January 11, 2017

Gliebers Dresses: Amazon

Yes, this is business fiction. If you don't like this stuff, why not click here to read about the brutal economics of food delivery.

Setting: The Gliebers Dresses Executive Conference Room

Glenn Glieber (Chief Executive Officer): Well, it's our first get-together of 2017. I love January. It's a time for renewal, rebirth, and returns!

Meredith Thompson (Chief Merchandising Officer): Lois, you look like you had too much fun again last night. Is something wrong?

Lois Gladstone (Chief Financial Officer): I just put together the profit and loss statement for 2016, and frankly, it's a sobering document.

Pepper Morgan Pressley (Chief Marketing Officer): Did we lose money?

Lois Gladstone: Net sales ended up at $50,200,000.

Meredith Thompson: That means we get a bonus. Sales were flat!

Lois Gladstone: Gross Margins were only 39%, fueled by persistent 40% off promotions in November and December.

Meredith Thompson: Oh oh.

Lois Gladstone: Marketing expenses were up to thirteen million dollars, twenty-six percent of net sales.

Meredith Thompson: Pepper, geez.

Pepper Morgan Pressley: We could have gone to 60% off, or we could spend a ton on circulation and paid search to move the stuff nobody wanted to buy. I chose the latter.

Meredith Thompson: People want to buy my stuff. We're just not reaching the right people.

Pepper Morgan Pressley: Right. New item sales were down 27% from last year, and that's at 40% off, a sure sign people loved it.

Meredith Thompson: Do you have a problem, Pepper?

Lois Gladstone: Stop it, both of you. Roger hasn't even opened his mouth yet and we're already at each other's throats.

Roger Morgan (Chief Operations Officer): What?

Lois Gladstone: After you back out pick-pack-ship expenses and fixed costs, we made a profit of eight hundred and twenty-four dollars.

Meredith Thompson: Ha! We made money. That means our bonus payments are going to be 25% of salary. Ohhhhhh boy.

Glenn Glieber: You mean we worked are rear ends off all year long and all we have to show for our efforts is eight hundred and twenty-four dollars?

Lois Gladstone: If we hadn't delayed payments to key vendors, we would have lost money.

Meredith Thompson: Twenty-five percent of two-hundred and fifty-thousand dollars is enough to put a new roof on the house.

Pepper Morgan Pressley: Did you just say you make two-hundred and fifty-thousand dollars a year?

Meredith Thompson: Um.

Pepper Morgan Pressley: Must be nice to be a merchant. Sounds like you merchants are put into a higher pay grade, just like the Information Technology folks.

Roger Morgan:  Before we lambast Meredith, let's consider what I have in my hand. This is a report from Woodside Research, priced at $1,495 before our generous 50% off loyalty discount.

Pepper Morgan Pressley: So we're not the only company who has to discount to stay competitive, huh?

Roger Morgan: The report strongly suggests that brands are now suffering from Amazon's amazing scale, and that the only way to beat Amazon is to join forces with Amazon.

Lois Gladstone: Oh here we go.

Roger Morgan: The experts at Woodside Research suggest that we outsource all of our commodity based items to Amazon. They suggest that we let Amazon do the marketing and selling, and we just earn a portion of the gross margin dollars. The report suggests that this is the only path to profitability for established brands being squeezed by Amazon.

The room is silent.

Roger Morgan: This is the part of the program where you typically tell me I am an idiot.

Lois Gladstone: Tell us more.

Roger Morgan: Really?

Lois Gladstone: Go.

Roger Morgan: Woodside Research suggests that traditional catalog brands give commodity items over to Amazon. Say the item has a cost of goods of $25, and sells for $60. Let Amazon fulfill the item and let them collect around 30%. That sixty dollar item yields $42, subtract the $25 cost of goods, and we take home $17. We each profit at about the same rate.

Meredith Thompson: I don't like it. I don't like it at all.

Roger Morgan: What's not to like? If we sold five million dollars a year, we'd take home $1.4 million of gross margin, and we wouldn't have fulfillment or marketing costs or an increase in fixed costs. It would be like free marketing.

Glenn Glieber: I love free marketing!

Meredith Thompson: No, it wouldn't be.

Roger Morgan: How is it not like free marketing? We don't have to do anything.

Lois Gladstone: I can't believe I'm saying this, but I'm with Roger on this one.

Meredith Thompson: You fools. I spent forty years, my entire career building a catalog brand. You are asking me to hand that over to Amazon? You want Gliebers Dresses to be a supplier to Amazon, not unlike Dockers is to Macy's?

Roger Morgan: Just the commodity-based stuff that we're already competing with Amazon on. All of our special styles, everything that is unique to Gliebers Dresses, we'd keep selling that on our own.

Meredith Thompson: You are a putz. Don't you understand anything about printing efficiencies? If we outsource the commodity-based stuff to Amazon, then we're left with a 48 page catalog and we don't get the printing and postage discounts we deserve.

Roger Morgan: But we make more money.

Lois Gladstone: Yeah!

Meredith Thompson: No we don't. My assortment is meant to be sold as a collection. You are splitting my collection in half, and you are trusting a bunch of eggheads at Amazon to know how best to sell half of my collection.

Pepper Morgan Pressley: The politically correct term is geeks. Not eggheads. Geeks.

Meredith Thompson: They're idiots.

Pepper Morgan Pressley: You've never even met anybody from Amazon!

Meredith Thompson: I will not hand my brand over to a bunch of kale-loving, rain-drenched, latte-swilling millenials who only care about making an $18 commission on every item they sell so that they can purchase a $900,000 fixer-upper on Queen Anne Hill.

Roger Morgan: Nothing has to change, Meredith.

Meredith Thompson: Normally I just reject your ideas out of principle, Roger. But this one is a non-starter. You are killing the catalog.

Roger Morgan: Who cares if we are killing the catalog?

Meredith Thompson: What are you talking about? The catalog IS Gliebers Dresses. End of story.

Roger Morgan: The catalog is a selling channel, no different than an affiliate or Google.

Meredith Thompson: Are you certain you weren't concussed over the New Year's Holiday?

Lois Gladstone: Meredith, be nice.

Meredith Thompson: Oh go out and party this evening. I heard it is Thompson Twins night at Carter's Pub.

Pepper Morgan Pressley: Maybe Meredith isn't articulating this in the kindest way, but she has a valid point. Meredith is asking us to define who we are.

Lois Gladstone: What do you mean?

Pepper Morgan Pressley: Meredith is asking if we are a cataloger who sells merchandise, or if we are a merchant who leverages opportunities? And she is suggesting that we are a cataloger who sells merchandise.

Meredith Thompson: That's exactly who we are.

Pepper Morgan Pressley: But Roger is asking what the best path to relevancy is?

Roger Morgan: I'm really asking us to do what Woodside Research tells us to do. That's why we pay them the big bucks.

Pepper Morgan Pressley: So who are we?

Meredith Thompson: We are not a supplier who cuts jobs in rural New Hampshire so that city liberals in Seattle can get rich.

Lois Gladstone: Now come on Meredith.

Meredith Thompson: How would we be any different than a company that outsources work to Indonesia? We're just outsourcing it to elitists in Seattle.

Lois Gladstone: You already outsource most of your merchandise assembly overseas. You did that twenty-five years ago!

Meredith Thompson: But this is different. This impacts the catalog!

Lois Gladstone: This isn't any different. Twenty-five years ago, you couldn't afford to pay the good people of New Hampshire, so you outsourced stuff to China. Now we can't afford to pick/pack/ship and market here in New Hampshire, so we're considering outsourcing that to Amazon.

Meredith Thompson: Nobody is considering anything. We are a cataloger, and we're not outsourcing our rural New England heritage to urban elitists on the other end of the country. They have no idea who we are and what we stand for.

Lois Gladstone: We stand for a company that made just a bit over eight hundred dollars last year.

Glenn Glieber: Ok, ok. We've talked enough. 

Meredith Thompson: No, we haven't. This isn't a five minute discussion.

Glenn Glieber: Fine, we'll pick up the discussion tomorrow.

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