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If you haven’t already been humbled by the economic downturn, just listen to Allen I. Questrom.
This story first appeared in the November 11, 2008 issue of WWD. Subscribe Today.
Retail’s turnaround king has an outlook that’s as sobering as any and a prescription for getting through the years ahead that calls for major alterations.
He’s not big on making predictions and hasn’t much faith in those who do: “One thing you should be clear on — all the experts, and all the prognosticators, have been totally inaccurate on what is actually happening. They tell you one thing and three months later something else happens.”
Nevertheless, his presentation at the WWD/DNR CEO Summit, in the form of a Q&A, stirred up the soothsayer in him. “We are going to go through some very tough times and if you think and hope it’s going to be get better in three months or six months, you’re in for disappointment,” stated Questrom.
As Questrom sees it, the nation is not confronting a typical recession. “This is a real transformation — a transformational shift that all retailers and all business people have to think about,” he said.
For the months and years ahead, here’s the Questrom spectrum of survival tactics: First, provide greater value — and not merely through sales; second, it’s better to be underinventoried than overinventoried, and third, leaders must “overcommunicate” to the team on corporate strategy and changes including layoffs and other drastic measures.
Questrom’s 40-plus years in retailing and his career trademark — rationalizing troubled chains — make his views particularly relevant. He’s seen up cycles and down cycles, lifted chains from the depths of bankruptcy or near bankruptcy, taken tough and aggressive actions impacting staffers and vendors, and tackled major mergers to build up businesses. As much as he’s taken the big picture point of view, with some megamergers and remaking companies with broad strokes, Questrom is known to be deep into the merchandise and disposed to challenging his buyers on the nitty-gritty of the individual stockkeeping unit, whether it’s the color, the silhouette or where it’s placed on the selling floor.
But he’s not all business. He’s well traveled, geographically, as well as through fashion, financial and retail circles. And when he’s not having a power breakfast at the Regency, he’s likely to be bicycling through the French countryside, skiing in Aspen, Colo., walking his dogs or checking out contemporary art. Currently, he is a senior adviser at Lee Equity Partners LLC and a member of the boards of Sotheby’s and Wal-Mart Stores Inc.
Questrom began his career in 1964 as a management trainee at Federated Department Stores, which is now called Macy’s. He worked at Abraham & Straus, went on to run Rich’s and Bullock’s in the Eighties and from 1988 to 1990 ran Neiman Marcus Inc., which at the time was surviving on thin margins. He boosted profitability significantly, but left abruptly in 1990 to join the then-bankrupt Federated Department Stores Inc., as chairman and ceo and pull it together with the help of his second-in-command, James Zimmerman. Subsequently, Questrom led the company’s dramatic $4 billion takeover of then-bankrupt Macy’s, creating the largest traditional department store chain in the country.
After leaving Federated in 1997, Questrom was chairman and ceo of Barneys New York just after it emerged from bankruptcy. While there, he instilled some financial disciplines and launched Barneys’ Co-op chain.
Barneys was small potatoes for Questrom, so it wasn’t surprising he cut his stint there short, leaving after about 18 months to tackle a tired and ailing J.C. Penney Co. Inc., which he cited as his toughest turnaround assignment.
When he joined Penney’s in 2000, it was a decentralized company where the store managers were king. Each store bought individually. There was no central distribution center and no information technology. It also had peripheral businesses, like an insurance firm and companies in South America that were more distractions than contributions.
“Penney’s had the most moving parts and really was almost 30 years behind the times,” Questrom said. “It was a company that had not dealt with where the world had gone.” It offered good value but had lost track of the competition and what was needed to compete. Questrom and his team centralized the business, built distribution centers, reorganized and cleaned up the presentation in the stores, installed new technology and elevated the stock price dramatically in the process — 147 percent in his first year on the job. He stayed at Penney’s until December 2004.
It was an ordeal for sure, bigger than other assignments, but not without similarities in his approach. “I look at a company and ask, ‘What’s its history? Does it have a reason for being, and most importantly, what is the makeup of the people. Who have been the leaders of that company?’ In all companies, the number-one issue is the people. Most companies, if they’ve maintained the same organization, probably have very good people. “Saying that, you need to understand the cash flow. Boards generally don’t realize they are in trouble until the company is almost ready to go bankrupt or is bankrupt. You must understand that when you walk into this company you may or may not win. You’ve got to understand you are going to have on your merit badge some losers along the way. But you have to be able to think at least that if there is not money, you have a way to get money.” Penney’s was very close to bankruptcy when he joined the chain but it sold off an insurance company. “If we didn’t have that to sell, we would have had a different story to tell.”
In each turnaround situation, the companies were not focused. “If you look at their priorities, they got 27 pages of different things….What are the fi ve things I am going to focus on? What are the two things I am going to do today? Do the two things I am going to do today tie into the five things I think are going to change my company? Everyone in that company has to think it is their company. The number-one role of the boss or the leader is to manage your people in a way that it’s their company. I see company after company after company where the boss does not understand that he or she is one of thousands. If they don’t like you, or if they think that you’re a nutcase, you’re going to be dead.
“So you to have to think, how do you get on the same wavelength, how do you get into the culture of that company? When I go into a company, I spend six months trying to understand the culture of that company. What is the history? How do the people think? Because the only way you can be successful in the company is not financial — that’s the short-term fix. You’ve got to get the people to believe so much in the company that they wake up in the morning and think that it’s their company — and what am I going to do about it? That means everybody who works in that company. If you go to a store, that salesperson is as important as a gm.”
Mervyns exemplifies losing focus. “Mervyns could have been saved a long time ago.…They didn’t execute that business. Target did a bad job in my opinion, as they did in the department store business,” operating Dayton Hudson. “They do a very good job in the discount business.” Mervyns, which Questrom said was the idea behind Kohl’s and the former Main Street division of Federated, is being liquidated. “Mervyns did not get the proper leadership and sold to a buyout company, which took the real estate and re-rented the properties back to Mervyns. “The problem was the store was operating at a different market rate.”
The usually upbeat and optimistic “Mr. Q,” as some call him, suggested staying positive in the current economic environment, and to take a break from television and all the gloomy macro news that emanates. “It’s almost impossible to get up in the morning and not feel depressed if you turn the TV on. I would almost suggest don’t put it on. Don’t read the newspaper. Kind of operate without [them] because all they do is make you feel bad and there’s nothing you can do about it.”
Don’t fixate on Wall Street either. Stock is cheap and tempting to buy, but prices could stay depressed for a long, long time, he warned. As far as your own company’s stock price, don’t be overly concerned. “I would worry about running a good business and really being a more efficient business.”
At the companies he’s run, Questrom said he tries to surround himself with talented people who are team players. Then it’s his style to delegate and challenge the team on their decisions and actions, without necessarily telling them how to do things. He said his best decisions and worst decisions were about people, and sometimes keeping them too long in positions that weren’t right for them.
“The people issue in any company is the most important thing you’ve got to protect,” Questrom said. “People [ask] me, how do I value my priorities? Always, my number-one priority is my people. The second is my customer. The third is my shareholder. Because if I can take care of the first two, then the third will fall into place.”
He stressed the need to keep the strategy focused and the mission clear, and that a ceo must be a leader who lets people in on the agenda. “You’ve got to overcommunicate to your people,” he said. “You’ve got to make sure they know exactly what you are doing. Why you are doing it, even if you are making job cuts. You have got to explain to them the totality of that decision. You have got to be with them on the selling floor. You have to be with them in the offices. You have got to create a positive spirit in this turmoil.
“I really make sure we have a written strategy that talks about where we want to go and I make sure that everybody understands that strategy. And then we communicate about how we are doing — all the time. We walk down the mall to all of the stores and talk about how does their strategy compare to ours, and why would you want to shop at our store versus theirs. If you can’t say the reasons, then they are not going to shop at your store.
“It’s really not micromanaging because once you micromanage, you are saying I don’t believe in you. So I think you have to have a lot of people around you who you can believe in, and they can feel that. You can challenge them. You can pick on them for things that they’re doing. It’s ‘why are we not doing that,’ but not how to do it. It’s not something you can read in a management book. These are things you have to develop yourself. Again, it’s a people business. You have to realize that.”
Questrom’s mantra is providing value to the customer. “I don’t mean a sale price. I mean great value on whether you are a brand, a status brand or a middle market brand. I think we have gotten [away] from that over the last 20 years.”
It’s no easy feat finding the value equation. It requires working with less margin, Questrom said, and “figuring out how to get your expense structures down totally different from the way you have thought about in the last 20 years.” Questrom cited Wal-Mart for being a powerful company that provides compelling value, as well as J. Crew’s Millard “Mickey” Drexler for creating and transforming businesses, and Limited Brands’ Leslie Wexner as the master of recognizing opportunities. The Buckle, he added, maintains a unique position in the mall.
With the dismal economy and inventory management skills being tested like never before, Questrom recounted what one retailer conveyed just the night before his summit presentation. The retailer said that planned receipts would be adjusted 4 or 5 percent, leading Questrom to think, “Are we are kidding ourselves here? It’s going to be a lot worse than 5 percent. You have got to [realize] if you project 10 percent down and it ends up being 5 percent, it’s money in the bank. I have never seen anybody go out of business because they didn’t have enough inventory. I have seen a lot of them go out of business because they had too much. I would rather grow a little slower during this period of time until I know how thick the ice was.
“What we experienced since the Reagan era is a real euphoric economy. That’s over….I am hoping that [I’m] wrong and that we find out it’s going to get better in the next year. It’s not going to get better for Christmas. You will do more business in Christmas than you did in July and August, but I don’t think it will be anywhere near what you had last year. If one is smart, plan for the worst and restructure the company that way and if it doesn’t happen and it gets better, you will probably be better off for it.
“The people who have traditionally bought upscale product, they are not going to trade down, but they are going to buy less. Status is going to get hit.” As for the aspirational rung just below designer prices, “I don’t think we are going to see the end of aspirational merchandise, but I think we are going to see the business get a lot softer,” Questrom said.
“You have a panic going on, not only in this room but in the world. Unfortunately, we haven’t got leadership that will really talk to the people and try to calm them down.
“When you have panic in the streets, it’s important that you floor that, and the government is the only one who can do that. I am very much against government involvement but I do not think individuals can solve the problem by themselves. This is when governments have to come together and develop packages that stabilize the economy and more than the economy, stabilize the panic.”
The U.S. will not be the world’s growth leader in the next 10 to 20 years, Questrom said. “Reserve that status to China, India and South America,” he said. However, “I believe one of the great things America has is entrepreneurship. We have some very, very smart people that live here from all over the world…. We will come up with new ideas. We are going to come up with new businesses, new formats that will bring this economy back again. We will go through a very difficult time. It could be two, three years, let’s hope it’s not going to be more than that. It could be 10, but there will be new industries and new ideas, maybe even new specialty stores that will revive this economy. This is a country that is 200 years old. We have a $14 trillion economy. Put it into perspective to China, which is 2,000 years old. It’s one-ninth the size of the United States. So this is a country that you can’t give up on. This is a great country. Hopefully, we have the leadership in businesses that appreciate the great strengths that we have and that we don’t focus only on the negatives.”