The Gabberts Turnaround
By Rebecca Miller
This is a summary and study of my experience as president of Gabberts Design Studio and Fine Furnishings. At the time, 2006, Gabberts already had been experiencing year-after-year declines in sales, increasing losses, and a tarnishing of its brand and image. I was hired to turn things around, and turn things around I did.
Like many multi-generation and decades-old retailers, Gabberts suffered from brand and identity neglect and fatigue – a once venerable name synonymous with luxury and high quality – was now dusty and yesteryear. Combined with the struggling housing market, the national economic conditions, and ever-tougher competitive forces such as Williams-Sonoma Home and the more mid-tier Pottery Barn and Room & Board, Gabberts faced extinction.
Importantly, the senior executive team worked closely together as a team. The CEO provided the broad strokes along with the necessary management and capital support. With the CFO, they managed cash flows, the capital improvement budget, as needed financing, and the nuts-and-bolts of daily retail. Without that co-management skill and success, there would not have been the funds for the remodel, restored comfort levels with vendors and suppliers, nor the ability to bring on talented sales associates and merchandizing managers.
Of the many challenges, the first was quitting operations in Texas to focus on the “new” Gabberts in Minneapolis. (While results in Minneapolis and Texas were similarly dismal, the outlook for Texas was much darker.) By quitting Texas and the results of the inventory liquidation events, we were able to return our focus to the Minneapolis operations not only debt free, but with a $5 million capital projects budget to achieve our goal of returning the Company to on-going profitability. Sales barely achieving $200/foot in high quality real estate were hardly going to make the day; the Minneapolis store faced a significant turn-around.
The remaining challenges were many, each a priority in its own right, and all interlinked requiring simultaneous multi-tasking action: analyzing financial reports to monitor successes and failures; polishing the brand and image with new merchandise, new visual merchandising, new logo, and new advertising/promotion; improving gross margins through a comprehensive review of merchandise and vendors to yield higher margins; retraining and augmenting sales staff to achieve increased sales while creating a friendly shopping experience with concierge level services; improving operating margins by evaluating support department performances and eliminating waste; and, accomplish all efforts while overseeing a complete remodel of a disjointed 150,000 square foot space (90,000 for the store and 60,000 offices/support) into a 75,000 square foot space with a new cohesive 61,000 square foot store and a well planned 14,000 square foot area for offices/support.
Reviewing Financial Reporting. My job was monitoring the P/L Statement -- turn the loss into a profit. The CFO position was vacant so I used that opportunity to locate and hire someone with a strong reputation to produce accurate and timely monthly reports. Knowing what is working, and more importantly, what is failing, in almost real-time, is a top priority for me and the CFO met my mandate to produce monthly reports within 3 business days followed by more extensive results reports. As such, we undertook an extensive review of products by SKU, department and vendor to identify what was making us money and what was costing too much to sell. With this information, we prioritized our important vendor relationships and augmented strong product mixes while discontinuing weak ones. Certainly the lessons of Retail 101; however, Gabberts like so many other retailers, would regularly reorder products that were slow sellers and/or achieving low margins due to personal favorites and relationships instead of results. This also led to reviewing the leadership between the sales and merchant/buyer departments. Time and fatigue was creating morale problems causing a disconnect between the two staffs. At times it was like knocking heads, but working together with both teams reviewing SKU/inventory turns, margins and sales/foot, I gained cooperation and rewarding results. The P/L reviews also included improving employee efficiencies in sales associates’ sales ratios and support staff efficiency through cross-training. Overhead was strongly scoured, particularly by relocating much of the support staff offices from the store location to the service center location.
Polishing the Brand and Image. Gabberts had become known as a “brown” store – “your mother’s store; your grandmother’s store”. While 18th century mahogany reproductions served the bottom line and the community well for years, Gabberts failed to notice that newer generations were admiring newer styles, cleaner lines, and a more contemporary attitude and color. No longer the “must see” destination for better homes, I ignited a fire to make Gabberts relevant once again as a luxury brand aimed at the up-and-coming and affluent households.
A careful blend of research, strategy and common sense went into the strategy for recapturing and serving a client base of customers desiring better and willing to pay for better. Drawing on my experience at Morel Jewelers for dedicated merchandise viewpoints and my Neiman Marcus training forbroader multi-product viewpoints, I was able to achieve a new and balanced view of the Gabberts brand: be more than just a furniture store, become a home shopping experience.
For Gabberts, I also relied heavily on my prior experience at Imprint Strategy Group, creating “Project Lisa”, a fictional primary client to serve as our measuring stick. With research and data, we identified who our primary client, Lisa, was and every decision was made in order to serve her needs and desires or solved and placated her fears. The entire company knew the “Lisa” profile in order that they would ask themselves pertinent questions about their job and how their actions and decisions best served Lisa. I led the merchants through a comprehensive exercise to define lifestyle realms beyond Gabberts longstanding traditional collection, adding contemporary and casual realms. Within each realm, we identified and created 14 viewpoints, each based on our research, that covered the breadth of what customer Lisa wanted to experience and own for herself.
Merchants and buyers used the new profiles to comb the merchandise mix, visual merchandising incorporated the new looks on the floor, and vendors were shown ideas of what new items we were looking to add in. The education process was also comprehensive such that merchants, buyers, and visual merchandisers were all brought together so that everyone had the same images, smells, colors, textures, emotional connection and understanding of what we were creating for the customer. Selection processes included vendors to align with the vision and applied across-the-board to casegoods and tables, upholstery, art, antiques, fabrics, accessories, tabletop and visual display.
The visuals and documents we created were then rolled out to the support and sales staffs to help them ask appropriate open ended questions, support storytelling sales efforts and give the client a more engaging shopping experience. We moved from merely filling product slots to purposeful focused planning that translated from merchant to sales to Lisa.
In addition to revamping the merchandise and visual merchandising, Gabberts required an image makeover. Its logo and radio commercial jingle were over 25 years old, and they were old when they were new. My goals for the new promotion campaign were to: capture new and younger clientele, recapture former customers, showoff the new merchandise mix, and allay the fears many home shoppers have of making mistakes. No more did we run advertisements that showed just pieces of furniture. First, we changed the old somewhat stodgy “Gabberts” signature logo to a pleasing slightly feminine new one. The new ads featured various models of “Lisa” enjoying her new interiors -- furniture and accessories. The ads also displayed the variety of new looks to show that Gabberts was no longer limited to just traditional furniture. And we added a “Find Your Style” component to show potential clientele that the task of buying a room or home interior was not overwhelming. Joy, fun, family, entertainment, comfort – all with good taste and style.
Community outreach was also a part of polishing the brand. We held over 125 public events each year educating, entertaining and creating an environment that always said”welcome”. To ensure events met the higher standards of our polished brand, I arranged to bring in a talented caterer who prepared exquisite food with stunning displays. Gabberts had risen above the typical cheese platters and our events demonstrated that. Events spanned from educational seminars to design lectures to fundraisers, including (just a few): Paul Burrell, former butler to Princess Diana, held High Tea for designers and best clients, entertaining all with amusing anecdotes; Lynn Rosetta Kasper, cookbook author, gave informal lectures on entertaining in the home – her Italian good nature shined to an always-packed room; Jo Anne Pier, Contributing Retail Editor at Met Home, joined me for a lecture carried live by the NBC affiliate station; ABC’s Extreme Home Makeover, we sponsored with a $75,000 makeover covering furniture, lighting, accessories and art for local couple who took in 8 tragically orphaned nieces/nephews; and, Ovarian Cancer Society, a series of fundraising events we sponsored and hosted in the store.
On a weekly basis, we held “Saturday Morning Speed Design”. My favorite brainchild, I modeled this on speed dating. Stations were manned by sales and design staff, allowing clients the opportunity to ask a variety of questions from a variety of professionals to determine a connection or comfort level on an individual basis. The events were particularly successful in allaying clients’ fears about cost, delivery, using a designer, doing it themselves, selecting viewpoints and schemes. These events served as a catalyst in building a relationship with clients (including independent interior designers), designers and Gabberts.
Improving Gross Margins through Vendor Support. Gabberts’ gross margin failed to support sales, general and administrative expenses. As competitive pressures increased, Gabberts response was to meet or beat lower prices without taking into account the affect on gross margin. To counter this obvious but frequently seen problem, I instituted a vendor scorecard that ranked our suppliers based on quality, price, margin, discounts, shipping, customer service, and terms.
Since we were in a turnaround mode, we first had to convince and win the trust of our vendors. Since we needed their cooperation to be successful, the CFO and I shared as much financial information as we could every step along the way. We communicated every week with every one of them – both the good news and the bad.
I relied on my strong experience at Target to work the vendors on pricing, terms, and advertising participation. We were there to look for ways to strengthen our relationships and streamline our processes, not to beat people up. In some instances, I worked with vendors to increase their MSRPs while keeping their prices to us static. Other vendors were asked for deeper discounts, some longer terms, and in most cases, a bit of each. I also instigated more volume discounts and advertising dollars against volume. When we would run special events I negotiated even deeper discounts.
Typically twice a year I held face-to-face meetings with the presidents/CEOs of our major vendors and reviewed status with them and their rep, my CFO, our customer service and ops people in attendance. However, if we saw no improvement in a critical area by the next meeting, they would be put on notice and dropped thereafter, if need be.
Due to our regular and open lines of communication, we did not lose a single vendor we wanted to retain. We were able to keep our Net 10 day discounts even though we pushed out accounts payable to 30-45 days. We had been and were serious about being a “preferred” client.
Our efforts turned year-after-year declining gross margins around. Prior to my tenure, Gabberts was running on a 33% gross margin; within two and a half years and full implementation of the remerchandising plan, the gross margin grew to 48.5%, an improvement of 15.5 percentage points!
Retraining and Augmenting Sales Staff. The sales staff workforce had adopted a “country club” attitude over the years – the company “owes” me. I knew that we needed to dramatically change this attitude and culture in order to be successful. I implemented a series of initiatives to engage this change-weary organization and weed out those staff members who would not embrace the changes. We took the time to educate the entire sales staff on the financial business of the business. Through a series of group sessions, the senior management team (CEO, CFO and I) broke down how each dollar in sales covered fixed and variable costs, including the sales staff’s incentive bonus plan. The sales staff was given tutorials so that they would understand the importance of margins and sales to the overall health of the organization and not just their pockets.
While we had planned to cut the headcount in most areas of the business, I determined we needed to keep a similar sized sales staff in order to maintain and then drive up revenues with a highly trained and motivated staff. I hired away Nordstrom’s regional sales manager to lead our sales staff efforts. Together the new sales manager and I upgraded sales employee standards and created a learning environment: personal Individual Development Plans, marketing plans, career paths, individual coaching sessions, technology sessions, group sales meetings, review of monthly results meetings. Further, employees were taught to create a personal passion document so we could focus marketing efforts to like-minded clients.
Additional efforts to improve the sales staff included a “sales coach” who focused solely on open-ended questions, conversion, and time management. I implemented a plan where all managers from other departments (HR, operations, customer service, visual merchants, buyers, IT, delivery) walked the sales floor one hour per day keeping the sales staff in the loop on the various areas of support and to assist sales staff in servicing clients.
The efforts to improve sales efficiency were vigorous but the goal of upgrading skill sets and eliminating cancerous attitudes was worth the effort. Half of the original staff was ultimately let go for “can do” replacements. We started with a troubled sales staff of 53 and after the remake had a talented staff of 50 that was able to sell twice the volume compared to the former staff.
The results were hugely successful: Gabberts regained its position as “the” studio in Minneapolis garnering 7 ASID project awards, the most any firm had won in Minnesota; for the first time each sales associate qualified for sales incentive bonuses; and, most significantly, sales per sales associate grew from $340,000 in 2006 to $720,000 in 2009. While all sales associates earned more individually, the total cost of sales salaries as a percentage of total sales was cut in half.
Improving Operating Margins. With the strong assistance of the CFO, we reviewed support department’s performances. Each department (accounting, HR, operations, customer service, visual merchants, buyers, IT, delivery) was assessed for its management, staffing levels, overhead, and efficiencies.
In addition to hiring a new CFO and sales manager, several of the departments also needed new management. I hired a new HR/Personnel director who had extensive experience coaching and mentoring fellow managers. The new HR/Personnel director also participated very helpfully in the retraining and rebuilding of the sales department. The Company’s various departments were not adequately linked for efficient computer and information communication. I hired a new IT Chief with experience linking the latest in retail systems. The visual merchandising department was, for all practical purposes, running headless. I was able to rehire the former Gabberts head visual merchant who, besides winning many ART awards, I had long admired for his talent but had left when Gabberts just wasn’t providing the same quality merchandise. For the design studio, I hired the former Polo Ralph Lauren VP Interior Design Department in New York. And to promote the “new” Gabberts, I hired a Marketing Director from Fleishman Hilliard’s international accounts. With the stronger and more talented management team in place, we undertook a thorough staff cross training among the departments.
Under the leadership from the new management team and with the new IT improvements installed, we were able to reduce the Company’s headcount by 15% and completely eliminate the services of temporary help.
Concurrent with the store remodel, we relocated the warehouse to a one-third sized Service Center facility. Using the opportunity of the store remodel, the HR, IT, purchasing and external customer service departments were relocated into the Service Center along with the delivery and warehousing departments. The changes resulted in lower rent, insurance, and utilities expenses.
The results of our actions to curtail sales, general & administrative expenses cannot be expressed in comparing before and after the turnaround due to ending the Texas revenue contributions and charges taken against quitting those operations, relocating the Minneapolis warehouse/service center, and the store remodel, among other extraordinary charges. Nonetheless, we achieved our target of controlling ordinary SG&A expenses to 30% compared to pre-turnaround total SG&A expenses that exceeded 36%, a reduction of 17%.
The Remodel. It takes money to make money – we were not afraid to invest the funds to create a shopping environment that permitted Gabberts to return to its former prominence and profitability. The remodel project was my show to run. I identified and hired the architectural firm and the store designers. Together we traveled to several cities to look at stores, layouts and state-of-the-art lighting. For energy consuming fixtures and units, we took the long view – spend the extra cost to save more money in the long run in energy costs. We also took advantage to tax credits and rebates totaling over a quarter million dollars. As part of the tenant allowance we negotiated with the landlord, we were able to install 14 skylights and a dome over the grand staircase, bringing much needed natural light into the space. We also received allowances for exterior signage and new bay windows.
I supervised the space allocation, pattern flow, windows, colors, signage, flooring, and store fixtures. We installed Unitsrut in the ceiling to allow for quick, affordable vignette changes. We garnered a lot of industry press. We also added special features including a “tech bar” for designers, sales and clients to access online and digital work, digital signage for seminars and events, and installed 8 glass conference rooms allowing natural light to flood the store. One of the conference rooms was an actual wine room by Italian manufacturer, Franceso Molon, showcasing their custom capabilities – a fun experience for the consumer. Another feature was making our front windows accessible for clients to walk through – not just look in. I personally designed the themes and displays for the three front windows, changed quarterly, and worked side by side with the visual display team to create a more inviting/engaging shopping experience.
It was fun to receive much local attention for our remodel and the architectural firm won an award for the store design. But the most important factor was the new store brought in new customers and new revenues with streamlined costs.
Conclusion: Overall Results of the Overall Efforts.
[I am limited in providing specific financial results due to the confidentiality of Gabberts as a privately held company.]
As there are many internal and external factors that cause economic hardship on a company, a turnaround requires a methodical approach addressing micro and macro business elements. To address gross margin without addressing customer demand and product mix or to upgrade sales staff without broadening product appeal, is folly waiting. The key to restoring a company’s profitability is to make the business relevant to current market conditions. Gabberts had lost its relevancy: its products were no longer interesting, its services/staff was tired and demoralized, its appeal worn and tired, and competition and economic conditions pressed gross margins so low that no net income could be earned.
Successfully restoring relevancy opens the opportunity to return to profitability. It took the comprehensive review of the business model, seeking new and renewed avenues to make Gabberts relevant to the customer: the right products, “feel good” value and engaging service.
Any troubled business unwilling to move out of its comfort zone, its “business as usual” model, will not find different results but continued trouble. Creating a new business model is required to create new results. As addressed above, there was much more of a need than simply a fresh “gimlet” eye to dust off the brand to turn Gabberts around. And the results of operations show off the successfulness.
When I arrived at Gabberts, sales had declined to just $200 per square foot; three years later, we passed the $590 per square foot – a 295% improvement. In terms of overall dollars, the business (Minneapolis) doubled in that period. By working with vendors, the remerchandising efforts provided Gabberts a gain of 15.5 percentage points in gross margin, giving the Company the opportunity to turn a profit.
Sales per sales associate grew from $340,000 to $720,000, not only greatly increasing operating margins but also greatly improving staff morale. Further boosting the turnaround, the savings attributed to smarter management, elimination of waste, and consolidation of operations allowed Gabberts to achieve ordinary SG&A expenses of 30%.
The turnaround succeeded turning a Company running in the red into a Company in the black. Losses were running approximately <2.5%>. Within the first year of my tenure and the turnaround, we achieved breakeven. Year two, we earned a small profit; while small, it was the first profit in seven years! By the end of the third year, we achieved an after-tax profitability of 3.6% -- a swing of 9.5 percentage points when taking income taxes into account. At the end of the turnaround, a Minneapolis based discount furniture retailer acquired Gabberts and it is my understanding that the new owners have been successful in continuing to meet the budget projections we had laid out for the on-going 5 year plan.