January 31, 2018

Stuck In The Middle With You

To speak with Lois Gladstone (Chief Financial Officer, Gliebers Dresses), you'd think she was fighting a lonely battle.
  • "Is it just me, or has every Marketer and Executive gone completely brain dead when it comes to evaluating whether various activities generate profit?"
A quick review of the five-year profit and loss statement suggests that Ms. Gladstone may be on to something. Take a look:

You've read a lot about how strong November/December was ... and we see here that sales grew by a whopping 3.1% in 2017 ... and with a reduction in fixed costs, the business generated nearly $2 million in profit, 3.8% of net sales.

Most catalog brands are "healthy" when they are producing at least 10% pre-tax profit. Gliebers Dresses is at 3.8%. This business is not healthy.

Look at net sales during the past five years. Net sales is stuck.

This business is stuck!

Why was 2017 profitable, compared to 2016?
  • A modest increase in net sales.
  • A modest improvement in gross margin dollars.
  • A 2.6 point improvement in ad-to-sales ratio, which did meaningfully contribute to profit improvements.
  • Pick/Pack/Shipping expenses are constantly increasing, hurting profit. Expenses have increased by nearly a million dollars over the past five years. Somebody is going to have to address this issue in 2018, correct?
Is the business shrinking? No!

But the business is stuck.

It's time for things to change.

This is when things get interesting ... when you tell somebody that it is time to change. This is where company culture takes over. Here's what I would hear from the Management Team.
  • Meredith Thompson, Chief Merchandising Officer:  "2017 was the best year in the past five, and you want us to change? If anything, we need to do more of what we did during 2017, because what we did in 2017 worked!"
  • Roger Morgan, Chief Operating Officer: "You're exactly right, we need to change. I've been saying this for a decade now, but nobody around here seems to care. If we just followed the Woodside Research playbook we'd be living the omnichannel dream!"
  • Pepper Morgan-Pressley, Chief Marketing Officer: Is this going to cause my team to have to do a lot of extra work? Because honestly, I don't feel like having to implement the wild ideas of an outsider, or any idea Roger has, for that matter. Remember when Roger spent that year hosting Roger's Blog? A full year later he had 92 followers and  he had the temerity to blame me for not marketing his blog. Idiot.
  • Lois Gladstone, Chief Financial Officer: Don't tell Roger we need to change. He'll tack five million dollars on to the expense structure of this business and nobody will want to do the work he wants done and then we're finished. It's not easy keeping the wheels on this bus.
  • Glenn Glieber, CEO/Owner: For two years I've been asking our team to increase our main catalog mailings from 96 to 100 pages. Maybe your recommendation will be the impetus to get this change moving forward.
You laugh ... you think "nobody would say that stuff".

Some variant of this discussion comes up all the time.

But the most damaging comment comes from Meredith. She's the protector of "the culture". It is her job (though not written in her job description) to maintain unofficial control of "what has always been". And there's nothing like tepidly improved results to protect "what has always been".

This is how a catalog brand gets stuck. It's also how e-commerce brands got stuck and ended up becoming "a division of Wal-Mart".

If you want to move a company forward, you can't just educate employees why it is important to move forward. You're going to have to address the Culture. And you sure can't just use a "data-driven" approach to moving a company forward. If there is anything 2017 taught us, it's that facts have limited value. Convincing communication, now that has value.

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