Tuesday, June 27, 2006

Imagine yourself....

Imagine yourself as the president of a small chain of retail stores or restaurants. Let's say your chain's heyday has come and gone--many years ago, as the competition got tougher, and customers started to get interested in flashier, but lower quality, products with an ephemeral appeal from your unscrupulous competitor. When that happened, the previous president ordered a complete remodel of the stores, and a complete repackaging for your products, in an effort to make your products appear similar to your unscrupulous competitor's inferior offerings. Mind you, you didn't lower the quality of the products you sold, and you kept your pricing the same (a little higher than the competition). All you did was dress your goods up, and dress the store up, to appear as flashy as your competitor's.

Let's say you also gradually changed your management and sales staff at your stores (through a combination of layoffs, constructive terminations, and natural attrition), and you brought in new staff that tended to sell with an emphasis on the flashy packaging instead of on the quality products you sold. Your new store managers have developed a bad habit of frequently conducting unauthorized sales and giving deep discounts, and of making big promises about your products--deeper discounts that you can afford, and promises that your product was never intended to deliver on.

Let's also imagine that there's one odd store in your chain. For whatever reason (say, it's a stubborn franchisee with leverage, or it's managed by an old friend of the founder who can chart his own course, notwithstanding his connection to the chain). That store has been kept up fairly well, but it hasn't been remodeled like your other stores, the old manager there goes to some trouble to avoid the flashy merchandising and packaging. The old manager never has had a sale. Even though you're president, you aren't really responsible for the performance of the odd store--you don't advertise for it (or even list its address in your marketing efforts). You don't pay much attention to it at all. You just check in once in a great while with a pro-forma visit to make sure nothing particularly strange is going on there, and you otherwise leave the cantankerous old manager, his employees, and his "peculiar" customers to themselves.

Now, imagine that you're looking at a year-to-year comparison of all your stores over the last 10 years. Of the stores you really control, you've got one which has done better than the others. It's in a run-down, but busy, neighborhood which has lots of new consumers cycling through, replacing the old ones. Even though customer loyalty isn't high, and margins and profits are as low as in other stores, there's decent customer traffic, and sales have gone up some in the last 10 years--although it's still off from its heyday of decades ago. However, each one of the other fifteen or sixteen stores is in a huge decline over the last 10 years. All but the most loyal customers are shopping elsewhere, or have decided they can do without your product, and may of those loyal customers are moving away or dying off. Revenue and customer traffic is 70%, 60%, 50% of what it once was. Product is getting stale, and it's getting hard to pay operating costs. For every new customer that's gained, five or six are lost. On average, a customer visits your stores once a month, when, based on the ideal pattern, you'd expect to see them once a week. Things are bad--you can't find enough managers to run the stores, and some stores are losing money even with skeleton staffs and cuts in inventory. You have to come up with a plan to save the chain. What will it be? Will you rethink how you're merchandising the product? Will you give up on the product? Will you close and realign your stores?

As you're thinking about this, you don't stop to reflect on that odd store that you don't actively manage. You don't notice that even though it's in a bad part of town, and it started with no customer base, and it doesn't get included in your advertising, it's successful. Its customer base and revenues have quadrupled in the last five years, and have gone up by a factor of 10 in the last ten years. The customer base is still small, but growing, and revenues per trip are the highest in the chain. You haven't asked around, and so you don't know that the odd store's customers are more loyal, understand the value of your product better and are willing to drive as far as 3 hours, round-trip, to shop there. They even drive past your other stores. Those customers are younger, more avid consumers in general, and the growth in business is because your customers--not your corporate advertising--keep spreading the word and otherwise keep bringing new customers in. Some of those customers have indicated that they'd like to work at the store. But then, that odd store's run on an old, obsolete model, and it never occurs to you that you might learn anything from it. Frankly, you probably don't know the full story about the odd store, because none of the people in the home office--the ones who came up with the flashy new merchandising campaign years ago and failed to make it work--these people don't want you to look too closely because an understanding of that store might stand in too much contrast to their own efforts and reflect poorly on them.

Or perhaps you know about the store, and recognize its success, but that store's way of doing business is not just the way you want to run your company, and it's not something that you want employees and customers at the other store to know about, because any publicity about the odd store might hurt the business of your other stores.

What kind of company president are you? How well are you looking out for your company? What kind of people have you surrounded yourself with at the home office--the people that might be keeping the details of this success story from you? Ultimately, what will the normally passive owner think after you've closed the stores, and thrown up your hands, and he's sitting with his board of directors, evaluating your performance?

We'll reflect on that over the next couple of days.


Dust I Am said...
This comment has been removed by a blog administrator.
J D Carriere said...

This is some funny stuff, Curmudgeon. I can hardly wait to read the rest.

Anonymous said...

I don't get it -- what are you
trying to say here? :)

Just kidding -- great story, and
an excellent way of making a very
good point.