewall between Operations and Marketing. It is the job of the Operations Executive to excel at Operations. And when that isn't possible, I combine Operations functions across sister brands in order to better leverage the profit and loss statement. This may mean that the Operations function is absorbed by corporate Operations at Gleason Investments. You and I will spend considerable time together, judging whether this is the best way to proceed, should I decide to purchase Gliebers Dresses."

Lois Gladstone: "I assume, Mr. Morgan, that you have a strong partnership with Finance, and that you require a strong Finance function that sits outside of the corporate org-chart, correct?"

Fitz Gleason: "Yes, Ms. Gladstone, I require a strong partnership with Finance. In many cases, the partnership is best served by having Gleason Investments absorb all Finance responsibilities into the corporate Finance function. Often, we can deliver the best return on investment to Gleason Investment shareholders by streamlining corporate functions into one corporate structure. We can leverage corporate finance to do much of the work done by existing Finance teams, allowing profit to simply drop to the bottom line."

Lois Gladstone: "Yeah, but, ... but where would my team drop to?"

Fitz Gleason: "I assure you, Lois, a thorough review of every job function is part of the purchase process. When we find value, we extract it. When we find efficiencies, we exploit them. Look, this isn't personal, it's business. Your business is not generating profit. My business is all about generating profit. We're simply going to make decisions that are in the best interest of the brand."

Lois Gladstone: "It's personal to me. That's the same kind of crap that Tom Hanks said to Meg Ryan in 'You've Got Mail' as he was in the process of running her out of business."

Meredith Thompson: "It sounds like you are focusing on carving up our Executive team, and then assigning the backend functions into corporate departments at Gleason Investments."

Fitz Gleason: "If I decide to purchase this business, it will be my first priority to make sure that I extract the best return on investment humanly possible from this business. This may mean that I have to strongly consider streamlining backend operations in order to better leverage the profit and loss statement. We have to face the modern realities of Catalog marketing. Costs have escalated, but in spite of all of the multichannel chatter out there, response hasn't improved in a decade. Eventually, you have to make touch choices. You either raise prices while holding cost of goods flat, or you hold prices flat while reducing cost of goods sold, or you reduce marketing expense, or you attack the corporate expense structure. Those are your choices, Margaret. I'm looking forward to seeing your action plan for either raising prices while holding cost of goods flat, or for holding prices flat while reducing cost of goods sold."

Meredith Thompson: "My name is Meredith."

Roger Morgan: "You can't even get Meredith's name right? Come on!"

Meredith Thompson: "What is your Merchandising strategy, Mr. Gleason?"

Fitz Gleason: "Again, I will leverage all possible internal resources at Gleason Investments, in order to deliver the best possible return on investment for Gleason Investment shareholders. That being said, without merchandise, there is no reason for Gliebers Dresses to exist. So I demand absolute ruthless analysis of every single sku at every company I manage. There must be a concrete reason for a sku to exist. Each sku must cover research and development costs, inventory costs, operational costs, marketing costs, liquidation costs. I'm certain that, as a team, you already have a process for ruthlessly analyzing every single sku across every single channel, right?"

Roger Morgan: "Do we, as an Executive team, have the time to analyze every single sku? That's the definition of micro-management, right? And, besides, you told me not to step out of my silo to offer opinions, so I'd never micro-manage Meredith's business."

Fitz Gleason: "Mr. Morgan. Can you tell me the percentage of distribution center expenses allocated to the worst selling third of skus? In other words, tell me if 52% of your expenses are required to maintain the worst selling third of skus, or if the percentage is 82%, or 33%. Can you give me that percentage, Mr. Morgan?"

Roger Morgan: "At Gliebers Dresses, we have a long history of operational excellence. We've developed proprietary methods that accurately outline all relevant expenses associated with managing a distribution center."

Fitz Gleason: "Mr. Morgan, if I elect to buy your business, I will personally sit down with you to review every single proprietary method or metric you've developed. I will also share the set of metrics that my business leaders use to accurately measure distribution center excellence. Following our discussion, we will arrive at a set of metrics that best illustrate your performance, benchmarked against competing brands."

Meredith Thompson: "This doesn't sound like it will be a very pleasant experience, Roger!"

Fitz Gleason: "I think it can be a pleasant experience, Ms. Thompson, if you view this as a learning opportunity, as an opportunity to go from being unprofitable to being profitable. If you want to continue to do things the way you've always done them and are willing to use your credit cards and home equity accounts to fund Mr. Gliebers losses, then by all means, have at it. Mr. Glieber told me he cannot continue to lose money. Only Mr. Glieber bore the burden of financial losses over the last half of the past decade. This Executive team does not have an ownership stake in this business. If you had an ownership stake, you might have viewed the losses differently."

Roger Morgan: "Does that mean we will have an ownership stake in the business if you decide to purchase it?"

Fitz Gleason: "No. I will provide generous compensation for the Management Team that is assigned to this business, via bonuses that are aligned with Gleason Investment objectives."

Roger Morgan: "Do you pay retention bonuses to Management Team members, in order to provide much-needed continuity? I mean, I'd hate to see the business fall off of a cliff while Management focuses on transition issues as a priority over business issues."

Fitz Gleason: "No."

Roger Morgan: "Why is Kevin here? What role is he going to play in this potential purchase? Is he responsible for this happening in the first place?"

Fitz Gleason: "Mr. Hillstrom will use his Online Marketing Simulations methodology to determine the five year sales potential of this business. The analysis will determine the purchase price of the business, should I wish to acquire Gliebers Dresses."

Glenn Glieber: "Ok team, that's a lot of information to absorb for one morning. Let's stop right here. I will be working with Mr. Gleason and Kevin over the next few weeks to help Mr. Gleason decide if he wishes to acquire our business. Thank you for your support."

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