May 22, 2016

Lands' End - Wall St. Journal Article

You probably read the article in the Wall St. Journal a few weeks ago, but if you haven't and are not a Wall St. Journal Subscriber, go into Google and type these words exactly ... New Lands' End CEO Delivers High Fashion - and a Culture Clash, then click through the WSJ link and you'll be able to read it (you can try this link first).

I'm going to talk more about Brand Ecosystems this summer.

Describe the traditional Lands' End brand ecosystem - circa 1999.
  • Catalogs.
  • Quality.
  • Customer Service.
  • No Discounting ("We Will Never Create A Fake Markup And Then Discount - Gary Comer - Founder - Lands' End").
  • Basic Merchandise.
  • Basic Presentation.
Then describe the Lands' End brand ecosystem - circa 2012. 
  • Catalogs, E-Commerce, Sears Stores.
  • Customer Perception of Lower Quality.
  • Customer Service.
  • Rampant Discounting (Destroying The Promise Of The Brand, But Mr. Comer Isn't Here Anymore So We'll Remove His Words From His Creed, Who Cares, It's As If It Never Happened).
  • Basic Merchandise.
  • Basic Presentation.
The theme was that "Sears Ruined Them". The company was spun off. A new CEO was brought in.

Describe the Lands' End brand ecosystem that is coming.
  • Catalogs, E-Commerce, Sears Stores, Engaging Content, Shedding Traditional Catalog Customers, Digital Initiatives.
  • Customer Perception of Lower Quality.
  • Customer Service.
  • Modest Reduction in Discounting.
  • Move to Fashionable Merchandise.
  • Move to Fashionable Presentation.
  • Additional Brands.
Now go read the comments in the article. Former employees, "former" customers, and pundits are all piling on, with a common theme ... "PLEASE GO BACK TO THE WAY THINGS WERE IN 1999".

The company that Gary Comer sold that Mike Smith led is not coming back. Is Seinfeld coming back? Jerry Seinfeld is sixty-two years old. Sixty-two!!

When Lands' End was spun off a few years ago, it was the same size it was when Mr. Comer sold the brand a decade-and-a-half earlier. And it was in hundreds of stores. And it moved to discounting (discounting/promos grow sales, right?). Back those two factors out, and merchandise productivity likely declined by 20% or more.

What you have, then, is a patient that was sick. Very sick. Stage four slow-growing cancer. And the new CEO comes in and is in the process of applying chemotherapy and radiation to the patient. She might kill the patient. The patient might die anyway. Or she might return the patient to health.

Decisions have been made over seventeen years - and the world has changed over seventeen years. You cannot go back to 1999, no matter how loud the former employees and associated customers/pundits yell in the comments section of the article. Ask any cataloger ... every cataloger is dealing with this issue ... most catalogers still act like it is 1999 and they are not growing, so the prescription cannot be "go back to 1999".

What we do know is that the track record of brands applying chemotherapy and radiation and having instant sales success / growth is, well, not good. Look to JCP for a case study. But notice something about JCP. When JCP went back to doing what they were doing, sales did not rebound. And now sales are falling at JCP once again. Going back to doing what has always been done appeases a few of the boisterous nostalgics and 60% of the existing customer base. It does not solve the core problem ... the core problem is that the brand is sick.

Here's what I want you to do. I want you to play Doctor. Lands' End is sick, and you cannot shave seventeen years off of the age of the brand ... just like when you are sick and you are 55 years old and cannot go back to being 38 years old. You have to fix what you have, and you cannot go back and make things like they were. Please answer the following question.
  1. How do you position yourself as new/interesting to new customers while positioning yourself as being "the same" to existing customers ... how do you do both at the same time?

P.S.: One of the terrifying things companies like Lands' End have to deal with is the concept of a "local maxima". Look at the graph below.

Look at the peak of the curve at the x-axis value of about -1.5 ... what if that is where Lands' End is, and the only way to get to x = 4 on the graph is to go through what they are going through? And conversely, what if they are going down the path at x = -4? You never know. But the critics, well, they jump all over any decision that takes a brand off of a local maxima.


  1. 1 of 2

    A former colleague who used to work at Lands’ End sent me a link to your blog post, along with this link about the “Zoolanderization” of the company, noting that she thought I might find them corroborative of her experience there.

    I went through some of the background documents you suggested and offer the following thoughts.

    First, in looking at the comments made on the Wall Street Journal article, I think the nostalgia expressed for the 90s primarily refers to product quality. And this isn’t just a perception problem – the products I’ve bought most recently are more poorly made than in the 90s. One wonders how many of their new customers they’re keeping vs. years ago.

    The “Direct” segment in the company’s reporting includes US Consumer Direct, International and the business-to-business/school uniforms division. They undoubtedly have differing economics and growth prospects -- one wonders whether they were consolidated so that growth in the latter two would, at least temporarily, mask longer-term weakness in Consumer Direct.

    If management believes it can’t attract new customers in the US with “Lands’ End Classic” (a puzzling belief, given the success of brands like Vineyard Vines) it seems to me that the better option would have been to create an entirely new brand and free it from any Lands’ End association – instead, design it around Federica’s exquisite sense of fashion. Lavishly resource it to leverage all the tools of contemporary social media to build a fast-growing, EBITDA-generating cash machine. Meanwhile, “Lands’ End Classic” could perhaps upgrade product quality and have its merchandising, creative and marketing efforts aligned with its legacy baby boomer customer base. The interests of one audience would thus not interfere with or compromise the development of the other.

    Beyond the US, are international markets for “Lands’ End Classic” saturated? If exploring opportunities in China consists of Federica’s “chief of staff” googling Jack Ma quotes that suggests an almost homeopathic unseriousness about the resources required to grow the business internationally. (And what kind of CEO has a “chief of staff” for herself but no executive responsible for international?)

    Your notion of a “local maxima” is interesting, and is no doubt being invoked with the earnest and hopeful fervor of a postulant praying the Rosary, but what are the assumptions underneath that? Spend this year, next year, perhaps the year after that willfully hemorrhaging millions and millions of existing customers (the “old, fat and slow” ones, to use Federica’s charming description), but as Federica cumulatively hosts more (and better!) Super Bowl parties and movie premiere after-parties, hires further noted photographers, adds another beam of light to the lighthouse logo, pours more resources into Instagram, Twitter hashtags, popup stores, etc., somehow all that eventually comes together to attract the millions and millions of new customers needed to replace them? Perhaps resurrect “Apostrophe,” or throw in a “Legends” interview with Angela Davis for good measure?
    Or pretend that a prima donna photographer can turn a C-list celebrity into a click-baiting brand magnet for millennials?

    Frankly, the South Park underpants gnomes had a more convincing business plan.

  2. 2 of 2

    Rather than the “local maxima” assumption, I suspect the more realistic scenario is an accelerating doom loop, where the often-wrong-but-never-in-doubt team of merchants and branding geniuses in Manhattan load up on inventory based on “plans” that would make astrology look peer-reviewed. The customer base continues to shrink, necessitating margin-eroding and brand-damaging promotions to move the inventory. As margins decline, marketing spend is reduced in a desperate and unsuccessful effort to shore up quarterly profitability, which then further shrinks the customer base. A round or two of “rightsizing” staff in Dodgeville becomes unavoidable. Lather, rinse, repeat.

    In fact, listening to the recording of the Q1 conference call, I found it interesting that the company did not take -- or note the material risk of -- another asset impairment charge as a result of its shrinking customer base. (Perhaps Federica would contend that, like “Spinal Tap,” “our appeal is becoming more selective.”) With Q1 sales down and Q2 guidance down as well, the balance of probabilities would suggest another full year impairment charge similar in scale to last year’s $98.3 million. Federica’s self-declared ability to “cast a spell” has its limits, it would seem.

    Perhaps Alex Fuhrman of Craig-Hallum Capital Group or Steve Marotta of CLKing & Associates could model impairment risk. If the company doesn’t disclose active users or ARPU, an investor could appropriately apply adverse inference to its refusal to do so.

    I suspect that within six months, Federica will depart, with a $2 million parting gift from a supine, largely decorative board of directors that apparently regards “fiduciary duty” as little more than accepting $100k/year for rubber-stamping Eddie Lampert’s delusions, and mindlessly acquiescing to his insistence on hiring unqualified friends of Mrs. Lampert. In the press release announcing her exit, Federica will no doubt state, like her predecessor, that “I have accomplished what I came to achieve at Lands’ End,” which in her case apparently consists of “elevating the aesthetic” (whatever the hell that means) as a way to create a “global lifestyle brand” (whatever the hell that means).

    After taking the asset impairment charge next year, the board will announce that it has hired an investment bank to “explore strategic alternatives” for Lands’ End – a responsibility that the board itself has utterly and shamelessly abdicated with a vile blend of cowardice and incompetence. As for the valuation between now and then, what’s the opposite of a growth multiple -- a death spiral divisor?

    While Federica frequently invokes Lands’ End’s nautical heritage and founder Gary Comer’s love of the sea, she might not know that he was also an avid and enthusiastic pilot. He would instantly recognize the path set by F-Eddie-rica and the board as “CFIT” – Controlled Flight Into Terrain. Her assertion that “I know this business” is almost as ridiculous as the “Special Edition Coat” she touted for the 4th of July. Customers, investors and employees beware.


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