Fashion Executive Sets About Fixing Gucci

MILAN—When Marco Bizzarri became CEO of Bottega Veneta in 2008, the leather-goods brand was flying high, with demand soaring for its trademark woven bags. Even so, the Italian executive worried that fashionistas’ enthusiasm would eventually cool.

So he shook up Bottega’s assortment. He added more shoes and clothes and injected more colorful, fashion-oriented designs from creative director Tomas Maier. Five years later, revenue more than doubled to €1 billion, or about $1.13 billion.

Mr. Bizzarri’s ability to keep a brand hot will be tested in his new role as chief executive of the much larger Gucci brand, which, like Bottega, is owned by French fashion giant Kering .

ENLARGE

Gucci needs fixing. Sales started to fall in 2013, a sharp reversal from 17% growth as recently as 2010. The brand was slick and sexy in the 1990s under the creative direction of Tom Ford, but today Gucci’s legendary double-GG marque has gone cold, after years of overreliance on the logo and overexpansion into lower-priced bags and accessories.

Advertisement

After Mr. Bizzarri’s appointment as Gucci CEO in December, one of his first tasks was to pick a new creative director. He installedAlessandro Michele, a Gucci veteran.

On Wednesday in Milan, Mr. Michele’s first women’s collection was saluted as a significant change of direction for Gucci, with a more sophisticated, intellectual and androgynous feel. Aimed at bringing a more contemporary look to the brand, Mr. Michele’s designs didn’t recycle the Gucci’s well-known floral prints, which were evident in past collections by the ousted previous chief designer, Frida Giannini, who was booted in December along with Gucci’s former chief executive Patrizio di Marco.

ENLARGE

One of the new looks from Gucci women's Fall-Winter 2015-2016 collection, part of the Milan Fashion Week, unveiled on Wednesday.PHOTO: ANTONIO CALANNI/ASSOCIATED PRESS

Mr. Bizzari’s appointment of Mr. Michele has been questioned in some corners of the fashion industry. Some wonder whether the little-known designer lacks the star power to restore Gucci’s glamour and worry that Mr. Michele, who was Ms. Giannini’s main assistant, may not mark a break from the tenure of his predecessor, whose designs often failed to conjure up the red-hot designs that distinguished Gucci.

“Gucci was all about a sexy lady,” says Michael Ward, chief executive of Harrods in London. “I don’t think she captured the real Gucci woman.”

These concern may have eased after Wednesday’s show, as fashion reviewers agreed that Mr. Michele’s collection was different from anything previously seen at Gucci for a long time.

According to people familiar with the situation, Mr. Bizzarri liked Mr. Michele’s contemporary vision for the house and wanted someone with a deep knowledge of the house’s workings.

ENLARGE

Gucci CEO Marco Bizzarri and Emmanuelle Alt, editor of Vogue Paris, at the Gucci show during the Milan Fashion Week on Wednesday. PHOTO: VENTURELLI/GETTY IMAGES FOR GUCCI

Mr. Bizzarri, a longtime fashon executive who earlier in his career was CEO of Kering’s Stella McCartney label, is a trusted lieutenant of the conglomerate’s owner, Francois-Henri Pinault. Last year, Mr. Pinault created a role for him overseeing all of the group’s luxury brands —except Gucci—as part of the French billionaire’s efforts to shed the parent company’s mass-market past and strengthen its luxury division, the conglomerate’s growth driver.

Mr. Bizzarri began to look for ways in which Kering’s brands—which had operated largely separately—could cut costs by sharing suppliers or win better real-estate deals by negotiating store locations for more than one house.

During his eight months in that job, the 52-year-old executive also started fixing problem brands, such as Brioni and Sergio Rossi.

At Brioni, Mr. Bizzarri began to tackle problems with customer service that were damaging the image of a menswear label whose handmade suits cost as much as $8,000. For instance, Mr. Bizzarri found salespeople ignoring customers when he walked into the brand’s Milan boutique. He also learned that Brioni employees had turned down a request by one loyal customer who asked the house’s tailors to craft a suit for him using his own fabric —an unforgivable gaffe in Mr. Bizzarri’s book.

ENLARGE

Gucci’s chief designer Alessandro Michele, following the Gucci show in Milan on Wednesday. PHOTO: GIUSEPPE CACACE/AGENCE FRANCE-PRESSE/GETTY IMAGES

Mr. Bizzarri fired Brioni’s chief, replacing him with Gianluca Flore, who had worked with Mr. Bizzarri running Bottega stores world-wide.

Mr. Bizzarri also fired the head of Sergio Rossi, which has lost money for the past two years as the once-sexy Italian shoemaker struggled to compete against high-wattage names such as Jimmy Choo or Christian Louboutin.

Gucci—which has €3.5 billion in sales and represents about half of Kering’s luxury-division sales—will undoubtedly be Mr. Bizzarri’s toughest challenge yet.

Mr. Bizzarri, who declined requests for an interview, plans to hone the collection and focus on fewer items, according to Kering. He will push more innovative items, after a tepid response to designs by Ms. Giannini that hewed closely to Gucci’s heritage, including bags and scarves inspired by Jacqueline Kennedy and Grace Kelly.

In his two months at the helm, Mr. Bizzarri has begun to address the serious problems in Gucci’s retail strategy. The brand had opened too many stores and often in the wrong locations, particularly in China. It also began selling in middle-brow retailers such as Macy’s, which hurt its image, and lost a prime spot in Bergdorf Goodman tony store in New York.

According to Mr. Pinault, Mr. Bizzarri will slow store expansion—Gucci added over 220 in the past 5 years—and try to fix the existing network. It will stick to the retail concept launched in recent years by Ms. Giannini and now installed in more than half of Gucci’s 500 stores, as a total redo would be too costly. Instead, Mr. Bizzarri may change the façade of stores in major cities.

Gucci needs to regain ground lost with retailers. In London, Harrod’s has stuck with Gucci but Mr. Ward, the retailer’s CEO, said he would expand Gucci’s space only if the house performs “better in the space they have.”

Just weeks after his appointment, Mr. Bizzarri visited with department-stores executives in New York—something Mr. di Marco had long neglected to do—and toured Gucci spaces.

So far, luxury executives have applauded his appointment. “It’s good news,” said Marigay McKee, president of Saks Fifth Avenue, the high-end U.S. department store. “There’s no fear of failure with him.”  - Source WSJ

Game Over for Struggling Mattel CEO

Mattel Inc. Chief Executive Bryan Stockton abruptly resigned Monday, as another disastrous holiday season showed his recent efforts to revive the creative culture at the world’s largest toy company didn’t do the trick. The company tapped longtime board member Christopher Sinclair to serve as interim CEO and launched a search for a permanent leader. Mr. Sinclair will also take over Mr. Stockton’s title of chairman. ENLARGE Mattel didn’t have any standout toys this holiday season, and a big bet on clustering its marketing spending closer to Christmas didn’t appear to make enough of a difference. Profit during the holiday quarter fell 59% from a year earlier to $149.9 million, as sales dropped 6% to $1.99 billion. The results were the last straw after several quarters of declining sales. “Our result were not meeting our expectations and the board felt that a leadership change was in order,” Mattel spokesman Alex Clark said. Advertisement Mattel declined to make Mr. Stockton available, and he didn’t respond to requests for comment. Mr. Stockton took the CEO job three years ago after more than a decade at Mattel. Prior to that, he spent more than two decades in the food business at companies including Kraft. People inside the company and at several large retailers said his tenure was marked by a growing focus on the numbers and overseas expansion—at the expense of the Mattel’s creative side. Meanwhile, the explosive growth of the iPad had created a big new rival for kids’ attention. According to current and former executives, Mattel’s executives needed to be thinking up better toys. Instead, they became entangled in a culture that valued endless meetings and long PowerPoint presentations. Meanwhile, smaller competitors like VTech Holdings Ltd. were taking shelf space, and Lego A/S was challenging Mattel’s position as the largest toy company. Some retailers found that Mr. Stockton wasn’t as involved in toy selection as counterparts at rivals such as Hasbro and Lego. He rarely accompanied retailers on tours of Mattel’s showrooms that showed off products for the coming year, according to former Mattel executives and retail executives. The CEO recently changed tack and scheduled more meetings with the top U.S. toy retailers, a person familiar with the matter said. In addition, he delivered an edict late last summer trying to speed up decision-making and free up executives by putting rules around meetings—including one that said no meeting is to be held without a specific purpose. Mr. Stockton also has made some important hires aimed at empowering the creative side. Last year, Richard Dickson, a Mattel veteran who led Barbie’s turnaround in the early part of this decade, was rehired as chief brands officer. The efforts have been too little, too late, however. With its results weakening, Mattel is preparing for another major round of belt-tightening. In October, it announced plans to cut another $250 million to $300 million in annual costs. Mr. Stockton said in November that includes eliminating redundant layers of management. The process for culling jobs has already started. Last Friday, Mattel offered early-retirement packages to eligible employees. The two top internal candidates for the CEO job likely will include Mr. Dickson, as well as Tim Kilpin. Both were named president two weeks ago. Analysts, however, expect Mattel to strongly consider someone from outside the company, if not outside the toy industry entirely. Mr. Sinclair has served on the toy company’s board since 1996. He said Monday that Mattel will work through the coming months to revitalize its business and find the right leader. Mattel has struggled in recent quarters as its Barbie doll has fallen out of style. Sales of the fashion doll fell a staggering 21% in the third quarter, contributing to a 22% drop in profits and an 8% decline in sales for the toy maker. Barbie once generated around $1.8 billion in annual sales. In the 12 months through September, the total was just over $1 billion. (Source WSJ)

Turnaround Tommy: How Hilfiger’s Once-Dead Brand Had Its Biggest Year Ever

In Manhattan’s cavernous Park Avenue Armory the thrum of the Rolling Stones’ “Sympathy for the Devil” blared as Mick Jagger’s 22-year-old supermodel daughter, Georgia, sashayed down the catwalk. Vogue’s Anna Wintour was in the front row. So were the daughters of rock royalty like Keith Richards, Simon Le Bon and Annie Lennox, firing off shots on Instagram (#tommyspring15). Kendall Jenner of clan Kardashian closed out the show strutting in a sheer, braless dress, driving her 25 million social media followers wild. The message of Tommy Hilfiger’s New York Fashion Week show was as transparent as Jenner’s top: After a long and painful fall, he’s back. Once the official outfitter of the ’90s hip-hop set, hitting $2 billion in sales in 2000, Hilfiger’s business imploded amid a sea of overexposure and baggy, logoed merchandise that fast fell out of fashion. “We made the mistake of following a trend that was going to be short-lived,” says Hilfiger, 63, “because any trend is short-lived.” But now the brand is hot once again thanks to a pair of savvy European businessmen: Daniel Grieder, 53, Tommy Hilfiger’s immaculately groomed Swiss CEO, and his Dutch predecessor, Fred Gehring, 60, both former stewards of the Hilfiger brand abroad. And while they’re longtime Tommy loyalists, they’re brutally honest about the mess they inherited. “It fell off a cliff,” Gehring says of the American part of the business. They bought the company with the help of London-based private equity firm Apax Partners in 2006 for $1.6 billion. To save Tommy Hilfiger they’re breaking all the rules of modern retail: raising prices, tailoring clothes smaller, alienating customers and cutting off stores. It’s a counterintuitive strategy, but it’s working. Worldwide revenues hit a record $3.4 billion in 2013, up 7% from the year before (for perspective, sales were $1.8 billion in 2005, during the brand’s slump). Cash flow as defined by earnings before interest and taxes increased 10% to $479 million, with growth not just in the expected emerging markets of Asia and South America but in Europe and North America, too, where competitors like Michael Kors and Hugo Boss have struggled. “At first glance you wouldn’t recognize how this brand has come from the depths,” says Brian Sozzi, retail analyst and CEO at Belus Capital Advisors. “They’ve peeled back on distribution. The quality has improved. And I think they’ve broadened out who that Tommy Hilfiger customer is.” Hilfiger’s is a legendary fashion success story–or at least it was for a while. After starting out in the late ’60s selling bell-bottom jeans and hippie threads on college campuses near his hometown of Elmira in upstate New York, Tommy Hilfiger became the first fashion company to float on the New York Stock Exchange, raising $47 million in 1992 while clocking $107 million in sales ($80 million and $180 million in 2014 dollars, respectively). By the mid-1990s Tommy Hilfiger’s oversize jeans and puffer jackets became the teen uniform of the era. “All the preppies, all the cool kids, the surfers, the skateboarders–everyone was wearing it,” he says today, perched on a leather couch in his company’s Fifth Avenue flagship store. A 16-year-old Beyoncé and her group, Destiny’s Child, wore his denim overalls over logo bikini tops to a 1998 photo call. The designer dressed the 17-year-old breakout star of the day, Britney Spears, for her “Baby One More Time” tour in 1999. But by 2000, when revenues reached the $2 billion mark, Hilfiger had gotten greedy. What started as a preppy menswear label making colorful button-downs was now selling $20 T-shirts, accessories, perfume, sunglasses, bags, homewares. His nautical flag logo was a mainstay of down-market department stores. The company’s wholesale business–the sale of red, white and blue ephemera to Belk, Kohl’s, Dillard’s and anywhere that would take it–swelled to $1.5 billion in 2000. Worse than market oversaturation was the brand’s descent into promotions, a dirty word in high-end retail that means “always on sale.” “It had become so bad that a shirt that was going to have a retail price of $69 was designed in such a way that even at markdown at $39 it would still make money,” says Gehring. By 2005 wholesale sales had slowed to $500 million. Even in Middle America, where Hilfiger’s inventory once thrived, no one wanted cut-rate Tommy T-shirts. Hilfiger felt it was his duty to figure out the next move for his floundering company, he says. “In reality the answer was sitting right in front of us. It was in Europe.” Daniel Grieder and Fred Gehring inside Tommy Hilfiger’s Fifth Avenue, NY flagship. Photo: Jamel Toppin For Forbes Daniel Grieder and Fred Gehring inside Tommy Hilfiger’s Fifth Avenue, NY flagship. Photo: Jamel Toppin For Forbes Indeed, under Gehring and Grieder the European business had grown from zero in 1997 to just under a billion in 2008 without any trace of the enormous logos and cheap price tags that defined Tommy Hilfiger in the U.S. After being offered what he calls “crummy” terms from U.S. banks that only knew the brash Tommy Hilfiger brand of old, Gehring led a 2006 $1.6 billion management buyout with the help of Apax, which had seen the strength of the company in Europe. After taking the company private, new worldwide CEO Gehring and second-in-command Grieder set about remaking stateside Tommy Hilfiger in its European image. They laid off 40% of the company’s employees and shrank the U.S. wholesale business, yanking low-quality merchandise from thousands of department store shelves. “The Apax investment was to ensure there was more money to make better products,” says Gehring. “And then we gambled on having to give much less discount. If we’d had to give the same level of discount, we would have killed ourselves.” The two made a decision to focus on just one retailer as its sole partner, arguably the most powerful in U.S. fashion and apparel: Macy’s. With almost 800 stores the New York-based chain already represented about 60% of Tommy Hilfiger’s wholesale business. Gehring wanted to boost that figure to 100%. Macy’s CEO Terry Lundgren remembers hashing out this exclusivity plan with Gehring in the summer of 2007, in the backyard at the home of Tommy Hilfiger’s first CEO, Joel Horowitz, during his daughter’s wedding. Horowitz had retired in 2005 but remained a Hilfiger friend and booster. “If we were going to do this, we were going to be fully committed,” says Lundgren. “We owned it, and we had to make sure we did everything in our power to sell it because he had no outlet other than us to move through the inventory.” With control of so much of the U.S. business, Lundgren and his team were able to ensure the Tommy Hilfiger clothing hitting the racks at Macy’s was up to snuff. Gone were the oversize jeans and tees. In came structure and slim-fit sweaters. The company considered another IPO and started the road show process in 2007, right before the credit crisis rendered a float impossible. “We couldn’t ship to customers, as they couldn’t pay,” says Gehring. The company switched focus from profit-and-loss to paying down its debt. By 2009, with $2.2 billion in revenues, Apax was itching to exit. That fall Emanuel Chirico, CEO of New York-based publicly traded clothing conglomerate Phillips-Van Heusen Corp., approached Gehring with an offer to join its umbrella of fashion brands that already included Calvin Klein and IZOD. In 2010 PVH bought Tommy Hilfiger for $3 billion, the biggest retail acquisition in years. In the U.S. the company has enjoyed PVH’s advantages of scale, able to negotiate with suppliers and customers alike. The company spends about $170 million a year on glossy-magazine campaigns and billboards in international shopping capitals, helping fuel a boom that’s seen European business grow to $1.5 billion today — 43% of the worldwide total. “Asia is up the most,” says Gehring, pointing to $135 million in revenues in China in 2013. “The farther east you go, the greater the growth.” Hilfiger remains chief creative officer and familiar face of the brand (and a huge draw in promotional appearances and ads for Macy’s, says Lundgren). He’s involved in the runway shows (like his New York Fashion Week rock ‘n’ roll spectacle), the advertising, the marketing, the overall aesthetic. He’s happy to leave the business side to Grieder and Gehring, who was promoted to vice chair of PVH this year . Says Hilfiger: “They run it like clockwork.” Source : Forbes

Cirque du Soleil Uji Bisnis Non-Sirkus

Pemain Cirque dalam pertunjukan di Vienna, Austria. MONTREAL—Pemilik dan pengelola perusahaan hiburan Cirque du Soleil menyaksikan bagaimana pertumbuhan mereka berkurang dalam beberapa tahun terakhir. Kini, mereka mulai memikirkan kunci pemulihan sukses. Apakah itu? Tak lain dan tak bukan: mengurangi pentas sirkus. Selama tiga dekade, raksasa sirkus asal Kanada ini terkenal lantaran adegan melayang-layang atau formasi akrobat serbatinggi. Bisnis Cirque begitu berkibar, mereka bahkan menjadi contoh studi kasus dalam jurnal sekolah bisnis soal pasar unik dunia. Namun, menyusul proyeksi suram dari konsultan, disambung pentas yang kian minim pujian serta pelemahan laba, eksekutif Cirque mengaku kini tengah melakukan restrukturisasi. Selain itu, perusahaan juga merombak fokus bisnis mereka, dari penampilan badut dan akrobat ke bisnis lain Pementasan “Varekai” oleh Cirque du Soleil di Lima, Peru, 16 Januari 2013. Pada 2013 silam, Cirque juga menghadapi kematian pertama salah seorang pemain akrobatnya. Ia meninggal, sesudah terjatuh dari ketinggian 28 meter dalam pentas di Las Vegas. Pentas Cirque absen hingga setahun sesudahnya. Saat kembali ke pentas sirkus, Cirque mengubah versi akrobat mereka. Berbagai perjuangan itu, menurut Chief Executive Daniel Lamarre, “membuat organisasi ini kian rendah hati.” Dalam wawancara belum lama ini dengan The Wall Street Journal di kantor Cirque, eksekutif utama perusahaan, termasuk pendiri dan pemilik 90% saham organisasi itu, Guy Laliberté, mengungkap perincian status finansial mereka. Di samping itu, Laliberté juga membagi rencana bisnis terbaru perusahaan. Cirque memburu posisi sebagai perusahaan yang atraktif di mata investor. Laliberté bulan lalu mulai mencari investor yang bisa membeli porsi signifikan saham perusahaan. Ia berencana mendiskusikan proposal sebelum akhir tahun ini, menurut sejumlah petinggi. Cirque berangkat dari kelompok yang tampil di jalanan Montreal, Kanada, pada era 1980-an. Penampilan mereka disokong dana dari pemerintah, sesudah sejumlah bank menolak untuk mendanai adegan seperti memakan api, titian pejalan, serta badut. Pentas Cirque merupakan hasil perombakan sirkus tradisional Amerika Utara, yang mendapat pengaruh teatrikal dari Rusia, Cina, dan Italia. Sirkus semacam ini terbukti populer dalam tur luar negeri. Pendapatan Cirque meroket sesudah mengamankan kesepakatan dengan kasino Las Vegas. Namun pada akhir 2011, firma konsultan Bain & Co melaporkan pasar Cirque sudah jenuh. Perusahaan harus hati-hati dalam menambahkan pentas baru, kata konsultan. Bain menyarankan Cirque mencari pertumbuhan dari produk baru, misalnya film, kata sumber. Tim eksekutif di bawah Laliberté juga menelurkan sebuah rencana restrukturisasi, yang mencakup pembentukan unit bisnis di bawah satu korporasi pusat. Tujuannya adalah mendongkrak aktivitas bisnis non-sirkus. Unit kerja baru Cirque termasuk divisi produksi teater musikal di Kota New York, Amerika Serikat. Selain itu, ada pula rumah produksi yang mulai beroperasi di bawah nama 45Degrees Events. Menurut petinggi, pertumbuhan paling pesat bagi perusahaan saat ini sama sekali bukan bisnis pementasan, melainkan penyediaan jasa tiket kepada AEG, perusahaan operator stadion dan arena. Pengamat pentas sirkus mengatakan, Cirque mesti hati-hati mewujudkan strategi, sehingga dapat memperluas bisnis ke fokus baru, tanpa mengusik merek utamanya sebagai entitas kreatif. “Apakah mereka sekadar mesin pencetak uang?” papar Jan Rok Achard, konsultan sirkus sekaligus mantan direktur Sekolah Sirkus Nasional Montreal. “Jika Anda tak mampu menjaga serta menyegarkan keinginan, kenapa masih bertahan?” Sumber : WSJ

Tesco’s Downfall Is a Warning to Data-Driven Retailers

Tesco’s chairman has resigned in disgrace. The company's market value has more than halved to an 11-year low as it acknowledged overstating profits by hundreds of millions of dollars. And a humbled Warren Buffett, after opportunistically raising his stake in the company after a surprise profit warning, confessed to CNBC: “I made a mistake on Tesco. That was a huge mistake by me.”Indeed. Britain’s biggest supermarket chain has not only seen its fortunes erode but its reputation for competitiveness, creativity and integrity collapse. Even before its accounting travails, a former chairman hadsharply criticized former CEO Sir Terry Leahy, who had led Tesco to market dominance and worldwide admiration, for leaving a shambles of a legacy. Leahy’s immediate successor resigned in July; his successor from Unilever now confronts more of a turnaround than he had ever expected.What the heck happened to Tesco?Many analysts and unhappy investors point to Tesco’s ill-fated Fresh & Easy convenience store foray in America just as the global financial crisis kicked in. The failed expansion effort ultimately led to write-downs topping $3 billion. At the same time, dramatically increased price competition by discounters such as Aldi severely undercut Tesco’s "every little helps" value proposition. The company still declines to say whether its systemic supplier-related accounting misstatements better reflect malpractice or malfeasance. Regardless, Tesco’s collective failures feel operational, organizational and cultural. This isn’t simply bad luck.But beyond the business cliches of "big bets gone bad" and "not keeping one’s eye on the ball" is the disconcerting fact that the core competencies that made Tesco a marketing juggernaut and analytics icon appear almost irrelevant to its unhappy narrative of erosion and decay. More than any other retailer of scale, Tesco had committed to customer research, analytics, and loyalty as its marketing and operational edge. For example, the supermarket ingeniously succeeded at Internet-enabled grocery shopping in ways that Webvan-remember them?-could not. Tesco was digital before digital was cool. Tesco’s Clubcard loyalty program was launched under Leahy in 1995 and redefined both the company and the industry. As the Telegraph recently observed, “Tesco was transformed into the market leader in the UK-with more than 30pc market share-by being able to respond to the demands of its customers.”American supermarkets-notably Kroger-admired and sought to emulate Tesco’s success. Even Walmart-overwhelmingly focused on optimizing its everyday low-pricing supply chain logistics-took Tesco’s command of customer analytics seriously. Practically every retail Big Data and analytics case study over the past decade explicitly referenced Tesco as "best practice." With the notable exception of, say, an Amazon, no global store chain was thought to have demonstrably keener data-driven insight into customer loyalty and behavior.But the harsh numbers suggest that all this data, all this analytics, all the assiduous segmentation, customization and promotion have done little for Tesco’s domestic competitiveness since Leahy’s celebrated departure. As the Telegraph story further observed, “…judging by correspondence from Telegraph readers and disillusioned shoppers, one of the reasons that consumers are turning to [discounters] Aldi and Lidl is that they feel they are simple and free of gimmicks. Shoppers are questioning whether loyalty cards, such as Clubcard, are more helpful to the supermarket than they are to the shopper.”How damning; how daunting; how disturbing for any and every serious data-driven enterprise and marketer.  If true, Tesco’s decline present a clear and unambiguous warning that even rich and data-rich loyalty programs and analytics capabilities can’t stave off the competitive advantage of slightly lower prices and a simpler shopping experience. Better insights, loyalty and promotion may not be worthless, but they are demonstrably worth less in this retail environment.A harsher alternative interpretation is that, despite its depth of data and experience, today’s Tesco simply lacks the innovation and insight chops to craft promotions, campaigns and offers that allow it to even preserve share, let alone grow it. What a damming indictment of Tesco’s people, processes and customer programs that would be. In less than a decade, the driver and determinant of Tesco’s success has devolved into an analytic albatross. Knowledge goes from power to impotence.There’s nothing new or unusual in a one-time business strength turning into an organizational weakness or an industrial irrelevance. But when we’re talking about customer data, insight, loyalty and all the ingredients that-supposedly-go into giving digital enterprises their information edge, then it’s time to get nervous and ask hard questions.Is Tesco’s fall from grace a typical tale of shambolic succession and enterprise lassitude as times turned tougher? Or is it a market signal that Big Data, predictive analytics, and customer insight aren’t the sustainable competitive weaponry they’re cracked up to be? The schadenfreude gang may be counting on the former; but datanauts who referenced Tesco to sell their bosses on analytic investments would be wise to consider the latter possibility. Or is it probability?Michael Schrage, a research fellow at MIT Sloan School’s Center for Digital Business, is the author of Serious Play, Who Do You Want Your Customers to Become? (HBR Press), and The Innovator's Hypothesis (MIT Press). Michael Schrage

Turnaround Story of Netflix

Netflix leadership has shown a penchant for having the right strategy to remain a market leader – even when harshly criticized for taking fast action to deal with market shifts. Specifically, choosing to rapidly cannibalize its own DVD business by aggressively promoting streaming – even at lower margins – meant Netflix chose growth over defensiveness. Wild Ride for CEO Hastings in the press In 2011 CEO Reed Hastings was given “CEO of the Year 2010″ honors by Fortune magazine. But in 2011, as he split Netflix into 2 businesses – DVD and streaming – and allowed them to price independently and compete with each other for customer business he was trounced as the “dunce” of tech CEOs. His actions led to a price increase of 60% for anyone who decided to buy both Netflix products, and many customers chose to drop one. Analysts predicted this to be the end of Netflix. Milk the installed base to invest in growth markets But in retrospect we can see the brilliance of this decision. CEO Hastings actually did what textbooks tell us to do – he began milking the installed, but outdated, DVD business. He did not kill it, but he began pulling profits and cash out of it to pay for building the faster growing, but lower margin, streaming business. This allowed Netflix to actually grow revenue, and grow profits, while making the market transition from one platform (DVD) to another (streaming.) Almost no company pulls off this kind of transition. Most companies try to defend and extend the company’s “core” product far too long, missing the market transition. But now Netflix is adding around 2 million new streaming customers/quarter, while losing 400,000 DVD subscribers. And with the price changes, this has allowed the company to add content and expand internationally — and increase profits!! Marketwatch headlined that “Naysayers Must Feel Foolish.” But truthfully, they were just looking at the wrong numbers. They were fixated on the shrinking installed base of DVD subscribers. But by pushing these customers to make a fast decision, Netflix was able to convert most of them to its new streaming business before they bought the service from a competitor. Don’t fear cannibalization Aggressive cannibalization actually was the BEST strategy given how fast tablet and smartphone sales were growing and driving up demand for streaming entertainment. Capturing the growth market was far, far more valuable than trying to defend the business destined for obsolescence. Netflix simply did its planning looking out the windshield, at what the market was going to look like in 3 years, rather than trying to protect what it saw in the rear view mirror. The market was going to change – really fast. Faster than most people expected. Competitors like Hulu and Amazon and even Comcast wanted to grab those customers. The Netflix goal had to be to go headlong into the cold, but fast moving, water of the new streaming market as aggressively as possible. Or it would end up like Blockbuster that tried renting DVDs from its stores too long – and wound up in bankruptcy court. Understand the competition There are people who still doubt that Netflix can compete against other streaming players. And this has been the knock on Netflix since 2005. That Amazon, Walmart or Comcast would crush the smaller company. But what these analysts missed was that Amazon and Walmart are in a war for the future of retail – not entertainment – and their efforts in streaming were more to protect a flank in their retail strategy, not win in streaming entertainment. Likewise, Comcast and its brethren are out to defend cable TV, not really win at anytime, anywhere streaming entertainment. Their defensive behavior would never allow them to lead in a fast-growing new marketplace. Thus the market was left for Netflix to capture – if it had the courage to rapidly cannibalize its base and commit to the new marketplace. Hulu and Redbox are also competitors. And they very likely will do very well for several years. Because the market is growing very fast and can support multiple players. But Netflix benefits from being first, and being biggest. It has the most cash flow to invest in additional growth. It has the largest subscriber base to attract content providers earlier, and offer them the most money. By maintaining its #1 position – even by cannibalizing itself to do so – Netflix is able to keep the other competitors at bay; reinforcing its leadership position. There are some good lessons here for everyone: Think long-term, not short-term. A king can become a goat only to become a king again if he has the right strategy. You probably aren’t as good as the press says when they like you, nor as bad as they say when hated. Don’t let yourself be goaded into giving up the long-term win for short-term benefits. Growth covers a multitude of sins! The way Netflix launched its 2-division campaign in 2011 was a disaster. But when a market is growing at 100%+ you can rapidly recover. Netflix grew its streaming user base by more than 50% last year – and that fixes a lot of mistakes. Anytime you have a choice, go for the fast growing market!! Follow the trend! Never fight the trend! Tablet sales were growing at an amazing clip, while DVD players had no sales gains. With tablet and smartphone sales eclipsing DVD player sales, the smart move was to go where the trend was headed. Being first on the trend has high payoff. Moving slowly is death. Kodak failed to aggressively convert film camera customers to its own digital cameras, and it filed bankruptcy in 2012. Dont’ forget to be profitable! Even if it means raising prices on dated solutions that will eventually become obsolete – to customer howls. You must maximize the profits of an outdated product line as fast as possible. Don’t try to defend and extend it. Those tactics use up cash and resources rather than contributing to future success. Cannibalizing your installed base is smart when markets shift. Regardless the margin concerns. Newspapers said they could not replace “print ad dollars” with “on-line ad dimes” so many went bankrupt defending the paper as the market shifted. Move fast. Force the cannibalization early so you can convert existing customers to your solution, and keep them, before they go to an emerging competitor. When you need to move into a new market set up a new division to attack it. And give them permission to do whatever it takes. Even if their actions aggravate existing customers and industry participants. Push them to learn fast, and grow fast – and even to attack old sacred cows (like bundled pricing.) There were a lot of people who thought my call that Netflix would be the turnaround tech story of 2012 was simply bizarre. But they didn’t realize the implications of the massive trend to tablets and smartphones. The impact is far-reaching – affecting not only computer companies but television, content delivery and content creation. Netflix positioned itself to be a winner, and implemented the tactics to make that strategy work despite widespread skepticism. Hats off to Netflix leadership. A rare breed. That’s why long-term investors should own the stock. Source : Forbes

Domino's CEO talks turnaround success

Not every CEO is willing to admit the product he or she is responsible for just flat out isn’t good. But Patrick Doyle, president and chief executive of Domino’s Pizza (DPZ) wasn’t just willing to admit it, he was more than happy to tell consumers himself that he agreed with them. It’s been a turnaround story that, for Doyle, has been years in the making, and has paid huge rewards for the company. Hourly-Wage Earner Turned Big Cheese Doyle’s career at Domino’s began about 17 years ago in the marketing department, and he’s been with the pizza chain for more than half of his career. While he wasn’t exactly slinging pizzas at the start, he said his depth of experience with the company has certainly been an advantage. “I’m a finance guy, and way back when I ran our international business,” he said. “I ran our corporate stores. I got an opportunity to really do and see most everything you can do within Domino's before I became CEO. Hopefully I’ll do as good a job getting (the next) experts ready.” For Doyle, working with his predecessor was never something he dreaded. Instead, he welcomed criticism and opportunities to grow and learn as he progressed with the brand. Even after taking the helm a little more than four years ago, Doyle said he still has a solid relationship with Dave Brandon, Domino’s former CEO who now serves as the chain’s non-executive chairman. “He’s been my mentor and continues to be. It works out beautifully,” Doyle said. “It doesn’t always work that way for people. Sometimes having the previous CEO still there isn’t great. But in this situation, it’s perfect. He knows the business, we know each other well. He’s someone I can always go to for counsel and he knows what I’m dealing with.” It wasn’t long after Doyle took the reins from Brandon that he launched the brand into a major turnaround effort. The focus for Domino’s had always been on time and efficiency, not necessarily on the quality of the product customers received. Dedicated to his pitch for feedback, Doyle even went straight to your living room, asking for photos of your Domino’s pizzas, and suggestions for how he and the brand he represented could do it better. “We were the 30-minute guys. We were the delivery guys who were going to get a pizza to you that’s going to be OK, but we’re going to get it to you quickly. And that just stopped working at one point,” he said. “We realized there was no conflict between delivering pizza quickly to people and making it great." So the chain dumped its pizza recipe, and started from scratch…literally. It completely re-did the recipe, a strategy that more than paid off. In the four years since, the chain’s stock price has catapulted from $12 per share to more than $75 in recent trade. What’s more, Doyle launched the turnaround at the start of an economic recovery that had consumers pocketing every extra dollar they had, hitting many discretionary spending companies hard. “Some of our problems were probably self-inflicted because the pizza wasn’t as good as it could be,” Doyle said. “But the fact the economy was bad made it easier to go to our franchisees … (to say) look, we have to do something. We have to take a little bit of a risk here, but we need to do this.” Doyle said in that kind of environment, it’s good to be bold and really rework the business model, especially if it’s not performing. Partners for Life Though the turnaround effort he launched is a pride point for his career, Doyle said one of the things he’s most proud of is the 90% of hourly workers who turn their jobs into full-time franchise opportunities. You read it right: 90%. “People come in and the opportunity (for them) is here,” he said. “They get excited about the business. At some point they decide they want to be a manager, they can do that pretty quickly, and if they’re a successful manager, they can always raise their hand and come to us and say, ‘I’d like to be an owner,’ and we’ll find them an opportunity to be an owner and run their own business.” In fact, Tom Peterson, the franchise owner who let FOX Business film in his brand new store in Jersey City, New Jersey, has a success story of his own with Domino’s. And he’s an example Doyle points to when he talks about the franchising opportunities within the company. Peterson has been with the company for nearly 24 years, starting as a delivery driver as he worked his way through community college. “I had never heard of Domino’s,” Peterson said. “I applied for the job and was hired as the store’s first delivery driver. The owner of that store was 21-years old. And once I understood the company, I thought maybe I didn’t need the degree (I was working toward), so I went through the steps to own my own franchise.” Now, he owns two stores, the newly opened Pizza Theater in Jersey City, which is a new open-concept store design from Domino’s. Peterson’s original store in Hoboken allowed him to open his second location after it became a top 30 store out of 5,000 domestic locations last year. It’s an accomplishment Peterson is extremely proud of, and one he’s worked his entire career to achieve. “I wasn’t born with a silver spoon in my mouth,” he said. “But Domino’s was loaning money to potential franchisees so we took the money…I got scared and backed out for a while and went back to working for my franchise in Pennsylvania. But I didn’t want to continue making pizzas for another guy my whole life, so I told myself I have to make this happen. In 1987, I built my first store and have been doing it for 27 years.” It’s stories like Peterson’s that make Doyle proud of the company he’s leading from the top. “Ultimately, it’s what’s allowing people to connect with the brand,” he said. “The approach we take with consumers is who we really are as a brand, and that’s the approach we take with investors: We’re never trying to overstate the case for who we are as a company. And that’s the same approach we take to the relationships with our franchisees.” It’s that philosophy Domino’s is really taking to the bank. One of the final stages of Doyle’s turnaround strategy is to completely open-up the kitchens and let customers see the production process themselves in all locations by 2017. And the proof really is in the pudding, er, pizza. “High-end restaurants have been totally opening up kitchens for a long time now. We finally caught up and realized, wait, there’s a reason they do that…so we’re breaking down the walls, opening up the kitchens and letting people see where their food comes from.” Peterson said his Jersey City store has already seen double the sales his Hoboken location has seen, and he believes it’s all thanks to the new concept. “I’m very proud of my new pizza theater store…People walk in and they’re enamored by the place. The new concept of the store is amazing,” he said. Though Doyle has his hands full with the brand revitalization efforts, he still manages to sit down every once in a while and enjoy a slice or two. And, sorry Chicagoans, in case you were wondering, without hesitation, Doyle said the best way to enjoy a slice of Domino’s pizza starts with an old fashioned New York-style fold. Source : Fox Business