Commerce Nightmares: Wrap-Up

You're probably wondering why I spent a week-and-a-half talking about Commerce Nightmares?

Well, something changed in the past two years. Or maybe I just got older. Regardless, the challenges I see in 2014 are different than when I founded my consulting practice in 2007. The first four years of my practice were all about responding to an economic collapse. By 2011, it was clear that there were generational issues that were going to fundamentally re-shape our businesses - I created personas (Judy, Jennifer, Jasmine) to address the changes - the marketing community focused similarly on Millenials / Social / Mobile (the latter two are the tactical outcomes of the shift in generational focus).

What I observed in marketing in 2011 is spilling over into workplace dynamics, as we march toward 2015. Jasmine is about to turn 30. This means that Jasmine is moving into Manager/Director positions.

There were two comments that changed my thinking, both uttered to me earlier this year, both uttered on numerous occasions by numerous individuals.

• Jasmine = "Why won't my Executive Team listen to me? They are so old-school. All they want to do is the same thing they've always done. I can help them. I don't think they want help."
• Judy = "I only have six years to go before I retire. I just need to keep the wheels on this thing, then I don't care what happens."

It's the comment from Judy that has changed over the past three years.

See, I thought that the Judy / Jennifer / Jasmine issue was a business / marketing issue. Maybe I was right. But the Judy / Jennifer / Jasmine issue is becoming much more of a Management issue than a Marketing issue. The marketing issue is going to resolve itself in Darwinian fashion.

The Management issue will resolve itself as well. We, however, get to choose whether it resolves itself in a painful manner or not.

When you watch Kitchen Nightmares, you see what a difference an Owner can make when the Owner is open to change. When the Owner is willing to change the menu, change the decor, and change work processes, employees are happier, and team chemistry improves dramatically.

A few weeks ago, a young analyst asked me on Twitter, "Where has leadership gone to?" Just think about the tone of that question for a moment ...

Too often, leadership is just trying to hang on. Imagine being a 55 year old Director-level person at a retail brand, e-commerce organization, or cataloger. What do you do when you get fired? Who is going to hire you? Certainly not a startup that only respects knowledge from folks under the age of 32. Certainly not a peer company, because the peer company has to look to the future, and the future is Jasmine - the peer company is going to develop Jasmine at a salary of $70,000 a year before they take a chance on a 55 year old requiring a salary of $150,000 a year.

This reality explains, to some extent, where leadership has gone. Sure, leadership should be consistent regardless of reality - but this is what I'm observing - and it is troubling.

If I'm Jasmine, I'm going to fill the leadership void myself. Is it hard work? Yes. Is it thankless work? Yes. But in ten years, demographics will take care of the leadership void - in 2014, you'll want to have ten years of practicing leadership principles in a difficult environment.

And if I'm Judy? Well, it is time to do what Mr. Ramsey would want you to do on an episode of Kitchen Nightmares. He'd demand that you change. Or don't change, and just realize that there will be more friction than is necessary.

This brings me to a thought. Somebody made an interesting comment at a conference I spoke at ... this guy, clearly in Judy's generation, said to me ... "I just don't understand why Jasmine won't embrace our traditions. How do we train Jasmine to embrace what we love?"

Now we're getting somewhere.

We have Judy's generation pushing in two directions ... trying to remain gainfully employed through to retirement ... and trying to get Jasmine to maintain Judy's traditions. Meanwhile, we have Jasmine, using technology and communication techniques that Judy understands but didn't grow up with, pushing for change. This causes a Commerce Nightmare.

I know, I know. You are Judy, and you are wondering why I let Jennifer off the hook? You think I am picking on you.

Jennifer's case is an interesting one. She's currently 45 - in other words, she's a Gen-X person who is caught in the middle. She's mid-career, she's been bossed around by Judy in the workplace for two decades, and she's being swamped by a generation of Jasmine-esque individuals with very different habits and values. Yup, Jennifer is caught in the middle. And worse, Jennifer is not part of the catalog generation, and is not part of the social/mobile generation. Jennifer is the Amazon-centric shopper that only Amazon seems to appreciate.

But in the workplace, Jennifer is the bridge between generations.

In other words, Jennifer, leadership opportunities have been thrust upon you. It's time for you to, as Judy likes to say, "step up".

The thing that has changed since 2011 is the emergence of Jasmine in the workplace. Jasmine is in her late 20s to early 30s, and her world is fundamentally different than Judy's world. Jasmine is moving into Manager/Director positions, while Judy is now closing in on retirement. This conflict seems, in my opinion only, to be causing Commerce Nightmares - it is causing conflict.

We may need three things to happen.

1. Judy may need to embrace change.
2. Jennifer may need to be a leader who bridges generations, embracing Jasmine's ideas while protecting Judy.
3. Jasmine may need to become a leader faster, and may need to become really good at teaching.

What do you think?

Commerce Nightmares: Chemistry

Notice that I do not have an "8 Steps To Social Media Success" square in The Direct Marketing Success Pyramid.

Too few people want to talk about the role that chemistry plays in a successful business. If you watch Kitchen Nightmares, you seldom see good team chemistry.

In fact, you'll frequently see chemistry fall apart when the owner chooses to not listen to line staff. Maybe the chef wants to add specials to the menu, but the owner has a rigid perspective "this is the menu, just cook it". Maybe the staff have a process for taking care of orders, but the owner has to be in the kitchen dictating work flow. Regardless, somebody messes up what could be a smooth, well-run process, and in the process, destroys any possibility of team chemistry.

This same dynamic happens in retail brands, e-commerce businesses, and catalogers. These days, the dynamic seems to happen less along VP / Director / Manager / Analyst lines ... happening instead across generations. In other words, you have a Manager who has many ideas for improving business performance, but the ideas generally speak to "Jasmine" ... and therefore, are not embraced by others. I can't tell you how often I hear the phrase "why won't Executives listen to me?" on Twitter.

When good team chemistry exists, folks are allowed to test their ideas ... not roll their ideas out untested, but they do get to test ideas. In this way, we make progress.

When you see an environment where employees are not allowed to test their ideas, and as a result, employees lose trust in each other, you are seeing a potential Commerce Nightmare.

Commerce Nightmares: It's Their Fault!

Ever watch a sporting event? Have you noticed how teammates support each other, congratulate each other, support each other?

I suppose it is easier to support each other when you are winning. Who knows, maybe the support leads to more winning?

Now, I'm not hired to verify that a 10% pre-tax profit business is doing things right. No, not even close. I'm hired to solve a problem for a company that, quite often, is struggling.

In 22 of the last 27 Merchandise Forensics projects I've worked on, I was able to find a merchandise-centric problem. The fun begins after you share what you've learned. I get it, I get it, it's hard to be a merchant. But the first sentence I hear from the merchandising leader tells me whether there is the potential for a Commerce Nightmare.

Here's the comment that suggests a Commerce Nightmare is about to erupt.

• "I understand what you're saying, but it's not my fault. Take a hard look at marketing. They keep screwing up, making it hard for me to sell my merchandise."

When I hear variants of that statement, a Commerce Nightmare is in the offing.

Then you talk to the marketing folks, and you hear something like this:

• "The merchants are idiots. And they're egotistical."

Now you know that a Commerce Nightmare is coming.

When I worked at Nordstrom, before the economy collapsed, business was good. And the relationship between merchants and marketers was, predictably ... good! Yes, of course, there were issues, there always will be. But good business fosters good relationships.

When I worked at Lands' End, before the internet, business was ok. And the relationship between merchants and marketers was, well, ok. If anything, the merchandising team might have felt like marketing was stepping all over them.

When I worked at Eddie Bauer, in the late 1990s, there were two years when the sky was falling. And the relationship between merchants and marketers was, well, not good. Bad business fosters bad relationships.

When business is bad, somebody needs to be a leader. Somebody needs to stop feeling defensive, and just focus people on improving business performance. That's really, really hard to do when folks are trying to remain gainfully employed.

If you work at a company that is struggling, look for somebody who is optimistic, who tries to rally folks a common goal. When you see that, your business has a chance - rally around the person. If you don't see that, maybe it is time for you to become that person? And if neither happens (not somebody else, not you), your business might be headed toward a Commerce Nightmare.

Commerce Nightmares: We're "Unique"

When you watch "Kitchen Nightmares", you'll frequently hear that the owner thinks a restaurant is "unique". They're different than everybody else - because of pumpkin hummus or some other reason.

When Mr. Ramsey goes back into the kitchen, we learn that the restaurant is not unique. It may not be clean, but it certainly isn't unique.

Do you know how often you, dear readers, tell me that your business is "unique"?

• "We're unique because our customers do not repurchase."
• "We're unique because our customers repurchase so often."
• "We're unique because of dynamic pricing."
• "We're unique because our prices haven't changed since 1982".
• "We're unique because we offer great value and free shipping".
• "We're unique because we sell proprietary products."
• "We're unique because we sell branded products".
• "We're unique because we appeal to customers age 8 to 80."
• "We're unique because we sell in so many channels, we're #omnichannel!"

Blah blah blah ... blah.

Hint - if you can name just one company you compete with, then you are not unique, because you have a competitor doing essentially the same thing you are doing.

Too often, you, the loyal reader, tell me that your problems cannot be solved because you are unique. This is usually code for "we don't know how to solve our problems" or "we don't want to solve our problems". It's a story we tell ourselves.

Hint - the most successful companies seldom talk about being unique. They talk about selling stuff.

When you hear "we are unique", you might just be looking at a looming Commerce Nightmare.

Commerce Nightmares: Stale Merchandise

In a recent Merchandise Forensics project, an Executive issued a very interesting comment:

• "Marketing is the problem. Not merchandising. You have to understand, Kevin, we sell the same thing every single year. That eliminates merchandising from the success/failure equation."

Oh.

Is it possible that, by selling the same thing every single year, that you either missed trends in the marketplace, or you bored your existing customer to death?

Look at the image above. This image represents batters for the St. Louis Cardinals who batted at least 400 times during any year, for the past ten years. I picked the Cardinals because that team is really, really successful across time. They had one losing season during this ten year stretch. One (2007).

In sports, the players are essentially the "merchandise". The purple cells represent that a player batted at least 400 times in that year. What do you observe? How many players achieved consistent success in 4+ years? Three. Yup, that's it. Three.

In other words, one of the most successful sports franchises achieves success by constantly finding new players to replace current players.

Just like when Mr. Ramsey gets frustrated with dated menus in restaurants, we have a responsibility to freshen-up our merchandise assortment. When you hear that the merchandise is the same, year after year, then you may well be headed for a Commerce Nightmare.

Commerce Nightmares: Sales vs. Profit

Imagine, for a minute, being Mr. Ramsey. You are brought in to fix a restaurant. This restaurant spends a ton of money on marketing, and in return, has a full restaurant every night.

However, the restaurant is not as profitable as it could be. So Mr. Ramsey recommends not advertising so heavily. Mr. Ramsey instead recommends having food that is worthy of word of mouth. The owner hates this idea ... "but our sales will drop".

The CEO I worked for at Eddie Bauer had a phrase "drive sales profitability". He also had a phrase ... "grow or die". Now, I adored this CEO - he was absolutely fantastic. But those two mantras put a business in a tough spot. "Grow or Die" requires staff to do whatever it takes to keep the business moving forward, but usually, those tactics are not profitable, thereby violating the "drive sales profitably" mantra.

Ultimately, you end up with a graph like the one at the top of this post. And eventually, you move so far down the marketing expense line that you are, in reality, much, much less profitable than you could be. So when it comes time to "fix the problem", the business has moved so far down the expense line that a correction brings along an unintended consequence - sales pain. In the example above, profit can be improved from $14 million a year to $24 million a year, but there would be a corresponding drop in (in this case) catalog marketing expense of more than 60%.

Sales and profit issues are cultural. Amazon, for instance, reinvests all profits back into the business, allowing the business to grow rapidly. A company like Nordstrom prints 10% to 15% pre-tax profit, each and every year, and pays shareholders via dividends and stock buybacks. And then, in-between, are 95% of companies, companies that struggle to generate profit, companies that over-invest in marketing to grow sales in an effort to take market share from other companies.

We get ourselves in trouble when we try to do things opposite of the company culture. When I tried to "optimize" the Direct channel at Eddie Bauer (for profit), the culture rebelled against the sales drop required to optimize the business. In fact, most businesses I work with rebel against any drop in sales.

Commerce Nightmares: Sales Forecasting

Have you ever noticed that Mr. Ramsey always changes the menu?

Always.

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.

I asked myself, "why was this item forecast to generate $60,000 in 1998, when it only generated $50,000 in 1997?

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%.

And then, the business would run -10%, causing a 20% delta vs. plan. Merchants yelled at Marketers. Marketers yelled at Creative. Creative yelled at Merchants. Nobody took accountability.

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.

Kitchen Nightmares

Have you ever watched this show?

Mr. Ramsey visits a restaurant. He doesn't visit successful restaurants, does he?

At a restaurant, the merchandise is the food. Inevitably, Mr. Ramsey finds out that the food is awful. For if the food tasted great, then the restaurant would be full of paying customers, right?

When Mr. Ramsey points out that the food isn't very good, the owner(s) and employees get frustrated. You'll see employees quietly nodding their heads, as if to say, "see, I told you so".

The owner ... well, the owner takes it personally. Very personally. This is where we learn that the food is just fine, that the chef is screwing up or the staff are messing up or the customers simply "don't get it".

Mr. Ramsey gets to see a dinner service. The dinner service doesn't go well, does it? Employees fight, customers send food back, it takes 90 minutes to serve an appetizer, it's action made for television!

Ultimately, problems are identified. It's easy for all of us to see what the problems are.

• Dated menu.
• Bad food.
• Decor from the 1970s.
• Employees who don't like each other.
• Poor processes.
• Poor equipment.
• Filth.
• Mold.
• Trust.
• Owner vs. employee accountability issues.

Eventually, Mr. Ramsey "blows his lid":

Once he blows his lid, it is time for change, it is time for the re-launch of the restaurant. There are several aspects of a re-launch.

• Menu is revamped, and often, scaled way, way back.
• No more frozen foods.
• Fresh food.
• New kitchen processes.

Often, customers love the new food. But the in-fighting, and the internal processes, well, they often reappear, don't they?

At the end of the show, you'll hear what happened to the restaurant in the months after Mr. Ramsey departs. Sometimes, you learn that the owner went back to the old ways. Sometimes, you learn that the staff embraced the changes. Most often, a bit of both happens.

Why am I sharing this with you?

I'm twenty-six years into my professional career. I've decided that many of the situations we all deal with are terribly similar to Kitchen Nightmares. We all, every single one of us, work in our own little version of Kitchen Nightmares ... call 'em "Commerce Nightmares".

Commerce Nightmares can be corrected as easily as Mr. Ramsey fixes the restaurants he encounters. When you are watching an episode, you can easily see what needs to be fixed. Similarly, an outsider can easily see what needs to be fixed within your business. But it doesn't matter that it is easy to see what can be fixed. It's terribly hard to fix problems when the people within the "Commerce Nightmare" cannot see them.

We'll spend the next week or so talking about "Commerce Nightmares". Think about how the stories correlate with your experiences.