When Kathleen Mason joined Tuesday Morning Corp. as its president and CEO in July 2000, the upscale discount retailer had a lot going for it.
Customers were loyal and loved the bargains on high-end brands, and they even formed lines on occasion to get into the stores at the start of a sale day. By all accounts, the stores were a hit.
But the company wasn’t doing as well as it could be. Mason, a veteran of the retail industry who previously served as president of Homegoods, thought Tuesday Morning’s balance sheet was bloated and its technology lagging; she notes that Tuesday Morning didn’t even have voicemail when she came onboard.
The company also had way too much inventory, scattered in warehouses across the country to feed the chain of stores. And its marketing wasn’t nearly as savvy as its customers were. As Mason saw it, having a strong brand and bloated balance sheet was an ideal situation.
“It was not looking good from an operational management perspective,” Mason says. “That’s a great set-up for success because as long as you know who your customer is, you have all of the right components for success. ... It was an opportunity to return to some great operating margins and be a very profitable business and be a very low-cost operator so that everything we delivered was value to the customer.”
Tuesday Morning’s formula for success is this: Sell great merchandise at deeply discounted prices and close stores for periods of time, so when they reopen with new merchandise, it’s an event. And the stores are always open on Tuesday mornings, hence the name.
The Dallas-based company, which opened its first store in 1974, operates 732 stores in 46 states.
Mason has made the company profitable, with increased earnings each year. In 2004, it reported net income of $62.6 million on sales of $898 million, compared to net income of $24.6 million on sales of $587 million for 2000.
From the top down
Mason’s plan for success started at the top with the reorganization of the management team.
“We restructured organizationally,” Mason says. “We were able to take some of the people who had made the company great and get them in the right positions. We added, too. We brought in some new people and changed the organizational structure to reflect the best of both of the inside and outside.”
Shortly after Mason’s arrival, Tuesday Morning appointed as chief operating officer/executive vice president Mike Marchetti, who is responsible for distribution, computer and communication systems, and loss prevention. He also helped Mason address the company’s sticky distribution issues as they brought in new buyers to hunt down merchandise.
“I’ve learned that you hire good people you can trust,” Mason says. “You keep in touch, but stay out of the way.”
After reorganizing the management team, Mason tackled the distribution of merchandise.
“First of all, we closed 16 regional warehouses,” Mason says. “We had a lot of inventory sitting in warehouses waiting to go to different regions and stores. We really didn’t need those warehouses, and we lost control of those warehouses. We closed those distribution centers. We expanded our existing facility in Dallas, and that gave us much greater control over our inventory. We improved our systems, our information systems.”
Tuesday Morning purchased new computers and software for the distribution center to help track what was coming into and going out of the warehouse to keep better tabs on the merchandise. It also replaced warehouse distribution and sorting equipment.
“We got the inventory in line with reasonable levels,” Mason says.
Mason wanted to update Tuesday Morning’s image through television advertisements and hired a new agency to help it. The company hired Lauren Bacall to serve as its spokeswoman three years ago.
“I can’t think of a classier woman than Lauren Bacall,” Mason says. “She really speaks well for us and speaks to the brand. Sometimes celebrities can be iffy and have checkered backgrounds. Lauren Bacall fit our needs very well. She represented a fine taste level. Since she was a shopper, she loved Tuesday Morning. She loves our product.”
It’s hard to say if the ads have directly led to increases in sales, but Mason thinks they are at least partially responsible for the company’s growth.
“It has given us greater visibility as the value provider that we are,” Mason says. “It has reinforced our message of being a great place to find first quality brand names at fantastic prices.”
And it’s helped the company reach customers who perhaps had never heard of the stores or weren’t sure what they offered, says Mason.
Mason also uses technology to reach its customers more effectively. Tuesday Morning notifies most customers about upcoming sales via a mailed flyer, capturing addresses at the cash register for future mailings. Some 7.5 million shoppers have signed up.
“We don’t sell that list,” Mason says. “We hold it close to our heart. We take care of our customers by giving them notification of some of the more fantastic buys we find throughout the world.”
Mason says about 10 percent of those 7.5 million people receive e-mail notification of sales, called eTreasures, something she started for the company. Those customers access an online catalog that is essentially the mailed flyer posted on a Web site for their perusal, with daily new arrivals. The company doesn’t sell anything over the Internet.
Taking chances on stores
With the major operational challenges addressed, Mason began leading the company on an aggressive push for new markets for stores.
During her tenure, the number of stores has grown from 415 in 2000 to 732, with plans to reach 1,000 by 2010. She doesn’t shy away from small cities but says a new market must meet specific criteria, such as median income. Tuesday Morning aims for communities with an average household income of $60,000 but doesn’t consider that a hard-and-fast rule. Executives also look at other factors, such as average educational levels, that help them get an understanding of the community and whether it will support a store.
“They do have to have more of an aspirational customer, a customer who really wants quality at a price,” Mason says. “That can still cut a pretty wide swath. Even a young customer on a limited budget wants quality. If they recognize a name brand, nothing else will do. ... We are opportunistic in everything we do, so we might bend the rules a little bit. But there are a number of metrics that we look at.”
To keep costs down and profits up, Tuesday Morning looks for bargains in real estate, sometimes settling for locations that other retailers might pass up because it knows that customers will make the effort to find the store.
It has been aggressive and taken on some risky markets, but there has only been one that simply didn’t fly, Mason says. A store in Cheyenne, Wyo., opened in February 2001 and closed in June 2002.
“That was a real stretch for us,” Mason says. “Although it is an upscale community, there are just not enough people there who are interested in shopping. It’s too spread out, too remote.”
Mason says her only other flop was attempting to make the stores more attractive with better-looking shelving. But after several tries, she abandoned that effort because the new shelving was difficult to work with and didn’t seem to matter to shoppers.
“We thought it was a way to pretty up the stores and better display merchandise,” Mason says. “It was expensive and too specific. Our customer is used to the treasure hunt and doesn’t mind that. We are not for everyone, but the customers who have come to appreciate our no-frills format really do benefit by finding some of the most fantastic things from around the world.”
Mason also has increased the number of days the stores are open. When she came to Tuesday Morning, they were open about 250 days a year and closed in January, July and between sale events. Now, they are open about 300 days a year.
“There is always that risk of hurting that sense of urgency that was part of our formula,” Mason says. “But we had to balance that with the consumer’s desire for convenience. It was a clamoring request, especially from younger customers who say, ‘Look, I’m a working woman and I can’t pay attention to when you are open and closed.’”
Mason and other Tuesday Morning executives give a lot of thought to that customer, who she is and what she wants. They want to know who those customers are, how much they make, where they live and what their shopping habits are.
In 1998, before Mason came to the company, Tuesday Morning did a complete analysis of customers through surveys to get that information. It recently completed another year-long survey, and the results will likely guide future decisions.
“It helps us really refine our understanding of who is buying at Tuesday Morning and to be more pointed in addressing that customer in terms of communication in every way,” Mason says. “It’s like when you give a speech, you need to know your audience. You don’t communicate with everyone the same way. The more you know that person, the better you are able to communicate with them.”
The survey results are still being tabulated, but Mason says it appears that the Tuesday Morning customer is very much the same person she was six years ago.
“We still have a wonderful core customer who is an upscale customer,” Mason says. “She really appreciates and recognizes brand names. They really have to be a shopper.”
HOW TO REACH: Tuesday Morning, www.tuesdaymorning.com