Founded over one hundred years ago by the great-grandfather of the current owners, its heart firmly anchored in the foothills of the Blue Ridge Mountains, its arteries stretching beyond its humble origins into the fertile breadbasket of the Shenandoah Valley, the mountainous coal communities of West Virginia, the red clay tobacco farms of Southside Virginia, and the marshy flatlands of eastern North Carolina, a great company perseveres.This company will never be spotted on the Fortune 500 list, nor be traded on the New York Stock Exchange, nor be lauded by Virginia Business Magazine as one of the fastest-growing in the state, nor be one that Warren Buffett might want to buy, even though he has collected several in the same industry.
Yet it's a company that has repeatedly demonstrated why it deserves to be called great; if there were ever any doubt, it was dispelled with emphasis in the fiscal year ended March 31, 2010.
Three years ago its retail home furnishings business had achieved record sales and profits, the peak of an upward trend that had continued with a few minor interruptions since the founder began peddling household goods from a horse-drawn cart in 1897. Substantial debt incurred twenty years ago in a leveraged buyout of a related family's fifty per cent ownership had been reduced to an insignificant amount. While expansion into new markets -- which had propelled the company's store count from twenty to fifty since that buyout -- had been sharply curtailed, a strategy of relocating existing stores into larger, more modern facilities had generated healthy sales increases. Technological and logistical progress had been slow but steady, enabling the company to operate more efficiently and improve customer service.
But even before the dark clouds of the Great Recession descended upon the U. S. economy, the company's sales had entered into a perilous, painful, perplexing decline, melting away like the Arctic Ice Cap succumbing to global warming. Beginning in April 2007, the company was rocked by thirty-four months of comparable sales decreases -- interrupted only by a mysterious, but welcome, 15% jump in January 2009 -- which resulted in a cumulative three-year drop of 18%.
Does an encouraging 12.3% aggregate sales increase in March and April signal the end of this long, national nightmare? Only the fickle consumer knows for sure, and in May he seems to be reverting to his frugal spending habits.
As one would expect, profits during this period suffered commensurately. For the fiscal year ended March 31, 2006, the company reported the highest pretax profits in its history -- 6.7% of revenues -- before falling 50% over the next three years to a level on March 31, 2009, equal to 4.1% of revenues.
And the descent was far from over. From April 1, 2009, through March 31, 2010, the end of the current fiscal year, the company (and the country) staggered under the highest unemployment numbers and the worst contraction in discretionary consumer spending in recent memory. And just when a ray of sunlight appeared to be peeking through the cloud cover, in late January, the sky fell in -- literally.
When one is accustomed to success, confronting failure -- and how else to define this exasperating reversal of fortune, regardless of its presumed external causes -- is a daunting task. While some will justifiably rebuke me for the analogy ("It's only business, and not irreversible; you still have your health and your loved ones."), the adjustment seems to parallel the grieving model proposed by Elizabeth Kubler-Ross for terminal cancer patients; one moves progressively through the stages of denial, anger, bargaining, depression, and acceptance. And with acceptance comes a lowering of expectations.
Initially, of course, one regards a bad sales month as an aberration, a temporary blip on the radar screen, since it is such an unfamiliar phenomenon. Even two or three are hardly a trend and not intolerable, but as the losing streak continues, denial turns to anger, especially when a sale which has always produced results in the past suddenly goes sour, or when the revived optimism of a few good days is strangled by twice as many bad ones.
For a while, one bargains -- concocting bold schemes to cope with the deleterious situation: discarding heretofore successful promotions for a host of new ones, all of which fail miserably; searching frantically for those elusive magic bullets -- sales training, creative credit offers, fresh merchandise -- which will restore his lost brilliance. Alas, nothing works -- except radical, ruthless excision, cost-cutting. This too is virgin territory; but one is longer merely responding to some unfortunate economic conditions; he is in survival mode.
When sales are down from one year to the next, and each successive month rolls back around, one thinks: We sold that much last year, and even more the year before; surely we can do as well, or better, this year. But it doesn't happen, because we're in a whole new world of retailing. Acceptance means that last year's failure becomes this year's success, that we're now resigned to doing less business and making less money; in fact, for the first time in my forty years with the company, if we're not careful, we might lose money.
Acceptance means keeping one's composure through two disastrous snowstorms -- three, if one includes December 19, 2009.
Since the company had conceived its "Lowest Price of the Year Sale" five years ago, the concept -- "prices lower than our Half-Price Sale, lower than our Free Furniture Sale, and lower than our Furniture for a Dollar Sale" -- and the timing -- the end of the January retail hibernation and the arrival of tax refund checks in many customers' mailboxes -- had transformed a respectable weekend into its two biggest days -- provided the weather cooperated, always a risky proposition at that time of the year.
Having bolted winter's wrath myself by flying out early Friday morning, appropriately enough, to a dealers' meeting in Las Vegas, where gambling is a way of life, I could only wander aimlessly through the casinos, curse the gods of chance, shake my head in frustration and despair, and text the pithy message "s__t" back to my upholstery buyer, R. E., when, mid-day on Saturday, in response to my innocent inquiry "How's the weather?" she frostily informed me: "Twelve inches and still coming down."
And what Vegas oddsmaker wouldn't lay a hundred to one against a sister storm blowing in the following weekend, dumping another foot-and-a-half on the company's footprint, and smothering the Final Two Days of its Lowest Prices of the Year -- this in a region which had hardly seen six inches of total snowfall in the past four years?
In his best-selling business textbook, Good to Great, author Jim Collins relates the story of Admiral James Stockdale, "the highest-ranking United States military officer in the 'Hanoi Hilton' prisoner-of-war camp during the height of the Vietnam War. Tortured over twenty times during his eight-year imprisonment from 1965 to 1973, Stockdale lived out the war without any prisoner's rights, no set release date, and no certainty as to whether he would even survive to see his family again." (Collins, pp. 83-84)
When asked by Collins which prisoners hadn't made it out of the camp, Stockdale said, "The optimists . . . the ones who said they would be out by Christmas . . . or by Easter . . . or by Thanksgiving," and when those days came and went, "they died of a broken heart." (Collins, p. 85)
What separates people, and businesses, Collins writes, "is not the presence or absence of difficulty, but how they deal with the inevitable difficulties of life." Successfully overcoming adversity requires one to adopt a dual paradigm, which Collins, paraphrasing the Admiral's prescription for survival, calls the Stockdale Paradox: "Retain faith that you will prevail in the end, regardless of the difficulties, and at the same time, confront the most brutal facts of your current reality, whatever they might be." (Collins, p.86)
For twelve harrowing months, this company's managers confronted those facts -- demoralizing sales declines -- made the necessary adjustments, never lost faith, and prevailed. In the most challenging business climate I have ever seen in my thirty-five-year career, they worked wonders: posting a profit number only fifteen per cent lower than last year and achieving a pretax margin of 3.9%.
How did they do it?
First and foremost, with a clear vision, for this was a company that, throughout its evolution, whether by accident or design, had adhered to what Collins labels "the Hedgehog Concept."
Collins compares hedgehogs to foxes, who "pursue many ends at the same time, see the world in all its complexity, but never integrate their thinking into one overall concept or unifying vision; hedgehogs, on the other hand, simplify a complex world into a single organizing idea, a basic principle that unifies and guides everything." (Collins, p.91)
Thus, the company understood that its infrastructure and culture would not allow it to compete in large, high-volume markets, but that it could be regionally the best at its unifying concept: selling home furnishings and related products on installment credit in small towns -- a business that sounds rather quaint and mundane, yet one which, for over one hundred years, its ownership and management were intensely passionate about.
While, in the process of refining their logistics, other furniture retailers consolidated their warehouses and implemented direct retail delivery from their distribution centers, this company chose to centralize the receiving of its merchandise but to maintain its satellite warehouses -- in order to accommodate its widely-dispersed markets, to facilitate customer pickups, to store selected items on-site for immediate availability, and to sustain its entrepreneurial spirit.
While other furniture retailers eliminated appliances and electronics from their product mix in the face of fierce competition, this company assessed the marketplace, determined it could be a viable seller, reduced its prices, and focused on extended warranties to enhance its margins.
While other furniture retailers viewed the widespread extension of credit -- even to subprime purchasers -- as an opportunity to jettison their cumbersome in-house credit operations and improve their cash flow, this company saw the ability to control its credit destiny and retain its customer accounts as a competitive advantage and a profit center.
Informed by its unifying concept, exhibiting the consistency and single-mindedness of hedgehogs, company managers performed with exceptional grace, courage, dexterity, and wisdom.
During the fiscal year 2010, they increased their gross profit percentage one hundred basis points, from 41.33 to 42.32 -- by reducing their inventory shrinkage fifty per cent, by selling more high margin fabric protection and extended warranties, and by complying with company pricing policies.
They reduced their total payroll 5.4% -- by improving employee productivity, by eliminating overtime, and by staying within budgeted guidelines.
They collaborated with their credit managers to stretch the limits of credit approval, yet produced historically low delinquency ratios and charge-offs. At the end of March, three-month delinquency stood at 1.6%; compared to last year, net charge-offs were down 15%, and totaled only 1.9% of gross revenues.
They reduced company truck expenses 25% -- by encouraging customer pickups, by consolidating their delivery routes, and by adapting to biweekly in lieu of triweekly merchandise transfers from the company's Distribution Center.
They increased vendor credits 25% -- by diligently documenting all merchandise repairs and submitting claims in a timely manner.
They reduced worker compensation, vehicular accident, and corporate liability claims 33% -- by preaching safety to all employees and supporting the dynamic leadership of L. D. in her neverending crusade to make the workplace risk-free.
And they reduced a host of miscellaneous expenses a total of 10% -- including the CEO's personal bugaboo, copy toner, and postage, which fell prey to executive assistant L. P.'s ultimatum that store managers use U. S. Mail rather than UPS.
The only expense that increased significantly was building maintenance, and it was beyond anyone's control; in 2010, the company spent $100,000 on snow removal.
In Good to Great, Collins describes the rigorous training regimen of Dave Scott, who won the Hawaii Ironman Triathlon six times. "In training, Scott would ride his bike 75 miles, swim 20,000 meters, and run 17 miles -- on average, every single day. Dave Scott did not have a weight problem. Yet he believed that a low-fat, high-carbohydrate diet would give him an extra edge. So Dave Scott -- a man who burned at least 5000 calories a day in training -- would literally rinse his cottage cheese to get the fat off . . . one more small step that he believed would make him just that much better, one more small step added to all the other small steps to create a consistent program of superdiscipline." (Collins, p. 127)
I'm proud of the way the company's managers rinsed their cottage cheese to produce extraordinary results in 2010. They typify this essential characteristic of Collins's great companies: they are "self-disciplined people who are willing to go to extreme lengths to fulfill their responsibilities." (Collins, p.124)
They also make my job as CEO a joyous one -- because they are enterprising as well as disciplined. Collins employs another analogy to illustrate this concept -- the airline pilot. On one hand, the pilot operates within a strict system, which he does not have the freedom to deviate from: methodically working through a preflight checklist, coordinating with air traffic control to taxi out on the runway and take off in proper sequence, communicating with flight-control centers during the flight, and staying within commercial air traffic boundaries. (Collins, p. 123)
On the other hand, should the pilot encounter severe turbulence or treacherous crosswinds, he has the freedom to make crucial decisions -- whether to take off, whether to land, whether to abort. "He has ultimate responsibility for the airplane and the lives of the people on it." (Collins, p.124)
Similarly, this company's managers -- both in the field and in the corporate office -- operate in a structured environment, yet have a great deal of freedom and responsibility within that framework.
In its heyday, Circuit City -- one of Collins's great companies, which, of course, later foundered under mismanagement -- used this formula to run its chain stores. In words that reflect this company's culture, Bill Rivas said of Circuit City's success: "It was the combination of great store mangers who had ultimate responsibility for their individual stores, operating within a great system. You've got to have management and people who believe in the system, and who do what is necessary to make the system work. But within the boundaries of that system, store managers had a lot of leeway, to coincide with their responsibility." (Collins, p. 126)
Not long ago, I was visiting one of the company's stores, and found myself surrounded by a veritable jungle of flower arrangements. When I suggested to the manager that he consider allowing salespeople to offer them free to customers as closing tools, he took offense at such irrationality, loath to impair his markup. "But I'll do it," he said. "It's your store." Well, not exactly, I thought to myself, as I bit my tongue. It's my company (along with a few other shareholders), but it's your store.
The entrepreneurial spirit is robust and thriving in this great company. So many heroes are using their freedom, ingenuity, and self-motivation to boost top-line revenue and bottom-line profitability.
S. A. is a one-man advertising department. He's in his office every morning at 6:30 (or is it 6:00). He has to be, with all he has to do: design all circulars and mailers; write and produce all broadcast commercials; prepare advertising budgets; update the company's web site; forward online credit applications to the appropriate stores; monitor the company's customer database; communicate with his media placement agency; verify all advertising invoices; respond to a barrage of telephone calls and e-mails from stores, vendors, and occasionally customers; and besiege me with dealer ads offering free delivery on bedding, until I finally surrendered. And then he comes in the next day and does it all over again.
A few years ago, R. E. became frustrated that the company was not receiving adequate vendor reimbursement for legitimate repairs made to defective merchandise. Finding time in her busy schedule as upholstery buyer, she devised a system to facilitate the submission and processing of these credits, which, in conjunction with the cooperation of store managers, has generated since its inception $2 million. This year, working with a template supplier, she designed a new price tag which has enabled stores to display important product information in a concise, attractive format.
As its Director, W. W., likes to say, "Everything's perfect in the Credit Department," and with its outstanding performance in 2010, one would be hard-pressed to dispute that statement. Shunning the limelight, W. W. graciously prefers to bestow all the accolades on his regional supervisors and local credit managers. While his philosophy -- that he likes to measure everything -- echoes that of his predecessor, he has brought his own brand of professionalism to the process and raised it to a whole new level of sophistication, thoroughness, and accuracy. For example, now the company knows its credit approval rate, its credit sales as a per cent of total sales, and its per cent of no finance charge sales. These incremental improvements combined with a traditional methodology have provided stability and cash flow in a faltering economy.
Of course, none of this would be possible without a vigorous sales engine -- and a strong-minded engineer at the helm. The company's week-long sales training course, its sales development tool -- the Business Builder -- its emphasis on Customer Care Options, and its motivational bedding and appliance/electronics contests (not to mention the competitve merchandising of the latter two products) were never mandated or prescribed by the CEO. Rather they were conceived, refined, and perfected by corporate sales manager S. C. Ever vigilant, seeing a void, a necessity, or an opportunity -- most recently, working with the tech committee to automate the Business Builder -- he seizes the moment, and from his fertile imagination is birthed another sales driver.
Similarly inspired is the company's risk manager, L. D. Groomed in credit, office, and inventory functions, recruited as a substitute manager and trainer, thrust into a newly-created position in which neither she nor the company had any experience, she embraced the challenge with curiosity, energy, and intensity. The results have been no less than spectacular. Traveling the width and breadth of three states, teaching experienced truck drivers more than they want to know, inspecting doors, walls, floors, and framing for microscopic evidence of delivery negligence, resolving complaints with sensitivity and firmness, putting out fires (literally), and finding a myriad of ways to make the premises safer for customers and employees, she has saved the company $2 million over four years.
In the company's fifty-one satellite locations, innovative managers are brimming with ideas to motivate their employees, increase sales, and generate profits.
Last year, R. H. in S___n determined that every customer coming into his store, even if he was making a payment or registering a complaint, should be treated as a salesperson's turn at the door or "up." That salesperson was required to capture pertinent Business Builder and credit information about the customer in order to convert him into a current or future sale. Recently, R. H. has created a Daily Quota Report Form, which he prepares every morning and distributes to his salespeople. It includes each individual's quota status, commissions earned, door count cards, undelivered orders, and Customer Care Option penetration.
Taking inventory in C___e a couple of months ago, I observed an interesting new practice implemented by S. S. With a few exceptions, I have always harbored a deep antipathy toward sales desks floating in the middle of the display floor, where they seem to morph into miniature landfills, collecting food wrappings, drink bottles, old price tags, ancient circulars, outdated signs, and stacks of cards, notepads, and envelopes. S. S. has eliminated these desks, moved all customer records to a file cabinet, and established a call center in a private office, where for one hour a day, uninterrupted, each salesperson makes an allotted number of calls. So far, S. S. is reporting positive results.
Like W. W., K. L. in R___e likes measuring things. He has developed a number of reports to track what's happening in his store daily and monthly and to evaluate salesperson performance. The Monthly Traffic Report compares store traffic (both salesperson "ups" and walk-in customer payments) and average sale per contract in the current month to the same month, prior year. The Monthly Sales Detail Report summarizes the key statistics for each salesperson: quota, delivered sales, number of contracts, average sale, ups, closing ratio, and Customer Care Option Penetration. The Monthly Back Counter Report lists each back counter sale by amount and salesperson and calculates a close ratio based on the number of walk-in payments. The Monthly Office Report tracks debt cancellation penetration, contract maturities, and down payments daily; if targets are met, office personnel split an incentive based on the number of contracts each has processed. The Monthly Income Component Report compares finance charge, debt cancellation, and Customer Care Option income in the current month to the same month, prior year, and thus identifies opportunities to increase revenue.
Does K. L.'s reporting system work? As he would say, look at the numbers. R___e was one of only ten stores to increase sales last year. And it earned in profits more than any other store in the company.
One of the company's great sales entrepreneurs is K. J. in C___e. This lady stays excited about selling, and believes that excitement is contagious. Last December, she trained her office personnel on the features and benefits of selected popular electronics items -- flip videos, netbooks, cameras, ipods -- and challenged them to add at least one to the contracts they were processing; they achieved a success rate of 55%. After giving them a crash course on Customer Care Options, she charged them with saving or upgrading sales; office personnel responded and tripled their pm's. K. J. has a host of other award-winning ideas she will be happy to share with anyone who cares to listen. Be warned, however; they require commitment, teamwork, and enthusiasm.
At the end of Good to Great, Collins writes about the head of a high school cross-country program -- who in five years transformed it from good (top twenty in the state) to great (two consecutive state championships). Collins asked the coach why she felt compelled to make the the program great. She said, "I guess it's because I really care about what we're doing. I believe in running and the impact it can make on these kids' lives. I want them to have a great experience, the experience of being part of something first class." (Collins, p. 208)
This coach has an MBA from an elite business school, but found that her classmates' careers -- investment banking, management consulting -- had no meaning for her. "She just didn't care enough about these endeavors to make them great . . . And so she made the decision to search for meaningful work, work about which she would have such passion that the question, why try for greatness, would seem nonsensical." (Collins, p. 208) In other words, says Collins later, "If you're engaged in work that you love and care about, for whatever reason, then the question needs no other answer. (Collins, p.209)
"Indeed," he says, "the real question is not 'Why greatness?' but 'What work makes you feel compelled to create greatness?' " (Collins, p.209)
A few weeks ago, a store manager -- who, it must be acknowledged, was having a fantastic year, in sales, that is -- called me and said, "I really love my job." He wasn't one of the nine individuals mentioned above, although he could have been. Because in order for these leaders to create, innovate, originate -- expertly pilot their planeloads of responsibilities -- they must be passionate about what they do -- as I believe most, if not all, of this company's managers are. The company could not have achieved such remarkable sucess in 2010 without people engaged in work they love and care about. That's what makes it great.
REFERENCES
Collins, Jim. Good to Great: Why Some Companies Make the Leap and Others Don't. New York: HarperCollins Publishers Inc., 2001
