Gone are the frozen calamari rings, replaced with fresh ceviche.
One of my all-time favorite Commerce Nighmares happened at Eddie Bauer, back in late 1998. You probably remember this time in history because you were either buying a generator to protect yourself against the devastating impact of Y2K, or you remember it because you were day-trading, looking to get rich on internet stocks.
But at Eddie Bauer, in 1998, business was an absolute disaster. I arrived at Eddie Bauer in late 1995. 1996 was a fabulous year, by Eddie Bauer standards (though if Lands' End had performed like Eddie Bauer performed that year, we all would have been fired). In May 1997, the wheels came off the bus, with dying merchandise productivity fueling comp store sales declines. By early 1998, we were posting -10% to -20% comp store sales declines, and our catalogs were bleeding sales out of numerous self-inflicted wounds. In other words, business was tough.
And when business is tough, people don't get along with each other.
We had a meeting called a "QPM", or "Quarterly Planning Meeting". As Circulation Director, it was my job to put together the demand and catalog expense forecast for the business. In this "QPM", I presented to the 50ish business leaders who ran the Direct channel - I would share how sales would change, and in partnership with Finance, would illustrate how profitable the business would be next year.
These meetings weren't much fun.
In my first year as Circulation Director (1998), I identified a curious problem. Let's look at one item.
- 1997 Demand = $50,000.
- 1998 Forecasted Demand = $60,000.
- 1998 Inventory Purchase = $55,000.
- 1998 Actual Demand = $40,000.
- 1999 Liquidation Challenge = $15,000.
The answer was simple.
"We had to forecast an increase to meet our budget."
In other words, as sales struggled to achieve potential, the merchandising and inventory teams were pressured to increase demand, in an effort to reverse the sales trend. The "budget", of course, was artificially inflated, to make the profit and loss statement look potentially good. In a "QPM" meeting, then, business leaders avoided being screamed at because they were "stepping up" to generate sales increases.
Never mind that there was no plan to figure out "how" to increase sales.
If Mr. Ramsey heard this story, he might express himself in this manner:
Once I earned accountability for the annual budget, I decided to do something different. I wanted out of this Commerce Nightmare.
Do you want to know what I did?
I forecast the business based on actual customer behavior. In 1999, for instance, our customer file would be 5% smaller, so I started with a 5% sales drop. I did not forecast a merchandise productivity increase. I did not forecast a creative presentation increase (as was customary).
In the past, each department (Merchandise, Creative, Marketing) had to "step up" and take responsibility for a portion of the projected sales increase. You'd see QPM documents with precise estimates for sales increases:
- Merchandise = +4.8%.
- Creative = +3.3%.
- Marketing = +1.9%.
- Total Business Increase = +10.0%.
What do you think happened when I shared with 50 Executives at a QPM that I was not forecasting a sales increase?
The message was not well received.
The Inventory Director and I planned the business conservatively. No need to liquidate merchandise an take a bath on gross margin dollars. No need to artificially inflate the forecast. We simply stated reality.
That's when the yelling started.
It turns out that CEOs who are used to seeing 10% sales increases presented in QPMs are not happy when 0% sales increases are presented in QPMs - even though they given a preview of the information days earlier. I was sitting next to the CEO. The CEO screamed directly in my face, not in a mean way, but certainly in an authoritative way. Spittle from his mouth caromed off of my cheeks. In some ways, I felt like one of the teens in "That 70s Show" as Red Foreman bellowed about some random issue.
1999, it turned out, was the most profitable year in the history of the Direct division at Eddie Bauer. There wasn't a need to liquidate merchandise at low gross margins, because the forecast accurately stated what was likely to happen. Sales were essentially on plan. We just figured out how to properly forecast the business, and we figured out how to manage expenses and gross margin dollars against a reasonable business forecast.
By the way, how many employees in the QPM elected to support me while I was being battered on "spittle island"? Not many, probably not any! Most of my Executive peers were simply happy they were not being yelled at!
I know, I know, it's hard being a merchandising leader. Ultimately, you bear a disproportionate level of scrutiny and accountability. But when you are responsible for a Commerce Nightmare (similar to a restaurant not serving good food), you have to make changes. You can't simply forecast that sales will be better, then keep serving the same old same old.
Even in the middle of a Commerce Nightmare (Eddie Bauer would fail, along with parent company Spiegel just a few years later), you can mitigate problems yourself. You simply have to be willing to let spittle hit you in the face. You have to have the courage to reflect actual customer behavior, prioritizing it over what you wish would happen.
The core issue, as always, is merchandise. Mr. Ramsey always changes the menu. Always. When the merchandising team and marketing team do not have a plan to "change the menu", then you need to reflect sales as they are likely to happen, regardless whether you get yelled at or not.