“When we started in e-commerce, the total industry revenues were 5 (percent) to 10 percent of what they are today,” says Michael Rubin, president and CEO of the King of Prussia-based company. “The big challenge was establishing (a business) in a new industry.”
Six years ago, when Rubin launched GSI from the e-commerce division of his company, Global Sports Inc., the industry was young and its inherent challenges steep: Start-up capital for technology was costly, many retailers weren’t hip to online sales and competition was stiff. But this didn’t prevent Rubin from acting on his intuition.
“We saw a gigantic business opportunity, and we wanted to build a significant infrastructure that could handle that,” Rubin says.
To fund the venture, GSI raised nearly $200 million in capital from three primary investors, and Rubin allocated funds toward infrastructure, fulfillment and cost centers, and intellectual capital people. In fact, he hired a few hundred employees before GSI earned its first dollar. The company lost money for the first four years, but Rubin was confident that GSI’s sales pitch would win over big-time retailers and that he would recoup this loss.
The key to winning over high-profile retailers was to sell GSI’s e-commerce solution, and Rubin knew his vision was different.
“It wasn’t that (retailers) lacked the capital (to start their own e-commerce divisions), it’s that they lacked the experience,” Rubin says. “We timed the market perfectly with a great offering e-commerce was needed, and we solved the problems that CEOs were having in 1999.”
GSI’s offering consisted of a neatly wrapped e-commerce package. As GSI’s partners, big-name retailers no longer had to worry about staffing an e-commerce division or building internal systems to support online sales. Large retailers’ assets are branding and products; GSI’s strengths as a soup-to-nuts e-commerce provider are its technology platform, fulfillment and customer service capabilities.
“Our sales pitch today is the same as it was when we started the company,” Rubin says. “E-commerce is really big, but it will never be more than 10 percent of our partners’ businesses, and for that reason, by building a superior platform and leveraging (our technology) across all of our partners, we can give them each better e-commerce capabilities.”
Building on the vision
Rubin initially grew the company by taking this proposition to retailers he knew in the sports industry.
“The great thing about sports was that it gave us experience in many different product categories: apparel, footwear, licensed products, hard goods,” Rubin says.
But Rubin knew GSI needed to expand its partner universe beyond sports, which represents only 3 percent to 4 percent of total e-commerce. So he translated this sports background into a selling point when he pitched GSI’s solution to retailers outside the sports industry in 2001 and 2002.
“It was harder to convince some of the partners in new product categories to work with us than it was to get the sporting goods partners to work with us,” Rubin says. “But partners are our best assets in getting new partners.”
Rubin plays a key role in building relationships and selling GSI to new retailers, among them Estee Lauder and Palm, two of GSI’s first clients outside the athletic arena. The retailers GSI was going after were larger than its existing sports partners, but Rubin broke down doors with a simple, honest pitch and proof of satisfaction from existing clients.
“The pitch is that our partners will do more business and make more money because we have more capabilities,” Rubin says.
He shows CEOs that to launch a successful e-commerce division, a company must build out an organizational team and invest dollars in management and technology. Though retailers were interested in e-commerce capabilities and online exposure, many did not want to build the infrastructure or hire more staff. At the same time, Rubin recognized that GSI needed big-name retailers to continue to grow.
“We knew the big-brand retailers would be successful online, not upstart Internet companies,” he says.
He also focused on providing infrastructure for established retailers rather than trying to sell their products under the GSI name.
Rubin’s strategy proved correct. The overall growth of e-commerce has ushered new partners to its door, and its portfolio includes 50 partners such as Polo, Timberland, kate spade, RadioShack and Dick’s Sporting Goods.
Growing beyond the basics
GSI continues to play outside the sports field, adding new categories each year. Today, it services retailers in apparel, health and beauty, sporting goods, consumer electronics, entertainment, jewelry and luxury goods, and home.
To continue growing, Rubin has stepped up the company’s service offerings to meet the more sophisticated e-commerce demands of its partners.
“It’s not that we reinvented ourselves,” Rubin says. “But we offer more value today than we originally did.”
GSI has added multichannel initiatives, customized products, online personalization and international services. And if GSI can’t build it, it partners with others to provide customers with everything from new technology and best-of-breed software to e-commerce customization tools.
“Customization and personalization is a theme we’ve been pushing for a few years,” Rubin says. “We talk to our partners about how they can integrate that into their businesses.”
While Rubin says partners sometimes approach GSI with ways online shoppers can personalize products, GSI’s business management teams are assigned to clients, and together, they brainstorm customization concepts. Rubin figures this will continue to drive growth.
“If we continue with our existing business model, over the next couple of years, the growth for us is enormous,” Rubin says. “We’ve added 10 new partners a year, and I think we will continue to add five to 10 more a year. And we do more for our existing partners.”
GSI builds the relationship side of its business by offering robust services that allow retailers to give their customers the same personal service online as they expect in physical stores.
“(Our clients) want a business partnership and experience,” Rubin says. “We go to our partners and say, ‘Look, not only can we give you great infrastructure, we can help you grow your business.’”
And the partners are buying it. GSI is consistently beating the industry growth average each year and is projecting net revenue of $432 million for fiscal 2005.
Rubin measures success by how much of the e-commerce pie GSI consumes, and its portion is a low-single digit of total U.S. e-commerce sales.
“Our growth mirrors, at a minimum, what the growth of e-commerce has been,” Rubin says.
GSI’s compounded annual growth rate on revenue from 2000 to 2004 was 67 percent.
Growth for both is partners and for GSI is what Rubin’s vision is all about, and he has targeted about 1,000 companies as potential partners.
“We look for the big, established brands that have a lot of meaning in the marketplace,” he says.
The larger the retailer, the more e-commerce business it will do dollarwise and the more that will feed GSI& #x2019;s piggy bank and reputation. That’s useful because GSI doesn’t market its services; it relies on referrals and interest from retailers who hear about it from other big brands.
Rubin doesn’t expect this demand, or the e-commerce boom, to slow down. Estimating that overall e-commerce represents about 5 percent of total retail, he figures this number will double.
“Lots of things will drive that,” he says, pointing to broadband Internet availability, consumers’ increasing comfort with navigating the Internet and growing trust with online shopping.
What’s more, improved e-commerce services will elevate retailers’ and consumers’ expectations for how they conduct business online.
“Being online is a mandatory thing for companies today,” Rubin says. “It is not an option consumers demand it. Retail consumer brands need to be there, and that is an important opportunity for us.”
How to reach: www.gsicommerce.com or (610) 491-7000
This is not your father's sporting goods store. This is Nordstrom meets the Gravity Games.
There are the neatly piled stacks of the latest fashions from adidas, Reebok and Nike and racks of tops and jackets sporting other famous brands. But then you catch sight of the board shop, where the walls are festooned with neon-colored skateboards and wakeboards. In the outdoors area, half a dozen canoes and kayaks appear to drift above shoppers. And then there is the climbing wall -- all 46 feet of it -- soaring toward the ceiling.
"It's a dramatic, engaging experience," says Robert Mang, chairman and CEO of the Plainfield-based retailer which has stores in 19 states, from Nevada to New Jersey. "The only con is that it can be a little intimidating to some people. Some consumers like to be able to see everything from the front door, and that's just not possible with the size of our stores."
Galyan's 43 stores stock products for more than 150 sports and outdoor activities -- in addition to run-of-the-mill athletic apparel -- in their 80,000 to 100,000 square feet of space. There are 15 specialty shops with 40 departments in the typical store, and each store generates an average of $20.5 million in sales each year, compared with $9.4 million at competitor Dick's Sporting Goods.
But the sluggish economy and uncooperative weather have been a drag on profits of late. After earning $18.7 million on sales of nearly $598 million in fiscal 2002, ended Feb. 1, 2003, the company has posted losses in each of the last two quarters due to higher occupancy costs and increased depreciation expenses.
If Galyan's is to continue its remarkable growth rate -- based largely on new store openings -- it needs to keep customers coming back. For Mang, that has meant rethinking store design, adding a low-price guarantee and even changing the company's name.
"Consumers come here to see what's new -- what's next," Mang says. "Customers are wowed the first few times they come to the store. We want to wow them the 50th time."
Toward that end, the company formed a cross-functional team in 2001 to develop a vision for upgrading the stores. It also put together customer research study groups and discovered that customers felt the floor plan and atmosphere were confusing and dark.
"We are significantly increasing lighting levels, taking out a lot of the timber and making the stores easier to shop," says Mang. "We have improved the segmentation by gender and zone."
Research also showed that the climbing wall was a favorite store feature, so there are plans to move it from the back to a more prominent position near the center of the store.
"The research validated a lot of the opinions we were hearing from people within the company," Mang says.
Some changes are noticeable before customers even enter the door. The company has changed the name of its stores from Galyan's Trading Co. to Galyan's Sports and Outdoor Adventure to better reflect its product mix and positioning relative to the competition. The corporate name remains Galyan's Trading.
Mang says that while the name of a competitor -- The Sports Authority -- tells you what it feels it is, the name Galyan's Trading Co. didn't do the same thing.
"We felt Galyan's Trading Co. didn't express clearly who we are," he says. "Trading what?"
Another issue that needed to be addressed was the perception in the marketplace that Galyan's is more expensive than its competitors.
"Because we carry upscale lines that other stores don't carry, we have the image that we are expensive," Mang says. "We are not the high-priced alternative."
To battle this image -- and combat price slashing by competitors in a weak economy -- the company launched a 110 percent price guarantee: If a customer finds the same product at another local store for less, he or she can return the product bought at Galyan's and receive 110 percent of the purchase price back.
But what drives people to the store and builds the company's profits is the depth and breadth of its product offering, not the prices.
"The major sporting goods stores drive customer traffic with big sales," Mang says. "And you can turn inventory that way. Wall Street loves it when you turn inventory. But there are trade-offs."
Galyan's tries to focus on profit margins instead, he says.
"We have a high penetration in footwear and apparel, which have better margins. That's part of our unique business model," Mang says.
Galyan's also relies on its associates to drive sales, hiring sports enthusiasts and paying them competitive wages.
"We have never had any trouble finding qualified sales staff," Mang says. "Everyone has an avocation. Working at Galyan's offers that person the chance to combine work with what he or she loves to do. Arming them with product knowledge is easy. And we pay well; with commission they can make a good living."
Mang says the company also emphasizes to its staff that they are not salespeople, but enablers.
"They are here to help people find the equipment and footwear they need to enjoy their passion," he says. "We don't necessarily look for people with retail experience. We give them a test, and if they are friendly and enthusiastic, they pass."
The online test gives the company a better way to judge whether a potential employee has the personality or desire to serve the customer.
"A biking enthusiast that's an introvert doesn't do me any good," Mang says.
Racing over the speed bumps
Despite the changes, Galyan's still faces challenges.
"Our biggest operational challenge is managing our growth," Mang says.
The company opened three stores in October -- in Illinois, Ohio and New York -- bringing its total to 43, up from just stores in July 1999.
"Our goal is to open nine stores a year," Mang says. "It's an operational challenge we've just had to grind through. We've hit our speed bumps and glitches; we've had our share of growing pains."
One was the company's new merchandising and warehousing system.
"Any time you have a new system that is integral to the business, there is an adjustment period," Mang says. "There was nothing fatally flawed, no big issues that caused us to crash and burn, just management difficulties."
The company faces financial challenges as well. This year's second quarter sales were good, but expenses have increased and margins are down. So although sales were higher, general and administrative expenses were, as well. And margins were impacted by discounts and bad weather in the company's East and Midwest markets.
But William Blair & Co. analyst Ellen Schlossberg Zickman is not worried about Galyan's financial future.
"Fifty percent of the new stores are financed through the landlord," says Zickman, whose firm also provides investment banking services for Galyan's. "And the company has a newly negotiated line of credit. I'm not concerned that the company can't fund its growth."
Mang says the company will continue to look for new store locations in the Northeast and Midwest.
"We look for areas that experience a lot of seasonality," he says. "Eighty percent of our football business is done in six weeks. Seventy-five percent of baseball is completed in eight weeks. There's always a season being kicked off and one dying down."
Galyan's chooses its locations based on the percent of affluent families with young children in the area, among other factors.
"If 20 percent of the families in the area have annual incomes of $75,000 or more, that will support the store," he says. "We also look at the number of hunting and fishing licenses that are issued. That gives us a sense of our outdoor market penetration."
The company is also testing the waters for going into smaller markets or supplementing larger ones with a smaller store. Two cities -- Peoria, Ill., and Madison, Wis. -- operate 65,000-square-foot stores, smaller than the average Galyan's.
"Instead of two levels, these stores have one," Mang says. "They carry the same product lines but (with) less breadth and depth."
So far the stores are doing well, he says.
Mang feels that if Galyan's is successful in changing the consumer's perception that price is an issue at the chain, it will be smooth sailing.
"Customers understand they can go to Galyan's for the best selection and service," she says. "But the perception is that they are high-priced. Our research shows on like items Galyan's prices are actually the same or lower. Galyan's needs to do a better job educating the customer."
How will it do that? Mang says the company prints its 110 percent price guarantee on all its marketing material and has it prominently displayed on signs throughout the store.
With 28 years of retail experience that includes department store management and a job as a supplier of product to stores, Mang is ready to meet the challenge.
"There's never a day when you don't have a challenge," he says. "In other industries, you have to wait months to receive numbers to know how you're doing. We receive a sales sheet every day.
"You have to learn to shuck and jive. The minute you think you have the consumer figured out, he changes his mind."
HOW TO REACH: Galyan's, (317) 532-0200 or www.galyans.com
Segal was in Ohio to rally his troops for the store's grand opening in a new outdoor mall called Legacy Village. A gorgeous view of intense crimsons, oranges, and yellows lined the back windows of the store, the company's first in the state.
It was obviously autumn outside, but inside it was already looking like Christmas, as Segal, Crate and Barrel's founder and CEO, points out.
"A month ago, this was all browns and oranges. Now it's all reds and blacks," says Segal, pointing to a display of Christmas throw pillows, stockings and dishes. "We have more and more collections of goods come in, so changeability of the store is very important."
Crate and Barrel's evolving store design has been crucial to the upscale housewares and furniture retail chain's success. When it was founded in 1962, dishes, flatware and martini glasses were displayed on the packing crates and barrels in which they arrived. Today, merchandise is meticulously presented, with the highest attention to detail.
In the chain's newest store, "vignettes" of drinking glasses, coffee cups and serving dishes are stacked on six-foot-high shelves and practically glow under track lighting. You'll see design details like unfinished wood ceilings, white brick, cultured stone and corrugated metal wall panels.
"Every store is an evolution," says Segal, seated on a clay-colored leather sofa in the store's furniture collection. "We try and make the collections unique, and we try and make them different. At the same time, we want everything a consistent high quality and comfortable."
Equal attention is given to where Crate and Barrel opens a new store. The chain has 123 stores in 23 markets, with an estimated $800 million in annual sales, although it doesn't reveal exact figures.
The expansion over the chain's 41-year-history is not as rapid as that of competitors like Williams-Sonoma, Pottery Barn or up-and-comer Restoration Hardware. But Segal, who privately owns the business with German mail-order company Otto Versand, isn't interested in rapid growth at the cost of quality.
"We've always made profits, we've always done well, and we've kept the quality consistent," he says. "Its very easy to open stores. It's very hard to run them well."
When Gordon and Carole Segal returned from their Caribbean honeymoon in 1962, Gordon was inspired as he washed a set of Arzberg dishes the couple had bought during the trip.
"How come nobody is selling this dinnerware in Chicago?" he asked his new bride. "I think we should open a store."
And thus the idea behind Crate and Barrel -- to offer European and other contemporary housewares not easily found in the United States for a reasonable price -- was born.
"We thought there had to be other young couples like us with good taste and no money," Segal says. "So I said, 'Wait a minute, there must be a market for this.'"
Both 23 years old, with no retail experience, the Segals opened the first Crate and Barrel with $17,000 in a 1,700-square-foot abandoned elevator factory. The rent and inventory ate up all their start-up funds, so they built shelves using crating lumber and displayed products out of packing crates and barrels, hence the name of the store.
"We were so nave, we were so lacking wisdom. If we would've been any older, any more intelligent, we wouldn't have had the energy or would've had the wisdom not to do this," says Segal, who can now laugh about the couple's youthful hubris. "We had no idea how to price things because the invoices for much of the merchandise hadn't arrived yet, so we wound up selling stuff below what it cost us."
Luckily for the Segals, the St. Lawrence Seaway had opened just a few years earlier, allowing goods to be imported directly to Chicago from foreign markets. Accessible jet travel allowed them to find smaller factories, ateliers and other vendors in new foreign markets.
"All of a sudden, the world was becoming smaller," Segal says. "More direct transportation, quicker means for people to travel. People were getting more worldly, people were getting a better sense of what was going on elsewhere. All of this started happening in the early 1960s."
In 1968, the assassination of Martin Luther King Jr. prompted riots in most major American cities, including on Chicago's West and South sides. Between April 6 and April 8, the city battled widespread looting, violence and arson.
Buildings on Division Street burned to the ground, just six blocks from Crate and Barrel's store on Wells Street.
"With the political issues that were going on at that time, we started getting a little afraid of just having one store in the city," Segal says. "We thought, 'Well, maybe we should have a suburban store.'"
Crate and Barrel's second store opened in the Plaza del Lago shopping center in Wilmette. The chain's first large mall store opened three years later in Oak Brook.
"Those things became so popular that we realized that there was a concept there," Segal says. "People like (design and display director) Ray Arenson started joining us in those days, and they evolved into our store display people, and they figured out how the architecture should work and how things should be built."
Segal was careful not to oversaturate the Chicago market, and the first store outside the Windy City opened in 1977 in downtown Boston. With the arrival of that store, and one later near Harvard Square, Segal diversified the chain's products by offering more furniture, such as living room and bedroom sets.
Initially, he planned to keep furniture and housewares stores separate. But when he brought the furniture concept to Crate and Barrel's flagship store on Michigan Avenue, he decided to combine the two, which was a turning point for the chain.
"This combination of a bigger store, housewares and furniture is what truly made us really, really successful," Segal says. "In this era of a lot of competition, this has brought us a whole level up to where we wanted to be."
It was Segal's friend and mentor, Stanley Marcus, former CEO of Dallas-based Neiman Marcus, who prompted Crate and Barrel's first store in his city, and the first location west of the Mississippi.
"He liked us a lot," Segal says of Marcus, who died in 2002. "He had such a long-term perspective on what he was building, and he brought such excitement to a retail environment -- certainly a very upper-end retail environment."
Crate and Barrel expanded throughout Dallas, Boston and other existing markets throughout the 1980s and '90s, and tapped new major cities on the West and East coasts and a handful of cities in the Midwest. The chain opens about five stores a year.
"Many of our competitors have more stores than we do," Segal says. "What we've always believed in is we'd rather be the best than be the biggest. We don't have public shares, so we're not trying to make other people rich, we're just trying to satisfy ourselves and satisfy our customers and our staff."
Part of Segal's security in staying private comes from $12.4 billion Otto Versand, the Hamburg-based mail order giant that purchased a majority of Crate and Barrel in 1998. The firm maintains a hands-off policy with most of its 90 subsidiaries, and allows Segal to operate and expand the company under his guidance.
"We don't need to have a public constituency because they have a totally different motivation," Segal says. "We've always decided that we'd be a better company psychologically as a private company rather than a public company."
Perhaps borrowing from his mentor Marcus, who preached customer service throughout his career and later wrote a newspaper column on the subject for the Dallas Morning News, Segal is a strict customer service advocate. He invests in exhaustive employee training, promotes almost exclusively from within and structures each store to include several levels of supervision.
"Gordon Segal is the only retailing executive I have met who purposely seeks to hire school teachers to work as sales associates in the store," wrote Leonard J. Berry, a professor of marketing at Texas A&M University. "Segal has a clear vision of what he wants Crate and Barrel to be."
That vision may look a little different than that from the small abandoned elevator factory run by a husband-and-wife team. But according to Segal, it's actually not that far removed from the original spirit of that quirky shop on Wells Street in Old Town.
"We went into this business to make customers happy, to satisfy their needs," he says. "That's still our mission, 40 years later. That means if somebody buys something and for some reason they don't want it -- they got it home and it didn't look right, they showed it to their spouse and they didn't like it -- all we want when they return something is that it's a joyful experience. As joyful as it is to buy something."
HOW TO REACH: Crate and Barrel, (847) 272-2888 or www.crateandbarrel.com
Wexner, who founded the firm in 1963 with a single Columbus store called The Limited, realized that after several years of acquisitions, it was necessary to break off several of the brands he had folded into the company, including Abercrombie & Fitch and Lane Bryant, in order to solidify the brands and strengthen the corporation's balance sheet.
That began a string of spin-offs and divestitures that continued until earlier this year, when the company shifted directions yet again -- making a series of moves that included changing the company's name.
In May, The Limited officially became Limited Brands. But it was not just a simple name change.
The corporation also announced it was buying back the approximately 17 percent of Intimate Brands shares that it didn't already own. Because Intimate Brands Inc., which controls the Victoria's Secret and Bath & Body Works brands, accounts for 90 percent of The Limited Inc.'s operating income, the announcement came as no surprise.
For each one of the 72.6 million shares of Intimate Brands tendered to the company, shareholders received in return 1.1 shares of The Limited stock.
"The recombination makes us a more balanced business," said Limited Brands chairman and CEO Les Wexner at the company's annual meeting in April.
But the move is about more than just balance. It's about cost savings, leveraging resources and centralization. More important, says Wexner, it's about enhancing shareholder value.
Ironically, that's something the company's four-year divestiture was supposed to accomplish. So why reverse direction?
The formation of Limited Brands allows the company to avoid having all of its revenue flowing from one retail sector. According to Wexner, under the new arrangement, 45 percent of Limited Brands' revenue is expected to come from apparel, 27 percent from intimate apparel and 28 percent from cosmetics and packaged goods.
"The balance in our portfolio is important," says Tom Katzenmeyer, vice president of investor relations. "We're in fashion apparel, lingerie and personal care. It takes the risk out to be in the three categories."
According to Katzenmeyer, the move will save investors about a penny a share in costs because with just one company, there will no longer be a duplication of listing fees, legal fees and other expenses. And the buyback has been good for investors in another way. Last October, shares of The Limited stock were around $9; after spiking at just over $22 at the time of the name change, shares of Limited Brands last month were in the $20-range.
But Katzenmeyer says money was just one reason.
"There are benefits all across the board," he says. "We are narrowing our focus to a handful of very powerful brands."
The centralized corporation has the benefit of sharing resources, which legally couldn't be done before.
"The new company structure allows us to move people and ideas seamlessly with no legal considerations," says Katzenmeyer. "If Express wants to introduce its own fragrance, it can go to The Limited for that expertise."
Operationally, Katzenmeyer says there won't be many changes. Each company will retain its own CEO and operating committee, all administration offices will remain housed in Columbus, and no store closings or layoffs are planned.
The Limited made its first public stock offering in 1969, and in 1980, it began introducing additional brands, starting with Express, then adding Lane Bryant, Henri Bendel and Lerner. By 1988, it had launched Limited Too and acquired Abercrombie & Fitch.
By 1995, The Limited represented a conglomeration of companies and brands. That same year, it offered a partial IPO of Intimate Brands, a company which includes the Victoria's Secret and Bath & Body Works brands.
The partial IPO established Intimate Brands as an independent public company, while The Limited retained control of 83 percent of the stock. At the time, Intimate Brands represented 72 percent of The Limited's operating income and 57 percent of its market capitalization.
"We spun out Intimate Brands to get a market value put on it," says Katzenmeyer.
The Limited was in acquisition mode until 1998, when it began divesting itself of some of its holdings. That year, it split off Abercrombie & Fitch. It sold off a 60 percent interest in Galyan's Trading Co. in 1999. And last year, it sold Lane Bryant.
What's left for the $9.36 billion retailer are higher-profit brands that match the company's new direction, new name and logo, and a respectable financial picture. It has changed its strategy to refocus on the market that made it a leader -- fashion.
"We are striving to be the world's best in fashion brands, brands that stay relevant and are sophisticated and forward-thinking," Wexner says.
The evolutionary process
Wexner said The Limited began redefining itself in 1998, and the old name was, well, limited, in its scope and ability to define the changing company.
"We felt at this point it was time to change names. We are building a family of the world's best fashion brands, an ambitious goal. Limited Brands recognizes what we are now in contrast to what we've been," says Wexner.
But this is just the beginning, he says.
"Clearly, there is much to be done," he says. "Building implies systematic, relentless change."
It's clear the company hopes that evolving from a decentralized group of separate companies into one centralized company will help build the market shares of the lower-revenue-generating companies that formerly fell under The Limited's corporate umbrella. To aid in the centralization, it has brought in new blood.
"We brought in talent from outside the organization, people from companies like General Electric and Pepsi, and each brought expertise in a particular function, like marketing, IT or real estate," Katzenmeyer says.
The result is a significant transformation that has helped lead the company to the best financial results in its history.
"We are reporting record earnings," says Katzenmeyer. "We've earned three times more than analysts expected."
So will Limited Brands mirror Intimate Brands' success? Katzenmeyer says that while the brands will not be marketed differently than they have been, the marketing channels may change.
"We are considering a test of Express on television," he says. "Right now, the only brand that advertises on television is Victoria's Secret."
And, he says, the company wants to expand the venues where Bath & Body Works and Express are marketed.
"We think Express will do well on the Internet, although it will take some time to launch the Web site," says Katzenmeyer.
All in the family
As a sign of the company's new direction, Wexner now refers to his company as a family of brands.
"The word family implies values and a particular behavior," he says. "It says that we will take care of each other. The potential advantage of family-like behavior is that we can collectively do more than we could as an individual. We have to be a family."
So how do analysts feel about the Limited Brands family? Dana Telsey, managing director of New York's Bear Stearns, says bringing Intimate Brands back into the fold was a good move.
"Given the significant contribution of Intimate Brands, the recombination was the right thing to do," she says.
Telsey says Limited Brands' future looks rosy.
"They have been one of the best performing retail stocks this year, and the outlook is quite positive," says Telsey. "I expect this performance to continue the rest of the year."
Telsey says Limited Brands' proactive management style makes it attractive to investors.
"The company finds ways for adding shareholder value," she says. "Given their large cash picture, I anticipate a share repurchase down the line."
The company recorded $1.4 billion in cash in its annual report, and that large cash balance kept the annual meeting a quiet one. When Wexner opened the floor to questions, one shareholder asked why the company keeps so much cash on its books.
"In uncertain economic times, it's better to be secure," he said.
That said, no one else had anything to ask.
"It's amazing how tripling your earnings per share can silence a room," Wexner said. How to reach: Limited Brands, www.limitedbrands.com.
Limited Brands (Formerly The Limited) closed its fiscal year with this portfolio:
Intimate Brands Apparel Assets Equity Stakes and Other
Victoria's Secret Stores Express, Women's $416 million market value of
Victoria's Secret Direct Express, Men's equity stakes in public cos.
Bath & Body Works, The Limited $1.4 billion cash on balance
White Barn Candle Lerner/New York & Co. sheet
Intimate Beauty Corp. More than $3.6 billion in sales
Limited Brands' mission statement:
Create a family of the world's best fashion brands to drive sustained growth in shareholder value.
Benzion Aboud saw the opportunity. It was staring him right in the face. The shopping habits of the American consumer were changing, and Saveology.com LLC had a chance to capitalize on it in a big way.
“We’re very much like Expedia for home services,” says Aboud, the company’s founder and CEO. “So our goal was very clear. We wanted to be the biggest distributor of home services in America. We don’t really care what you buy, but we want to educate you. And after we educate you, we want to transact a sale just like Expedia would with hotels and flights. They’ll educate you on the time and prices and then you buy the product or service.”
The opportunity came about due in large part to the economic recession of 2008. Consumers were being much more selective about how they spent money, including expenses such as TV, phone and Internet services. The good news for Aboud was that consumers weren’t ready to abandon these services completely. They just didn’t want to spend as much on them.
And that’s where Aboud hoped to cash in.
“You may stop going to dinner two or three times a week or not take two vacations a year,” Aboud says. “But one thing you’re not canceling if you lose your job or if things get tough is your entertainment and your communications. We actually grew during those times because people did want to look at different options to make their dollar go a long way.”
Aboud wanted to be the one to provide those options, but there was one big problem: Saveology wasn’t ready to do it. He didn’t have enough people, and he didn’t have the right technology to capitalize on the increased demand.
“My challenge was to build the proper technology to sustain the volume we were going to be generating and also bring in the right leadership that we as a company would need to get us there,” Aboud says. “With the volume of people hitting my website and the volume of people calling our call center, our infrastructure was on toothpicks. We were really not servicing the consumers the way I envisioned.
“There was not one leader in this industry and not one company that dominated this space. We as a company knew that we needed to build a business that would be the biggest home service provider in the U.S. and would have the scalability to service millions of people. So we had to build the team, the technology and the marketing effort to do that.”Get the right people
Aboud began by working on his leadership team. He needed a group of management-level peers that could help him build the right technological infrastructure for the volume Aboud wanted to capture.
“I wanted to assemble what I call the dream team and not just have one opinion but be able to sit around the table with five or six individuals and share everybody’s experience,” Aboud says. “One of the biggest challenges was doing that in South Florida.”
South Florida has a lot of things going for it: It’s got sun, it’s got sandy beaches and now it’s got LeBron James. But one thing it didn’t have in the eyes of Aboud was a wealth of “dot-com” talent.
“Usually these types of organizations, an online company or a dot-com, they are in New York or San Francisco,” Aboud says. “The challenge we had was not only do we need to build the right technology down in South Florida, we had to find the right leadership down in South Florida. I was not willing to compromise, because people did not live here. I knew one of the challenges I had was to relocate great talent down here.”
Aboud was going to have to go out and find these people and sell them on the opportunity that lay before Saveology.
“The challenge is finding those people that work the way you work, the same style, the same aggressiveness and the same 80- or 90-hour workweeks with no fear and just moving forward,” Aboud says. “It’s very difficult to find the C-level person who is willing to get down and dirty and be very aggressive and do the amount of traveling we have to do as a company and go strike the deals.”
The first thing you need to do when you’re looking for an experienced C-level leader is to sell yourself, sell your company and sell the opportunity you’re looking at. If this person is as talented as you want them to be, they’re probably not actively looking for a job.
“A good company does not get rid of a good person,” Aboud says.
Thus, you need to give them a reason to leave what they’ve got and come work for you.
“You’re looking for someone who wants to enrich themselves and is looking for a fast-growth company,” Aboud says. “I targeted those types of individuals, because I felt if I could share with them my passion and my vision and convince them on the business model itself, at that point it wouldn’t be about the current dollar amount or package I was able to put in front of them.
“It was more about, ‘I want to be part of a winning team. I want to be part of a growing team. This is something I want to achieve in my life.’”
So where do you find these people? Start by talking to your friends and peers who know you best. Use them as resources to help you identify potential talent.
“I went to my lawyers and accountants and other financial-related people,” Aboud says. “They’ll know my mentality and they’ll know the way I run a business. They’ll recommend people that they think would fit the culture of this organization. Look at your industry. Look at your network of friends and business relationships and tell them what you’re looking for. The recommendations of friends and business associates go a very long way.”
You’re looking for people who have confidence in their abilities but aren’t so brash that they can’t work as part of a team.
“One thing that discourages me is when I sit down with people and they say, ‘Yeah, I worked for this company and they did $50 million in sales, but I took them to $150 million,” Aboud says. “I doubt that there is any ‘I’ who took a company to $150 million. To me, the answer is, ‘I was part of a great team that took it to $150 million.’”
It’s obviously a lot tougher to find someone with experience and a track record of success than it is to fill an entry-level position.
“You’re not going to be able to sell a bill of goods to these C-level people,” Aboud says. “You have to have a strong business model. You have to have a strong balance sheet. You have to be able to articulate your vision. What you have to do is be ready to fail in making the wrong decision. When I hire people, I don’t have to bat 1.000. I understand that if I do my due diligence and I follow some key points I’ve given myself to follow, I believe I’ll have a high success rate. What I’m looking for are people who have an understanding and comprehension of what we’re trying to accomplish as a company.”Get to work
Aboud found four individuals who he felt could fill the gaps and bring the skills to the table that he did not possess.
“When I looked at these C-level people, I was looking for them to help me with where my weaknesses were,” Aboud says.
So he sat everyone down and opened the discussion on how to upgrade Saveology and prepare for the influx of business that he felt was out there to be had.
“I clearly understand in my mind why I want to do something and what it means to the company,” Aboud says. “But if you can’t articulate that to your team, they won’t move forward the way you need them to. It’s very important to articulate your goals.”
To begin developing a plan of action, Aboud gathered his leaders and worked with them to develop a list of priorities for the next 12 months.
“We basically had a two-man team for everything,” Aboud says. “The marketing team would work on marketing solutions and the technology team would work on technology solutions. And we’d get into a room once a week and we’d have an executive meeting. At that time, every person would go over what they had learned and what they had accomplished the previous week and what their recommendation was to make sure that piece fit the puzzle.”
There are two keys to making this type of research and information-gathering effort work. The first is being open with your partners and the people you’re seeking out for help.
“We clearly set out what our goals were, even with our partners, of where we wanted to go,” Aboud says. “Most companies, they don’t roll out what their plan is. They hold back. What happens when you hold back is the people you are working with, they don’t really understand where you’re going as a company. We were very transparent.”
The second key is you need to set dates and deadlines to keep things on track.
“A good CEO sets up a timetable,” Aboud says. “Many companies put up dates and the dates mean nothing. As a good leader, my team and the extended team below my team understands that when we commit to a date, we’re going to achieve that date. It’s really holding the team accountable to that date.”
The key to being successful both with your research mission and with staying on track is to give both your partners and your direct reports an incentive to help you.
“We motivate companies the way we motivate our employees,” Aboud says. “Compensate them for hitting particular dates. You make it sexier. The reason people are motivated in my company is they believe in the vision. They knew if they hit it, the company would strive faster and the company would be more profitable and they would have a better opportunity to grow.”
As you experience victories along the way, big or small, make sure you share the glory with your people.
“It’s important for a CEO to share his vision and his passion and show ethics in his work,” Aboud says. “But it’s also important to reward employees as the company is growing. As the CEO or owner of the business, you are rewarded as the company strives toward success. So the people underneath you should be too. What excites my key people is that as the company is moving forward, they are well-compensated for the success both with responsibilities and financially.”
Judging by the numbers, Saveology is making progress toward its goal. The company has grown from 450 employees to 800 employees and revenue has jumped from $92.8 million in 2006 to $117.7 million in 2009.
“We keep on striving and we keep on going,” Aboud says. “I’m never satisfied and my team is never satisfied. When we have a banner month, we look at it as another step toward where we want to go and we try to make next month even better.”
How to reach: Saveology.com LLC, (866) 951-8931 or www.saveology.com
Edward W. Stack had all sorts of doubters when he suggested expanding his family’s business beyond its two stores in upstate New York. Even his father, the founder of what is today Dick’s Sporting Goods Inc., didn’t see a reason to grow.
But what Stack had that others didn’t was a vision to build on what was already a solid business.
“You’ll have a lot of people who won’t really share your vision and will tell you all of the reasons why it won’t work,” Stack says. “But if you really believe in it, you move forward anyway and find ways to make it work.”
That confidence in his vision helped Stack, chairman and CEO of the sports and fitness specialty retailer, overcome obstacles, such as moving the company’s main offices from Binghamton, N.Y., to Pittsburgh, taking the company public (NYSE: DKS) and expanding from two stores to a national business. As of May 1, Dick’s Sporting Goods had 424 stores in 41 states, as well as 91 Golf Galaxy Inc. stores in 31 states.
As the company has grown throughout the years, the vision has evolved and helped to create what is now a $4.4 billion company that employs nearly 26,000 people. Just as important as developing a sound vision is being able to clearly communicate the vision and being aware of when it needs to progress.
“If you don’t have a solid vision, you probably aren’t going to be able to grow profitably,” Stack says. “It isn’t any different than if you were going to jump in the car and drive from here to New York City. If you didn’t have a road map or a vision of how to get there, you wouldn’t get there.”
Communicate the vision
Although you might have a strong vision on paper, it’s not truly developed until it is clearly communicated to your employees and is being lived.
“There’s no silver bullet,” Stack says. “You need to do a number of things. You need to get out and talk. You need to give the ability to communicate through a Web-based communication function. You need to be able to get your message out with the people who are running the particular business areas for you. And you need to get feedback.”
The first step in making sure your vision is going to reach all of your employees is to outline an effective chain of command for communication and present the same message from multiple avenues. For example, Dick’s uses an intranet site to supplement direct communication about what is happening throughout the business.
You need to state and repeat a clear and concise vision for employees, but just as important is your ability to rely on your team to get that message out.
“If you don’t have an effective management team, your vision will never grow to the heights that you hope it can, because one person or two people can only do so much,” Stack says. “To grow a business from two stores to 500 stores takes a lot of smart people to understand the vision to make that happen.”
You need to make sure the roles of your management team are clearly defined when it comes to communicating anything within the company, and you need to have the right people in each of those functions who can speak about the vision. At Dick’s, the message is communicated from top management to district managers, then to store managers before it gets to store associates. But the message can’t be lost as it’s funneled through the organization.
Stack says it’s fairly easy to tell who on the management team understands the vision, has bought in to it and can articulate it — because they’re engaged and participating in the business.
“They live that aspect of being out in the business, of wanting to communicate, of listening, getting feedback of what’s right and wrong out of our business,” Stack says.
Just because you’ve set a vision and you’ve asked for it to be passed through the organization doesn’t mean employees don’t need to hear it from you.
“You need to constantly be talking about what the vision is, what the goal of the business is. You have to constantly communicate that and then you have to represent that vision. You have to follow through; you can’t say one thing and do another. It’s very important for whoever is starting a business that you have a clear vision and you follow through on that vision. You never ask somebody to do something that you wouldn’t do yourself.”
Stack’s commitment to the vision is shown by his presence in the company’s stores. He spends about five or six days each month talking with associates and customers in Dick’s Sporting Goods stores.
As the leader of the company, you need to be visible. You need to verbally communicate the vision to your employees, you need to show them that you live the vision, and you need to use that time to ensure the right message is getting to those who directly work with your customers. Stack uses his time in the stores to accomplish each of those tasks.
While you’re casually speaking with employees and customers, listen to what they’re telling you. In their comments, is there a separation between your vision and how it’s being executed? Other aspects of the business Stack looks at to test whether the vision has been clearly communicated are the appearance of a store and its sales numbers.
“If sales aren’t what they should be at a particular store and other stores in that region are doing fine, then you know you’ve got somebody who may not be doing his or her job properly,” Stack says.
You need to take the time to ensure that something so valuable to your business — your vision — is really being communicated and lived. If not, you need to examine where the disconnect is occurring. It may, in fact, start with you.
“If you’re having a difficult time communicating your message to your employees, the problem is probably with you, not your employees, which means you need to find a different way to communicate,” Stack says. “One of the best ways to find a different way to communicate is to go ask them. You need to ask the associates that you’re working with and say, ‘All right, this doesn’t seem to be getting across. What am I missing? What do you need from me to do a better job? What do you need from me to understand better what we’re trying to do?’ If the message isn’t getting out there, you have to look inward, not outward.”
Just as you need to be talking with employees and customers to make sure your vision is clearly in place, you need to be out in your organization speaking with them to understand your business and whether the evolution of your vision is really meeting the needs of your customers. The final piece of communication is asking for feedback.
“If you’re in tune with your business, you’ll see things changing or modifying … that it’s time to reinvent your vision or to make some modifications to it,” Stack says. “You need to be aware of your surroundings and what’s going on in your business and what’s going on with your competitors and what’s going on in the marketplace.”
Stack uses that face-to-face time in the stores to really get a grasp on part of that equation, and it’s something he encourages all of his managers to do, as well.
“You need to talk to your customers, because without customers, you have no business,” he says. “You need to have information firsthand to understand your business. Your customers are the ones you’re trying to serve, so you need to get out there and talk to them.”
While in the store, Stack approaches the customers and asks them about their shopping experience to try to solicit feedback. You don’t need to make a grand to-do about who you are or what title you hold. Simply ask questions to understand how customers feel about your company — more specifically, what they think you’re doing right and wrong.
“What service are you not providing that you need to provide to keep those customers?” Stack says. “You can’t be afraid to hear bad news.”
Along with the customers, you need to be gathering information from those on your staff who directly communicate with the customer. Ask them what the customer is saying about your business.
“We’ve been able to create a level of trust with our associates out in the field that they are confident telling me or telling other members of my management team when things aren’t right,” Stack says. “They’re not afraid to deliver bad news. They know we’re not going to shoot the messenger.”
It takes time to build rapport with employees, but it’s something you need to do. The best way to build that trust is to show that you’re actually listening, that you appreciate their input and that they won’t be reprimanded for sharing negative information.
“You talk to them, and you listen to them,” Stack says. “Then you act on their suggestions or you come back and communicate as to why you can’t, but the communication doesn’t end when you leave. You can send the message to them that you value their opinion by fixing the problem that they have or you come back and say, ‘I understand your issue, we cannot make this change and this is why.’ After you’ve done that for a while, they get to understand you, they get to trust you and others on your management team. They’re only too willing to tell you what’s going on in the business as long as they know there aren’t going to be repercussions. We’ve developed that kind of a relationship.”
One of the ways in which Stack developed that relationship was by implementing a fun and engaging process that Dick’s dubbed the “stupid list.” He met with his store managers, told them to go back to their stores, share the idea with their staff and submit through e-mail three things they felt needed to be changed. No topic was off limits.
“I think it’s really simple,” he says. “Ask people for the things that you have them do that they view as not adding value. We did it as a fun thing.”
Gathering the feedback is just half the battle. The second part is analyzing. When you’re gathering information from so many places, you are not, obviously, going to be able to act on every decision.
“We looked at the 10 things that our associates indicated the most,” Stack says. “If somebody said, ‘This is a stupid thing,’ and we heard that 50 times and something else we saw was stupid but we got that three times, we went with the thing that we heard more.”
Don’t try to tackle the concerns and ideas presented by employees on your own. You need to involve individuals with firsthand knowledge of the reason for the process. Stack took the ideas deemed stupid to the management team that executed that portion of the business.
“If it has to deal with your buying group, you go talk to the people in your buying group and say, ‘These are some of the things (the employees) viewed that we’re doing wrong. How can we change that?’” Stack says. “You go right to the source and put somebody in charge of making those decisions.”
Once the decision is made, you need to follow up again with everyone and explain what decisions were made and why. Stack follows up with verbal and e-mail communication.
Remember, the purpose of gathering feedback is to better understand your company and find ways to help your staff execute on ways they can better serve customers.
“It’s a great educational tool for the CEO to see what truly is going on in the business,” Stack says. “I’ve tried to make sure that I’m not insulated from bad news, but sometimes people don’t want to tell the CEO bad news. This is a great way for you to get right into the heart of the business and see what’s right and what’s wrong.”
How to reach: Dick’s Sporting Goods Inc., (877) 846-9997 or www.dickssportinggoods.com
David Schottenstein’s wife was at her breaking point. If this
was what life married to a CEO was going to be all about, she wanted no part of
“I was on a holiday trip with my family, and it was supposed
to be a vacation,” says Schottenstein, founder and CEO at Astor & Black
Custom Clothiers Ltd. “But I spent 99 percent of my time on the phone,
literally sitting on the beach with my wife. … And my wife told me, ‘Listen. I
don’t care how much money you make. I don’t care how big this company gets. If
this is what it’s going to be like, no thanks.’”
Schottenstein had become a micromanager. His 80-employee formal
clothing business, which did $11.4 million in 2009 sales, was growing and
required a lot of hands-on leadership. But that leadership was coming at the
expense of his family. And as it turned out, it really wasn’t helping his
“It limited growth because one person can only be in so many
places at one time,” Schottenstein says. “It’s very difficult to let go of any
aspect of your business. It’s kind of like a child. You put all this time and
energy into it and you don’t want to let it go. You’re always scared some idiot
is going to come along and mess it up and ruin your reputation.”
But Schottenstein knew he had to change and get others
involved in leading his business. He began by accepting that he wasn’t the best
person for every job in the company.
“If someone looks at the areas they are involved in and says,
‘Well, I’m just fabulous at everything I do,’ then I would tell you to get
real,” Schottenstein says. “We can’t be good at everything. That’s the best way
to identify the spots you need to take a step away from.”
Schottenstein was pleased with suit sales but noticed that tie
sales were “lagging horribly.” He was also concerned that Astor & Black
didn’t have a defined social media strategy.
“When you spread yourself too thin, you give 60 percent here
and 40 percent there,” Schottenstein says. “Give 110 percent to a few key areas
and let someone else give 110 percent and don’t spread yourself too thin.”
If you find that too hard to do by yourself, put a board
together of people outside the company who you can trust to provide honest
“You have to find people that aren’t satisfied with great,
they want exceptional,” Schottenstein says. “I found successful people and
people that I make their clothes and I have gotten fairly close to them. I’m
constantly trying to hear from them. What makes you tick? What would you do in
this situation? What would you recommend? Sometimes they don’t want to be
bothered with it. But that’s part of being an entrepreneur. You don’t take no
for an answer.”
Your reaction to criticism can go a long way toward encouraging
people to be straight with you.
“There are moments when you want to freak out and go crazy on
someone,” Schottenstein says. “All you’re doing is telling those people, ‘Don’t
ever tell this guy bad news because if you do, he’s going to go crazy on you.’
Praise in public and criticize in private.
“You have to listen to criticism, and you have to have people
around you that are willing to criticize. Because if you just let everyone blow
sunshine up your ass all day, you won’t get anywhere.”
Today, Schottenstein shares the duties of leading his business.
He even hired a president.
“Everything is different,” Schottenstein says. “There are
actually people who are held accountable for each and every department. When I
was doing it on my own, every single item and every single thing was me, me,
Like any addiction, micromanagement is not an easy thing to
“It’s a leap of faith,” Schottenstein says. “I don’t think
there’s a way to make it comfortable other than to do it gradually.”
Give people a chance
When you stop micromanaging, you give yourself time to focus
on what you do best. But you also give talented employees a better opportunity
to stretch themselves and develop their own skills.
“It’s like using a Mercedes to deliver pizzas,” says David
Schottenstein, founder and CEO at Astor & Black Custom Clothiers Ltd.
“Sometimes you have a Mercedes in your office and all you have them doing is
the equivalent of delivering pizzas. You don’t realize that this guy could do
way more if someone just asked him to step up to the plate and do it.”
It’s all about what you want your business to be, Schottenstein
“It boils down to wanting to do too much as an individual. At
a certain point, if you want your business to be successful and to grow and
become bigger than a one-man show, you have to bring on good people that you
trust and know can do the job right. You have to delegate.”
And true delegation means you don’t give someone a task and
then stand over his or her shoulder and make the person check in with you every
step of the way.
“You have to say, ‘Listen, I trust you,’” Schottenstein says.
“I’m going to step back and let you do your thing.”
How to reach: Astor & Black Custom Clothiers Ltd., (877) 278-6718 or
When Rick Pogue came on board at Arrowhead Building Supply Inc., there were a lot of people in the wrong positions and some employees whom the company didn’t even want.
For the son of the building supply company owner, he quickly learned that if you don’t have the right people in the right positions, it’s going to hurt your company.
To better situate the company, Pogue devised a system to analyze each position and weed out those who didn’t fit the culture.
“We create the goals for the company, then we build the people around those goals,” Pogue says. “There’s a plethora of different things that have to work. You have to have the right attitudes, the right personalities, for each individual position.”
Getting the right 100 employees was the first step of many that has allowed the company to capitalize on the market. Arrowhead recorded record growth in 2009, reaching $30 million in sales revenue.
Smart Business spoke with Pogue about how to get the right people in the right positions.
Recognize needed changes. Ask yourself four questions about your employees: Do my people really care if my company grows? Are they overjoyed, giving each other high-fives when we get a new customer? Do they stay after work to finish projects, or is there a giant gust of wind through the front door at closing time? What motivates my salespeople money or success? Remember, success breeds money, but money breeds the desire for more money.
If achievement motivates your people, then you will all reap the monetary rewards from your accomplishments. If money is all that motivates your people, then that’s all they will focus on, and every 90 to 180 days, you’ll be talking about pay raises for no results.
Restaffing a company can be a scary concept. However, you have to be serious about change, and your people must believe in your willingness to replace them. Otherwise, in effect, your employees will be in charge of your company and you.
Assess each position. We look at every position individually and we come up with a set of goals for the position.
If it’s inside sales, what do we really want our inside salespeople to do. Do we want them just to sit there and wait for the phone to ring and then answer the phone and then take the order? Because that’s what I call an order taker, and you can pay those people about $9 an hour. We want inside salespeople to be salespeople.
What we do is we have very detailed job descriptions for them, and when we train them, we show them exactly what we want them to do. For the inside sales position, their job is to produce new sales via any avenue possible, cold calls, fax, landline, they all have cell phones.
(To assess the workload,) I put myself in the position and that helps me. I don’t ask anything from anybody that I wouldn’t do myself, so I put myself in that position and I say what I would expect out of myself if I were doing that job. That’s basically where I get the standards.
We have started in recent years, probably the last two years, we started testing. I can have a prospective employee or even an existing employee that might be in the wrong position (tested) they can take a personality test.
That has been very beneficial to us. That has helped us assess things that I can’t pick up on my own just by talking and observing. This test helps flush some of those weaknesses and strengths out.
Put weight on attitude. No. 1, for me, is attitude. Absolutely attitude is No. 1 for me because if the person has the right attitude, they’ll be successful.
I first look at their attitude, and then their skill set would come in second to me.
I’m not one who believes you have to have a four-year college education to be the best bookkeeper for a company. I don’t hold everybody to that standard because we have people here that never went to college that I wouldn’t trade for somebody with a doctorate.
I don’t think that has enough of an effect on a person’s abilities to discount them as a quality employee.
Look for person/position mismatches. I look for efficiency in that position. Usually that will jump out at you.
When you look at everything, all aspects of the business, you can see where the weak spots are. Maybe the weak spots are in bookkeeping because credits are not being issued properly, whether they’re given too many credits or not enough credits, tickets aren’t being processed correctly.
Usually the inefficiencies jump out at me first. It’s like a red flag. Then I say, ‘OK, what’s going on here.’ Then I delve a little deeper in there.
Leave out personal convictions. You have to set feelings aside. I’m the nicest guy in the world and I want everybody to love me, especially my employees, but you have to set the feelings aside.
If you have a person that’s been working for you for 10 years but they’re the wrong person in that job for whatever reason maybe they have a bad attitude, maybe they don’t work well with others you have to set your emotions aside.
‘Oh, they’ve been here 10 years, just deal with it.’ I don’t believe in that. I don’t believe in telling my other employees, ‘I know they’re difficult to work with. … I know they have a bad attitude, just deal with it they’ve been here forever.’
When I say assess every position individually that’s what I’m talking about. Do I have the best person in that chair that I could possibly have? If not, then that position is a work in progress. That’s how I view it.
How to reach: Arrowhead Building Supply Inc., (636) 970-1976 or www.arrowheadbuildingsupply.com
When Barry L. Carlson was in the Army, he attended a leadership academy, where a general told him something that stays with him to this day.
“You can’t get people to follow you into a hail of bullets when you are standing behind them saying, ‘You guys go ahead, and I will catch up to you later,’” he says
As president and chief operating officer of Office Furniture Source, Carlson has a similar message strategically placed in his office where he can always see it.
“As a leader goes, so go the followers,” says Carlson, who helped lead the company to more than $7 million in 2007 revenue.
Smart Business spoke with Carlson about how to lead so that your employees want to follow.
Q. How do you get people to follow your lead?
I will listen to their opinions, even when they are not good at expressing them. So, their opinion matters. Two, when I tell them that this is my opinion or it’s is my final decision, they know I gave it some thorough thought and that I will back them up if they go do what I told them to.
The third is I will monitor whatever that is and I will be the first to admit if it isn’t working, and we’ll adjust. I don’t leave them hanging.
Fourth is, if it fails, I’m going to take the blame, and I’ll come up with a new plan.
So, I think people are pretty confident when they hear me talk. I talk with authority, and they know that I mean it, and they know they are going to be accountable, and they know that I’ll never put the blame on them. I might share the blame with them. But, when things don’t go right, I’m going to go back and say, ‘Wait a minute. Is this because of the plan, or is it because we didn’t follow the plan?’
Q. How do you get employees to let their guards down and approach you?
We start at the interviewing process. We tell people, ‘Look, here’s what it takes to work here.’ One of those things that we tell them is that you have to be willing to express your opinion.
You’re not going to get yelled at for having an opinion. But you are going to get yelled at if you don’t share your opinion. As a matter of fact, you will probably get fired. So, right upfront, they have to participate. Then we have a process called team meetings. Everybody in the entire company, with the exception of myself and John (Perin) our CEO, they are in a team — mandatory participation.
They elect their own captain, and the captains serve for six months. The team’s objective is, talk amongst yourself, come up with ideas, come up with situations. If you could deal with it, then you are empowered to just go ahead and just don’t bother me, just do it.
On the other hand, if you need help from another team, like our sales group might need help from the office group or something like that, then it’s your job to go over and tell them that and work through it collectively.
Then, I act like a league president. We have the captains come together, and they give their team’s report. That’s monthly, and that’s where all the captains hear everything everybody else is doing.
(My) role is to sit there and teach them and coach them on, ‘Well, how do you deal with it on your own?’ Because our mantra is to get everybody to know what they are supposed to be doing and then give them the power.
Q. What advice would you give other leaders to empower their employees?
First and foremost, you’ve got to tell them what the boundaries are. You’ve got to tell them what you want them to do. What are they allowed to do? Where’s the line that they really shouldn’t cross?
That’s probably hard for most leaders to express that because somebody is going to look at you across the table and go ‘Well, every day is different.’
Then, this is the hard part. You have to back them up. You can’t yell at people for exercising judgment, if you trained them and you coached them and then they go do it. Now, if they go outside the realm of reality, well, now you’ve got something to complain about, and they are going to get yelled at or fired.
That’s a world of difference. You have to understand: Am I dealing with somebody that is just a mustang that’s stretching our realm, or is this somebody that broke the rule? If somebody goes out and orders a new Mercedes Benz and puts it on the company tab, that wasn’t in their power.
How to reach: Office Furniture Source, (513) 531-0900 or www.officefurnituresource.com
He’s the president of Wal-Mart’s Northeast Division, a 600-store,
180,000-employee cog in the world’s largest retail chain, which
produced $374 billion in sales in 2007. Mullany’s divisional footprint stretches from Maine to Virginia, encompassing the metropolitan areas of Boston, New York and Philadelphia and making
him the head of a giant within a giant. Yet, with nearly a quarter-million employees under his umbrella, Mullany still must take big-picture corporate concepts and make them personal for his people — many of whom he’ll never meet beyond a handshake during
one of his store visits. If that doesn’t happen, initiatives don’t get
executed and Wal-Mart won’t succeed.
“If we want something to happen and get it executed, it happens
with the people in the stores,” Mullany says. “The best programs
and strategies in the world aren’t going to happen without execution. (The stores) are where people meet Wal-Mart. I’m not Wal-Mart to our customers. The people in the stores are Wal-Mart.”
Here’s how Mullany drives Wal-Mart’s vision to his employees
through training, communication and delegation to enable his
employees to pursue their ideas, furthering Wal-Mart’s mission in
Develop your employees
Mullany calls it “executional excellence.” The word might be
made-up, but the reasoning behind it is very real.
In order for a vision to mean anything, it has to be executed effectively, which means you need employees who are compelled to follow the leader and you need to put benchmarks in place to measure
your company’s ability to achieve your vision.
“It’s about creating a weekly cadence of accountability —
what are the key performance indicators that tell us if we’re
achieving our strategic plan and our vision?” Mullany says. “But it
also helps if you can create a compelling vision, something that is
exciting and people can get behind. It will help your employees if
you can create the kind of company where there is a compelling
Simply put, you’re not going to be able to hold employees
accountable for executing the vision without first getting them to
embrace it. For Mullany, it starts with training. Through continual
training, Mullany and his leadership team help employees develop
their skill sets, increasing their sense of purpose in the organization. Motivated employees, in turn, are better at embracing the
vision and executing on it.
“The key is working with the people you have currently,” he
says. “A key challenge for us is making sure we develop the talent to grow our business, which is something that applies to
just about any business. We’ve implemented mentoring programs where I and all of the leaders in the Northeast Division
are mentoring at least four people to groom them so they can
receive additional responsibility. We’ve implemented additional training programs, partnering with our home office and our
internal training team, which we call ‘Wal-Mart University.’
We’ve also developed new positions called ‘developmental
roles,’ where employees are really getting focused with on-thejob training, and in time, they can become a manager.”
Some people come forward and let their leadership-oriented
ambitions be known to their superiors. But in many cases, you
have to do some scouting. That’s why Mullany coaches his store
managers to keep tabs on the managerial potential of their best
and brightest people.
“Some people come forward and clearly state that they want to
be promoted, that they want to become a department manager
or assistant manager,” he says. “But we’ll ask the supervisors to
identify which people are doing an outstanding job and would
be willing to assume additional responsibilities.
“For any business to be successful, you have to make sure you
can retain good people. Your best people have embraced the
core values and know what is important to the business. That’s
why we’re looking to keep good people, grow them and promote
Let ideas flourish
Communication must be a two-way street between employees
and management. If you make time to tell your employees what’s
on your mind, you must make time so they can do the same with
Mullany says he believes ideas must have avenues through which
to flow upward in a business. Some ideas won’t fit your plans, but
some could become best practices throughout the company.
“We had an idea in the Northeast Division about how to lay out
the produce departments in the stores,” he says. “It came from one
of my regional general managers. I told him it sounded interesting
and we’d try to pilot it in a couple of markets.
“We tested it, and it worked. Then we expanded it to the entire
Northeast Division, and more than 600 stores tried it with similar
great results. We shared that with the rest of the Wal-Mart system,
and the system that was thought up by one regional general manager is now how we set up produce departments nationwide.”
Mullany’s bottom-up philosophy for generating ideas has helped
spawn other initiatives at Wal-Mart, among them a national Wal-Mart blog where employees and managers can share their ideas,
giving updates on what is working and not working.
“It’s powerful for an associate to see their idea implemented,”
he says. “That’s why you need to let your employees reach all the
way to the top of the organization. Here, an associate can speak
directly to a member of management, all the way up to me, and
even up to ... the CEO of Wal-Mart. It’s about having an environment where people feel open to sharing new ideas.”
But, as is often communicated by leaders in all types of businesses, innovation can’t occur in a vacuum. You want your
employees to produce and share ideas, but you don’t want them to
get off track with regard to the company mission and goals. It
requires a balance between showing appreciation for all contributions but also developing a selective eye about what you’re going
Mullany has a number of barometers in place for deciding on whether to utilize a new idea.
“The key is you want to make sure that you stay true to your mission,” he says. “If a new idea isn’t going to further the mission,
that’s kind of the first filter. We also want to make sure that what
we’re doing lines up with our brand strategy and how we’re going
The best way to keep your employees’ creative juices flowing
while keeping the company on track is to remind them of where
the company is headed.
“Part of leadership is clearly communicating the goals and strategies,” Mullany says. “You have to keep your messages clear and
simple. What is simple is understood, and what is understood gets
executed thoroughly. You need to narrow the focus of your messages down to the few critical things that are really important.
Make sure the message is consistent, repeat the message, and I’ve
also found that it’s helpful to deliver the message via multiple
media. That means I’ll do video messages, speeches, meetings in
person, I’ll visit the stores. I’ll also make sure that my entire team
reinforces and delivers the message.”
Good communication plays into effective delegation. There is
more than one way you can delegate responsibility to your
employees, so you have to make yourself clear on what you want.
“One type of delegation is that you’re telling someone to decide
what to do, then inform you about the progress,” Mullany says.
“Another kind is to tell someone to make a decision, then go ahead
with it — don’t inform me. A third type is to tell someone to make
a recommendation and we’ll work together on it. A fourth would
be to make a recommendation on it, but I’ll make the decision.
“So it’s important to avoid miscommunication and bad feelings,
and to make sure that doesn’t happen, people need to understand
the level of delegation you’re handing them. Then, when you delegate, you need to delegate both the responsibility and the authority to make it happen. If you delegate the responsibility and not the
authority, whatever you were planning isn’t going to happen, and
you are going to put the person in a no-win situation.”
Even if you’ve given others control over a project or department,
you need to keep supplying them with resources, which means
you need to stay in contact with them. Part of delegating authority
is giving them the authority to contact their superiors and request
what they need to get the job done.
“A leader has to make sure the person has what they need to do
the job,” Mullany says. “That includes the information, the authority and the understanding among everyone that this person has your
“In some cases, I might know upfront the resources they need. In
most cases, they’ll start executing the project or whatever it is, and
I’ll tell them to come back if they need any help. They might come
back and tell me that they’ve started, but they need more information, more money or more time. But they need to understand from
me that my door is open and that we in management want dialogue and feedback. If they understand that, they’ll feel comfortable with coming back to management.”
Along with communication, training is a key component in
grooming employees capable of receiving delegated responsibility
and authority. A leader will not be able to deliver the best results
without a properly prepared team.
“The most critical element of delegation is to surround yourself with great people who you trust,” Mullany says. “The
stronger the team and the higher the trust factor, the more you
will have managers willing to delegate and people who are willing to take on that responsibility.
“The best business lesson I’ve learned is to surround yourself
with good people. I’ve seen leaders who have great people and had great results. But I’ve also seen very smart individuals who
didn’t have a good team and didn’t deliver the results.”
You have to develop your people, which means they have to
have confidence in the company’s leaders. That comes back to a
common theme in business: “Promise what you’ll deliver, and
then deliver what you promised,” Mullany says.
“That’s important to me. I have that on the wall of my office,
right next to my door, so people see it when they walk in to my
office and know that’s what I believe.”
HOW TO REACH: Wal-Mart Stores Inc., www.Wal-Mart.com