Mays Impacts

Last May, calamity struck the well-loved Texas retailer Jim McIngvale (“Mattress Mack”) of Gallery Furniture: arson damaged his showroom and destroyed his main warehouse. A hundred thousand square feet burned, causing more than $20M in damages.

While not ravaged by literal fire, the U.S. economy faced its own overwhelming challenges last year as millions of jobs were lost, banks collapsed, and the credit market froze. Retailers were hard hit when their customers padlocked their wallets and hunkered down to wait out the economic storm. Many stores closed their doors, permanently.

“Not everyone has a literal fire occur,” said Gallery Furniture’s Jim McIngvale (center), “but we all have met with some overwhelming challenges.”

Mattress Mack refused to shutter his doors, opening a renovated and restored warehouse and showroom just 44 days after the catastrophe. Like Gallery Furniture, U.S. retailers are starting to see advances after a long, hard year. Rising from the ashes as the holiday season approaches, store owners are realizing that the retail landscape has changed dramatically. New tactics are needed to woo customers who don’t shop the same way as they did before the recession.

Those new tactics were the topic of the 2009 Retailing Summit, hosted by Mays Business School’s Center for Retailing Studies, held October 1 and 2 in Dallas. More than 200 people from 62 organizations involved with retailing congregated at the Westin Galleria to network and hear speakers present on the timely theme “Moving forward: innovation and discovery to survive, evolve, and thrive.”

Presenters included presidents and CEOs of major brands such as Home Depot, Nieman Marcus, Olive Garden, and Office Max, as well as authors, analysts, and researchers. Attendees took home valuable lessons about how to improve their business during the recession—and encouragement that there are sunny days ahead in the economic forecast.

“This past year in retail has been like the Mountain Ride at Disney: exhilarating, unpredictable with many twists and turns.”
— Gayle Tremblay, Vice President of Neiman Marcus’ Last Call Stores

Green is good, family is great

Each presenter confirmed that the retailing industry is undergoing a fundamental change. From her position as vice president of Neiman Marcus’ Last Call Stores, summit presenter Gayle Tremblay observes that consumers, even luxury consumers, have a new relationship with money: they are more mindful of their spending in an uncertain future. Retailers will have to stay laser-focused on customer needs and be flexible, she said. What are her customers looking for? She says that family values and eco-friendly initiatives are generating sales currently.

Michael Exstein, a senior retail analyst at Credit Suisse, warned retailers during his address that the business model of shopping malls is no longer viable.

What’s not working in retail? Shopping malls. That’s the conclusion of presenter Michael Exstein, a senior retail analyst at Credit Suisse. With his Wall Street analyst no-holds barred delivery, Exstein said that the business model of malls is no longer viable. There are too many of them and they are too dependent on the productivity of anchor stores. He foresees further consolidation in the retail sector as more and more shopping is done on-line rather than on-site.

But Exstein isn’t down on retail. “Retail is a wonderful business. Fast changing. Exciting. Cyclical,” he says. As for the financial outlook, Exstein sees modest recovery in the fourth quarter of this year. His recommendations to retailers included store regeneration instead of building new stores; looking for opportunities in middle markets (between low end and luxury); and trumpeting sustainability efforts. There is an overwhelming desire on the part of consumers to hear companies talk about sustainability, so retailers must communicate about their green initiatives, he says.

The Home Depot CEO Frank Blake echoed the sentiment that growth will come from existing stores, and he plans to invest in his stores by investing in his people and merchandise. In a casual interview, Blake said his leadership vision places the CEO at the bottom of an inverted pyramid. It’s the people who work in the stores who have the greatest impact on their brand, profit, and business success, he says. To rebuild customer trust, Blake is redirecting the chain’s strategy to emphasize speed, simplicity and customer service that enables “more saving, more doing.” For his female customers, who make up a surprising 49% of shoppers, new lines like Martha Stewart will offer stylishly designed products that make the warehouse environment more welcoming, while expanding the DIY chain into new business categories.

Brand = promise to serve

After all of the shake up of the recession, companies need to reinforce their brands, especially if the brand has been repositioned due to the economy. Stan Richards, founder and leader of the Dallas-based Richards Group advertising agency, advised the audience about his Sphericalâ„¢ branding technique. With spherical branding, the brand is implemented at every contact point. Relationship marketing, public relations, even the company’s internal communications—their messages must all be integrated with the brand, he says.

The first step to making that happen is to clearly define the business, as well as the brand’s positioning, personality, and imagery or logos. Those branding strategies guide the development of communication plans for each point of customer contact, with the result being a brand that lasts longer than the average company CEO (three years) or marketing officer (less than two years). Clearly identifying the brand vision for internal audiences is as important as external communication, says Richards.

He should know: his company is responsible for highly memorable brand campaigns such as Chick-fil-A’s “Eat mor chikin,” Motel 6’s “We’ll leave the light on for you,” and Fruit of the Loom’s Fruit Guys.

“If a brand promise has easy substitutes among competitors, then the brand is a commodity. Great brands must have a compelling, unique promise, emotional connection, and align and direct the organization’s every decision.”
— Dave Pickens, President, Olive Garden Restaurants

Dave Pickins, president of Olive Garden Restaurants also spoke about brand management, and the unique promise an organization makes through a brand.

“If a brand promise has easy substitutes among competitors, then the brand is a commodity,” that is, a good that anybody can produce without differentiation across the market. “Great brands must have a compelling, unique promise, emotional connection, and align and direct the organization’s every decision,” says Pickins. A brand should differentiate a company from its competitors so that consumers understand the product or service is something you can’t get anywhere else. When you achieve that level of brand loyalty, your customers become apostles for the brand.

Where does a brand come from? Your brand and its promise must be based on inspired consumer insight, says Pickins. For Olive Garden, the brand is all about an idealized Italian family meal. The American public laments the loss of family time he says, so Olive Garden taps into that longing with an emotional connection: shared salad and breadsticks around the table and a boisterous environment make it more like a meal with extended family at home. Employees’ warm and caring demeanor feeds this brand as well. Across all customer touch points, their brand message “When you’re here, you’re family” is repeated.

“The real from the genuine, not the fake from some phony”

Today’s consumers are interested in real experiences and lasting products, says James Gilmore, author of Authenticity: What consumers really want. In an ever more commercialized, intentionally staged, and technologically mediated world—an increasingly unreal world—people want the real from the genuine, not the fake from some phony, says Gilmore. His advice to retailers is to think about experiential ways to improve business by focusing on how you do things rather than what you do. Retailers must engage the consumer’s five senses and create a unique, memorable, real experience.

On a related note, Leonard Berry, Distinguished Professor of Marketing at A&M, suggested that retailers take a lesson from the Mayo Clinic, which is known for it’s high level of customer service and satisfaction. Berry says retailers must manage the three types of clues sensed by consumers which determine the experience: functional clues (technical quality—the product does what it’s meant to do); mechanic clues (tangible and sensory elements, such as cleanliness or store layout); and humanic clues (personal interactions).

At the Mayo Clinic, respect for the patient is one of the highest priorities. That is something vital that is missing from retail today, Berry says. Retailers must value a customer’s presence, time, privacy, self-esteem, and voice if they want to provide truly great service.

“Advertising is the tax you pay for being unremarkable.”
— Robert Stephens, Chief Geek and founder of The Geek Squad

One other thing sets the Mayo Clinic apart: they don’t advertise. Their brand reputation of quality is so strong, they don’t need to. Retailers often have fantastic advertising and horrible customer service, says Berry, and that disconnect is what’s wrong with retail in America today. Retailers must define what great service looks like in their organization, then “major in the minors” by paying attention to all of the details that effect the customer experience.

Sam Duncan, CEO of OfficeMax, argues that something else is wrong in corporate America today, and that is a lack of integrity. His path to the corner office began bagging groceries at Albertson’s. As he moved up through the ranks, he infused the companies he led with his personal values including integrity, accountability, teamwork and trust. He says employees must think about the company and customers first, while applying focus, energy and discipline to all they do. To the students in the audience, Duncan provided a model of servant leadership, where success is defined not by multi-million dollar compensation packages but by “being honest, even when it hurts.”

In addition to the keynote presenters, summit participants shared ideas during break-out sessions and round table discussions on topics such as customer experience; going green and brand image; lessons from the last recession; new retail business models; and best practices in multi-channel marketing, among others.

Rising from the ashes

More than 200 people from 62 organizations involved with retailing congregated at the Westin Galleria to network and hear speakers present on the timely theme “Moving forward: innovation and discovery to survive, evolve, and thrive.”

Jim McIngvale’s story of triumph after tragedy at Gallery Furniture was the high point of the summit for many attendees. One participant said she found his presentation “inspirational and motivating,” as he shared details about how his company has flourished thanks to a corporate culture built on a “never give up” work ethic, and a local community that supported his business in crisis. “Not everyone has a literal fire occur, but we all have met with some overwhelming challenges,” said the participant.

The theme of the summit was that the same principals of perseverance and determination McIngvale shared must be implemented by all retailers in this changing and challenging economy if they are to emerge more vibrant and profitable than ever when the recession is over.

Plans for the fall 2010 Retailing Summit are underway.

Lee

When CEOs defraud investors, do they usually see jail time? What is the ultimate cost to the criminal’s career and bank account? These were questions examined by Scott Lee, professor of finance at Texas A&M University’s Mays Business School, in the article “The Cost to Firms of Cooking the Books,” which appeared in the September 2008 issue of Journal of Financial and Quantitative Analysis (JFQA).

The article was recently honored with the Sharpe Award for best paper of the year in JFQA—a recognition that came with a $5,000 cash prize, divided among Lee and his two coauthors Jon Karpoff of the University of Washington and Jerry Martin, a recent graduate of the Mays PhD in Finance program who is now an associate professor at American University.

Lee teaches corporate finance and valuation analysis. His research focuses on the economic, legal, and managerial labor market repercussions of government regulation, along with other corporate governance and agency issues. His articles have appeared in the Journal of Financial Economics, Journal of Finance, Journal of Political Economy, Journal of Law & Economics, and Strategic Management Journal.

Smith

L. Murphy Smith, a professor of accounting at Mays, received the Outstanding Researcher Award from the American Accounting Association, Strategic and Emerging Technologies Section, at its annual meeting in New York City in August 2009. As stated on the award, Smith was recognized “for his extraordinary academic achievements and leadership in research.”

Smith’s research examines topics such as Internet financial reporting, cybercrime, disaster recovery planning, and XBRL, an Internet-based document language that has been adapted for business and financial reporting purposes. Smith has given a number of keynote addresses on international financial reporting standards at academic and professional accounting conferences, including the fall 2008 Council Meeting of the American Institute of CPAs. His work has been cited in various news media, including Fortune, USA Today and The Wall Street Journal. Smith is ranked in the top one percent of U.S. accounting faculty according to number of articles published in leading accounting journals, and ranked second for total articles published regarding accounting information systems.

With health care costs sucking up 18 percent of the GDP in the fictional country of Dutan, lawmakers are planning reform. The Dutan Business Network, representing the concerns of the country’s small businesses, is all for reform, but they want to make sure that it’s done right—and that it benefits their constituency. So, they hire a tax firm to suggest changes that could be revenue raisers to finance health care reform, and to examine what the overall impact of reforms would be for small business owners.

You are a tax accountant assigned to this task. What suggestions do you give?

How about removing employer subsidized health care and creating a free market regulated individual payer plan? How about an excise tax on entertainment consoles and the use of tanning beds, coupled with tax incentives for fitness equipment, gym memberships, and annual medical exams?

These were a few of the ideas presented by “Team Awesome,” a group of five students from Mays Business School at Texas A&M University that participated in the annual xTax Competition, a national event hosted by accounting firm PricewaterhouseCoopers. The case competition gave students the opportunity to tackle real-world problems while furthering teamwork and presentation skills. Motivated by a shot at up to $10,000 of prize money, plus a few extra credit points in their accounting classes and the chance to hone their skills, students had two weeks to prepare a 15-minute presentation based on the case materials. Judging was provided by a panel of PwC professionals representing small business owners from Dutan.

“It’s a great learning opportunity for the students, but it’s also great for us,” said Stephen Parker ’88, who sees the event as both a recruitment tool and a training ground for future employees. Parker, who served as one of the judges for the competition at A&M, is a partner in PwC’s Houston office and the lead recruiter for his company on the A&M campus.

The partnership between PwC and schools nationwide make it possible for students to shine in a professional setting that would be impossible to recreate in an interview. In addition to the prize money, each student on the top five teams will be awarded an internship at PwC.

Team Awesome placed second out of the 22 teams from Mays to participate in the event at the local level. Of all of the competing states, Texas has the greatest number of participating schools nationwide. The number of teams from Mays is consistently more than 20, which makes its level of participation above average when compared to Baylor’s 17 teams and the University of Houston’s 15. The top team from each of the 37 schools involved in the competition nationwide will have their recorded presentation reviewed by another panel of judges, and the five highest scoring teams will advance to the national competition to be held in January in Washington D.C. Mays students were national finalists in the xTax competition in 2003 and 2004.

“Mays prepares us very well quantitatively for the workplace, but this added something qualitative, something real,” said Brian Williams, a student in the Master of Science in Accounting program and member of Team Awesome.

A unique condition of the case was that each five-person team had to be comprised of two sophomores enrolled in their first accounting class, one junior accounting major, one graduate student at any level and any area of business, and one graduate student at any level of accounting studies. This multi-generational aspect allowed for the expertise of the older students to combine with the enthusiasm and innovation of the younger set. Team members at every level were expected to participate significantly during the presentation, providing all with an opportunity to learn.

The timely issue of health care reform not only helped students to better understand the world around them but, most importantly, the xTax competition showed these aspiring young professionals how they may have a chance to make a difference in the world after graduation.