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"Why Be Open Seven Days When Only Four Are Profitable?" A Case Study in Creative Crisis Management.
Presented at 2011 NRF International Convention & Expo

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  1. 1. “ Why Be Open Seven Days When Only Four Are Profitable?” A Case Study in Creative Crisis Management
  2. 2. <ul><li>presented by </li></ul><ul><li>Patricia M. Johnson & Richard F. Outcalt </li></ul><ul><li>Retail Strategists </li></ul><ul><li>Co-Founders, The Retail Owners Institute ® </li></ul>
  3. 3. honoring Lynn Becraft & John Whisler Co-Owners, Kitchen Kaboodle 5 Store Chain • Portland, Oregon
  4. 5. 5 Stores • Portland, Oregon
  5. 6. Northeast Portland
  6. 7. Northwest Portland
  7. 8. Southwest Portland
  8. 9. Clackamas Town Center
  9. 10. Orenco Station, Hillsboro
  10. 11. Meet Kitchen Kaboodle Summer 2008 <ul><li>Independently-owned, 30 year business </li></ul><ul><li>High-end cookware, tableware & furniture </li></ul><ul><li>$13.0 Million volume </li></ul><ul><li>120 (loyal!) employees </li></ul><ul><li>Continuing to expand </li></ul><ul><li>Profitable for 30 straight years! </li></ul>
  11. 12. <ul><li>One store’s move to much larger space at regional mall delayed by General Growth </li></ul><ul><li>IKEA and Crate & Barrel and Sur La Table entered market </li></ul><ul><li>Economy was softening </li></ul><ul><li>Presidential Election year; uncertainty </li></ul><ul><li>Their local banker was let go; term loan and revolving line now handled out of Seattle </li></ul>
  12. 13. July-Aug-Sept 2008 Oct-Nov-Dec 2008 Jan-Feb-Mar 2009 Apr-May-June 2009 Oops! FYE 9/30/08 would be first loss ever
  13. 14. July-Aug-Sept 2008 Oct-Nov-Dec 2008 Jan-Feb-Mar 2009 Apr-May-June 2009 By October, 95% of Holiday merchandise has been received
  14. 15. July-Aug-Sept 2008 Oct-Nov-Dec 2008 Jan-Feb-Mar 2009 Apr-May-June 2009 Economic disaster strikes! Worldwide economic meltdown begins
  15. 16. July-Aug-Sept 2008 Oct-Nov-Dec 2008 Jan-Feb-Mar 2009 Apr-May-June 2009 U.S. Congress passes “bailout bill”; Confidence plummets!
  16. 17. July-Aug-Sept 2008 Oct-Nov-Dec 2008 Jan-Feb-Mar 2009 Apr-May-June 2009 Holiday Season 2008: Shoppers stay home! All retailers suffer. Media hypes free-fall.
  17. 18. July-Aug-Sept 2008 Oct-Nov-Dec 2008 Jan-Feb-Mar 2009 Apr-May-June 2009 By December 15, like most retailers in 2008... Kitchen Kaboodle’s sales were off drastically
  18. 19. July-Aug-Sept 2008 Oct-Nov-Dec 2008 Jan-Feb-Mar 2009 Apr-May-June 2009 Then, more disaster December 14 AND 21-22-23 Portland has record snowfall & ice storms City shuts down! “ Snowmygawd”
  19. 20. July-Aug-Sept 2008 Oct-Nov-Dec 2008 Jan-Feb-Mar 2009 Apr-May-June 2009 1Q Results: Grim! Sent to Bank, per their request, mid-January
  20. 21. Meanwhile, across the U.S. <ul><li>Retail bankruptcies are rampant </li></ul><ul><li>Banks begin to report their own problems </li></ul><ul><li>No economic turnaround was in sight </li></ul><ul><li>Wall Street: the new villain </li></ul><ul><li>All credit vanishes </li></ul>
  21. 22. July-Aug-Sept 2008 Oct-Nov-Dec 2008 Jan-Feb-Mar 2009 Apr-May-June 2009 February 3 Bank calls the loans! Wants $2.2 Million paid off by March 31
  22. 23. Feb. 5 Advised Bank of work on turnaround plan Feb. 4 Owners meet with bankruptcy attorneys Feb. 4 Owners meet with outside accountants Feb. 5 Owners meet with potential funding sources: landlords, private investors, others
  23. 24. Feb. 6 Owners confirm: respective homes are pledged to Bank Feb. 6 Owners discover that Chapter 7 – liquidation - would not only dissolve the company, but also would require all of their personal assets
  24. 25. “ We Need a ‘Plan B’...Now!” Liquidation Outcome: Everybody Loses ???
  25. 26. Feb. 6 brutal facts <ul><li>Merchandise was not selling well at any price other than a GOB environment </li></ul><ul><li>Other retailers were frantically liquidating excess inventory </li></ul><ul><li>Landlords reputed to be steadfast </li></ul><ul><li>Vendors were panicking nationally </li></ul>
  26. 27. <ul><li>The 120 employees had been promised expanded health benefits </li></ul><ul><li>Spouse of one of the owners was terminally ill </li></ul><ul><li>Both owners had sensitive teenage children </li></ul><ul><li>Even the Portland Trailblazers were losing </li></ul>Feb. 6 brutal facts
  27. 28. <ul><li>Owners must believe in it </li></ul><ul><ul><li>Avoid liquidation; preserve jobs </li></ul></ul><ul><ul><li>Preserve Owners’ personal assets </li></ul></ul><ul><li>Most important: Bank must believe it </li></ul><ul><ul><li>The “Golden Rule” </li></ul></ul><ul><ul><li>$1.5M line of credit must decline – fast! </li></ul></ul>“ Plan B” musts...
  28. 29. 9:30 am Saturday, Feb. 7 <ul><li>“ Can this patient be saved?” </li></ul><ul><li>Anguish </li></ul><ul><li>Tears </li></ul><ul><li>“ Shall we give up?” </li></ul><ul><li>“ We’re emotionally drained!” </li></ul>
  29. 30. 10 am Saturday, Feb. 7 Consider “What if...?” Ideas <ul><li>Use financial modeling for each scenario </li></ul><ul><ul><li>Does it “pencil out”? </li></ul></ul><ul><li>“ Will the Bank believe it? </li></ul>
  30. 31. 10 am Saturday, Feb. 7 Scenarios <ul><li>Stay the course; wait for economic crisis to pass? </li></ul><ul><li>Get concessions from landlords? </li></ul><ul><li>Reduce expenses: cut healthcare benefits? </li></ul><ul><li>Move offices/warehouse to smaller space? </li></ul>
  31. 32. Get Cash Flow, OTB, P&L – All in One!
  32. 36. (a) Stay the course; Wait out the financial crisis Loss of ($855.0)...
  33. 37. Requires MORE money from the Bank! That won’t work
  34. 38. (b) Concessions from Landlords Cuts loss to ($495.0)...
  35. 39. Still need $2.4M from Bank. That won’t work either.
  36. 40. (c) Cut expenses, health benefits Loss now down to ($114.0)...
  37. 41. Still need $2.2M! Bank would say “No!”
  38. 42. 2 pm, Saturday Feb. 7 “We Still Need a ‘Plan B’!” Liquidation Outcome: Everybody Loses ???
  39. 43. 2 pm Saturday, Feb. 7 “What would thrill our customers?” A discount on 100% of our merchandise, every day!
  40. 44. How can we do that ?? Cut expenses dramatically, pass the savings on! How do we cut expenses that dramatically?
  41. 45. “ Why be open seven days when only four are profitable?” “ Are you out of your frigging mind?!?”
  42. 46. <ul><li>Open just 4 days/week – the best days </li></ul><ul><li>Cut prices on every item in all 5 stores </li></ul><ul><li>Zero ad costs : email “4 Day Hot Sheet” every Wednesday (9K recipients) </li></ul><ul><li>Our best people will be in the stores fulltime, four 10-hour days </li></ul><ul><li>Serve our best customers better when they mostly come in: Thurs, Fri, Sat & Sunday </li></ul>
  43. 47. 4 – 6:15 pm, Saturday Feb. 7 “Does it pencil out?” <ul><li>Sales down, $9.7M vs. $12.7M </li></ul><ul><li>Margins down, 38% vs 44.6% </li></ul><ul><li>Selling expenses , 13.9% of sales vs. 20% </li></ul><ul><li>Occupancy expenses down by one-third </li></ul><ul><li>Admin expenses: cut in half </li></ul><ul><li>Turns up: 3.5 vs 2.5 </li></ul>
  44. 48. Made those changes to inputs
  45. 49. ...and for the OTB
  46. 50. ...and for the Cash Flow
  47. 51. Shows a PROFIT!
  48. 52. Slashes Line of Credit : $70K, $127K, $144K, $99K, etc Positive cash as of December “ Wow! This the Bank really might accept!”
  49. 53. 7:30 pm, Saturday Feb. 7 “We have 2 choices.” Liquidation Outcome: Everybody loses “ Four Days. For Savings. For You” Outcome: Survival
  50. 54. “ Four Days. For Savings. For You!” Effective Thursday, March 5 (less than 4 weeks away)
  51. 55. 25 days to make it happen!
  52. 56. 7:50 pm, Saturday Feb. 7 “ It’s been a long time since breakfast.” “ I’m having wine with my dinner.”
  53. 57. <ul><li>Announced plan to staff; managed fear, tears & much doubt </li></ul><ul><li>Located much smaller warehouse; vacated current warehouse </li></ul><ul><li>Closed current offices; assigned buyers and owners to separate stores </li></ul><ul><li>Terminated 45 of 120 employees </li></ul>Starting Monday Feb. 9.. .
  54. 58. <ul><li>Convinced remaining store staff to work 4 ten-hour days & every weekend </li></ul><ul><li>Convinced landlords to tolerate plan, at least in short term </li></ul><ul><li>Launched “guerrilla marketing” campaign, fueled by PR for this outrageous idea </li></ul>And during February.. .
  55. 59. “ Shockingly good news!” <ul><li>Created a unique Kitchen Kaboodle-esque email flyer to distribute to their 9,000+ “Kaboodle Insiders” </li></ul><ul><li>First one sent out Wednesday, March 4 </li></ul>
  56. 61. <ul><li>Four Day Hot Sheet </li></ul><ul><li>sent via e-mail each Wednesday </li></ul><ul><li>9K “Kaboodle Insiders” </li></ul><ul><li>features specials for the ensuing 4 days </li></ul>
  57. 64. Press Coverage: Local & National
  58. 65. And, the “experts” <ul><li>“ There’s bold steps and then silly ideas; this is a silly idea.” </li></ul><ul><li>“ Can’t sell anything when the doors are locked.” </li></ul><ul><li>“ A strategy of competing on price by sacrificing customer convenience doesn’t make sense.” </li></ul>
  59. 66. And what did the “experts” predict? <ul><li>“ I would expect that Kitchen Kaboodle will be re-thinking their approach before too long.” </li></ul><ul><li>“ I’m guessing that there will be 5 retail locations available for lease soon in Portland.” </li></ul>
  60. 67. And what did the “experts” predict? <ul><li>“ The owners need to search inward to understand their company’s value proposition to the customer.” </li></ul><ul><li>“ Is this for real? Why on earth when things get slow would you make it more difficult for people to buy things from you?” </li></ul>
  61. 68. And what did the “experts” predict? <ul><li>“ I would suggest learning to fail – fast!” </li></ul><ul><li>“ A bewildering and terrible idea.” </li></ul>
  62. 69. March 2 email to Outcalt & Johnson <ul><li>“ Ouch! As a retailer I have my doubts, and as a consumer I have doubts and questions. Tell them they should just start closing frigging stores!” </li></ul>
  63. 70. So...what happened?? <ul><li>Monday, Tuesday, Wednesday March 2- 4: Kitchen Kaboodle closed for 3 days in a row for first time ever </li></ul><ul><li>Friday, March 6, presented their plan – and results to date – to the Bank </li></ul>
  64. 71. So...what happened?? <ul><li>First 4 days (March 5, 6, 7 & 8) beat LY !!! </li></ul><ul><li>Customers love it! “ Same great stuff! Same great people!! Lower prices!!” </li></ul>
  65. 72. So...then what?? <ul><li>On March 6, Bank extended the line from March 31 to June 30 (“pending further results”) </li></ul><ul><li>April & May results exceeded plan </li></ul><ul><li>In June, Bank extended the line to September 30 </li></ul><ul><li>In November, Bank extended again </li></ul>
  66. 73. Anything else?? <ul><li>Fall 2009, Kitchen Kaboodle was nominated by their vendors for a Global Innovation Award </li></ul><ul><li>March 2010, Kitchen Kaboodle was honored as the United States winner, Global Innovation Award </li></ul>
  67. 74. “ National Champions!!” United States winner, Global Innovation Award
  68. 75. What’s happening now?? Please welcome John Whisler Co-Owner, Kitchen Kaboodle 5 Store Chain • Portland, Oregon