Gliebers Dresses: An Exit

Welcome to the Gliebers Dresses Executive meeting. Fitz Gleason is in attendance.

Glenn Glieber (Owner): "And so I think Ellen makes for a really good judge on American Idol. She adds a sense of humanity that is sometimes missing. Now, how many of you watched 'Lost' last week? Why is John Locke wearing a black t-shirt in some scenes, and then is dead in other scenes?"

Fitz Gleason (Private Equity Mogul): "Can we get down to business, Mr. Glieber?"

Glenn Glieber: "I'm just saying, it doesn't make any sense. All of these people appearing in different years. Do the kids get this, can they follow what is happening? Back in my day, if you wanted to be thoroughly confused by television, you watched McMillian and Wife, or McCloud, or both! You didn't crash planes into islands that shift based on different time dimensions, you rolled a station wagon off of a California cliff and you exploded it when it rolled to a stop at the bottom of a ravine. That's how we used to do it, back in the day. That's old-school."

Meredith Thompson (Chief Merchandising Officer): "Kevin, is that you?"

Kevin (via Skype): "Yes, it is me."

Fitz Gleason: "Good, let's get this meeting started. I've got a plane to Switzerland that I have to catch."

Glenn Glieber: "Folks, I want to make an announcement. This morning, I officially closed a transaction that transfers ownership of Gliebers Dresses to Gleason Investments."

Roger Morgan (Chief Operations Officer): "How much did you get, Glenn?"

Pepper Morgan (Chief Marketing Officer): "Roger?????"

Glenn Glieber: "That's ok, Pepper, I'm happy to share the details with you, because all of you are part of this transaction. I sold the business to Gleason Investments for $12,000,000. Gleason Investments assumes $3,000,000 of personal debt, and paying the remaining $9,000,000 in cash. As a condition of the sale, Gleason Investments agrees to retain each member of the Executive team for a period of twelve months. Each Executive team member that stays on for the full twelve month period will receive a check for $500,000, payable April 1, 2011."

Roger Morgan: "Really, Glenn?"

Fitz Gleason: "That's not how we normally do business, Roger, but Glenn convinced us that all of you have had to make due without an incremental investment in resources to run this business over the past few years. He wants to see how you perform when you are given the resources you need to run the business in an effective manner. In some ways, I want to see that, too. And you should know this fact. Glenn took a multi-million dollar haircut in order to make this arrangement work. We were prepared to offer Mr. Glieber $14,000,000, but he wanted to make sure you were taken care of."

Lois Gladstone (Chief Financial Officer): "Mr. Gleason, who will be the new CEO of Gliebers Dresses?"

Fitz Gleason: "I am happy to announce that Brendan Templeton will be the new CEO of Gliebers Dresses."

Meredith Thompson: "You mean the Brendan Templeton who built Zeldies into an unprofitable billion dollar online handbag business that you acquired last year? The 29 year old whiz-kid that was on 60 Minutes for his unorthodox customer service strategies?"

Fitz Gleason: "The one and only."

Roger Morgan: "He'll be 30 by the time he takes over here."

Lois Gladstone: "What does he know about running a profitable catalog business?"

Fitz Gleason: "He might ask the same question of you, Lois. Let my team squeeze the profit out of this business. Let Brendan work on growing Gliebers Dresses. I want to see this unprofitable $45,000,000 business become a $100,000,000 industry success story that prints $10,000,000 of annual EBITDA by the end of 2013. I want a fast return on investment, folks."

Pepper Morgan (Chief Marketing Officer): "Wow."

Roger Morgan: "Is that even possible?"

Fitz Gleason: "Oh, it is possible. I want to see Gliebers Dresses become a revered retailer."

Lois Gladstone: "You mean one with stores?"

Fitz Gleason: "I mean we'll use any and all resources available to restore your brand to prominence. If we want to open stores, we'll open stores. If we want for Gliebers Dresses to be the dominant mobile marketer of the 21st century, we will make that happen. If we want a commercial on the Super Bowl, we'll invest $2.9 million dollars to do that."

Pepper Morgan: "It sounds like the days of free marketing are over."

Glenn Glieber: "I loved free marketing!"

Roger Morgan: "Man, $100,000,000. It would have taken us a long time to get there, even now with Pepper's new catalog strategy being 4% better than what we did last year."

Lois Gladstone: "Do you know what it takes to scale a business from $45,000,000 to $100,000,000 a year?"

Fitz Gleason: "Absolutely. We've done it before, and we'll do it again. I will say this. It doesn't take 'business as usual'. It takes a whole new set of eyes. I'm confident that Brendan Templeton will provide a whole new set of eyes for each of you."

Meredith Thompson: "Are we going to remain a dress brand?"

Fitz Gleason: "It shouldn't be a surprise that Brendan knows how to grow an Accessories business. A modern multi-channel brand knows how to leverage multiple channels, and multiple merchandise divisions. I'd say that no good idea is off the table. And with that, I need to catch a plane to Switzerland. We'll be in touch soon, teammates! And Kevin will be sticking around during the transition. He's going to closely analyze and monitor customer behavior, so that we can see if our strategies are working or not. You should know that his Marketing Simulation showed that the business had enough potential to warrant this sale. Now we'll get to see if his predictions of the future come true, or not. Ok folks, we'll be in touch."

Meredith Thompson: "Glenn, when is your last day?"

Glenn Glieber: "My last day is March 31. Brendan begins his job as CEO on April 1."

Meredith Thompson: "Are you going to be around for questions or help, should the business need you?"

Glenn Glieber: "No, I am done. This business belongs to Fitz now. I just bought a forty foot diesel RV, completely decked out, king-sized bed, satellite television, you name it! My wife and I are going to take a couple of years and travel the country. Environmental advocates will hate me and the seven miles per gallon I'll get as I blast my way across America."

Pepper Morgan: "You don't look good, Glenn. You look pale and sound tired. Have you lost weight?"

Glenn Gleiber: "I've lost about twenty pounds in the last three months. Maybe the stress of all of this is killing me."

Meredith Thompson: "I'm going to miss you, Glenn."

Glenn Glieber: "And I'm going to miss all of you. But, honestly, I've earned a break. Gliebers Dresses was my life. Now, I need to make an exit. It is time for somebody with passion to take this business to places I couldn't take it."

Roger Morgan: "When do the employees get to hear about the changes?"

Glenn Glieber: "I will say my goodbye to all employees on March 31, the day before the transaction closes. We'll have a big party that night!"

Meredith Thompson: "This will be the worst kept secret of all time."

Gliebers Dresses: Management Gossip

The Gliebers Dresses Management Team invited Kevin to lunch to discuss the latest developments at Gliebers Dresses.


Roger Morgan (Chief Operations Officer): "Kevin, are you enjoying your BLT?"

Kevin: "Absolutely."

Roger Morgan: "Good. Now tell us what the heck is going on?"

Pepper Morgan (Chief Marketing Officer): "Did I hear Mr. Gleason suggest that we're all going to be fired?"

Lois Gladstone (Chief Financial Officer): "Wouldn't that be just plain silly? I mean, as of this morning, Pepper's catalog strategy is +9% for the year, we're fixing this business."

Meredith Thompson (Chief Merchandising Officer): "Kevin, did Glenn give you any indication that this was coming?"

Kevin: "My conversations with Mr. Glieber are confidential, just like this discussion will be confidential."

Roger Morgan: "It's like Glenn threw all of us under the bus."

Pepper Morgan: "Is this about us, or is this really a function of the fact that this business is failing and Mr. Glieber wants to retire?"

Meredith Thompson: "Do you think we'll get a severance check if we're fired? I mean, how the heck would I feed my family?"

Roger Morgan: "Oh, I'm sure we wouldn't be out of a job for long, would we? I mean, there are tons of companies that are dying to hire people with our level of experience. We'd get jobs quickly!"

Lois Gladstone: "I heard that there are six job applicants for every available job right now. That's not very encouraging."

Kevin: "When is the last time all of you had lunch together, on your own, without Glenn arranging it?"

Pepper Morgan: "I think this has to be the first time that has ever happened."

Meredith Thompson: "It's almost like the possible sale of the company brought us closer together."

Kevin: "People don't talk about this often, but successful companies often have really good chemistry between business leaders. That doesn't mean there isn't conflict, but the leaders have a good relationship with each other."

Roger Morgan: "Kevin, what could we have done to fix this business? Didn't we do everything in our power to prevent this from happening? Isn't this just a consequence of a lousy economy and a shift in customer preferences away from catalogs?"

Kevin: "Let me ask a question. What would all of you do if you were running a newspaper? I mean, they are being clobbered by a shift from analog to digital."

Roger Morgan: "Boy, I'd be all over testing every possible strategy to grow newspaper readership online. I'd try pay walls, I'd try pay-per-article strategies, I'd try various free models paid for by advertising, and I'd probably start spin-off brands that are not tied to the legacy of the original newspaper brand."

Meredith Thompson: "And we did a lot of that. We tried a social media presence. It was a disaster. We could create a mobile marketing strategy, but our 60 year old customer isn't out there be-bopping with iPhone apps. A Mobile strategy couldn't work for us, heck, a lot of our customers are so rural that they don't even have cell phone coverage! So what the heck should we have done?"

Pepper Morgan: "Maybe we aren't the right people to help a business through such a significant transition."

Roger Morgan: "Of course we're the right people. And what we were doing was appropriate. Pepper, your new catalog strategy is, year-to-date, 9% above last year. Glenn didn't give us the time we needed to get us through the transition. He seems stressed, like he wants to cash out. Where the heck does that leave us?"

Meredith Thompson: "What the heck would new owners do with our merchandise? I just cringe at the thought of working with another company, one where we have to source our merchandise with a sister brand in order to fulfill some mythical operational efficiency that looks good on a p&l but is hated by the customer. That's my fear."

Pepper Morgan: "What would we do with Sonora? She needs a quality private school experience in order to blossom into the young woman I think she can be. I can't send her back in to the public school system. I can't. I won't. I mean some of those schools have 25 or 30 kids per classroom. Sonora deserves better."

Roger Morgan: "Did you hear how that guy addressed me? It was like he was taking direct pot-shots at me, as if I am the reason this business is failing. I almost got the impression that he didn't want me to be part of the future of this business. Isn't that crazy? I mean, I read a Neptune Research report that says that incumbent companies are always ousted by new technologies. That's not my fault, that's just life. Catalogers had it good for a hundred years, now, technology is disrupting our business model. It's just simple Darwinism, isn't it? Sure it is. It isn't my fault."

Pepper Morgan: "Marketing would be folded in to the corporate borg. Finance would be folded in to the corporate borg. Operations would be folded in to the corporate borg. What's left?"

Lois Gladstone: "The borg. That's all that is left."

Meredith Thompson: "I sure hope this doesn't happen. I just hope Glenn comes to his senses, and decides to believe in us."

Kevin: "What if Glenn doesn't have the money to continue to fund losses?"

Lois Gladstone: "Oh, that's crazy."

Roger Morgan: "I think I'm gonna get on LinkedIn and start networking. Maybe I can cash in on all of those relationships I've built over the years.

Kevin: "Good point, Roger!"

Roger Morgan: "Really?"

Kevin: "Really. How many of you have prepared yourselves for a day like this by maintaining a base of contacts, by providing help to others for the past several years so that when you needed help, you had an army of people waiting to assist you?"

Lois Gladstone: "Who has time for that? If I lose my job, I'll just send out an e-mail to my contact list, and I'll attach my resume. I'll have a new job in less than thirty days."

Kevin: "This is a challenge, isn't it? You have to prepare for an uncertain future while still working sixty hours a week. How do you balance the time? Do you have resources to even do it? And yet, a day comes when circumstances force you into the future. Either you are prepared, or you aren't prepared. It's that way with our careers, and it is that way when technology supersedes our business model. In either case, we have to invest a lot of time that appears to have little ROI, so that we're ready when circumstances conspire against us."

Meredith Thompson: "Yeah, I was at the SocialMerch conference in Atlanta, and they talked all about how you have to spend an hour or two a day developing your own personal brand, so that when something bad happens, you have your own personal brand to fall back on."

Roger Morgan: "Did you folks hear about Mack Collette at Woodside Research? He reported on Social Media for them, built a list of 27,000 Twitter followers, wrote a bunch of profitable research reports, and then left the company to start his own Social Media Research brand. Now Woodside Research won't let any employees write their own blogs, a strategy that is opposite of everything they've been telling all of their clients to do. So maybe a personal brand is important in this day and age."

Lois Gladstone: "E-mail with a resume attached, folks. E-mail with a resume attached."

Pepper Morgan: "Check, please!"

Gliebers Dresses: The Internet

This is a transcript of an interview with Meredith Thompson, Chief Marketing Officer at Gliebers Dresses.

Meredith Thompson (Chief Merchandising Officer): Kevin, let me ask you a question."

Kevin: "Ok, go ahead."

Meredith Thompson: "How do I fit into the internet era?"

Kevin: "What do you mean?"

Meredith Thompson: "Assume we're purchased by a private equity firm, and all of us lose our jobs, as we think is likely to happen. How do I get a job with an internet company?"

Kevin: "Why do you have to get a job with an internet company?"

Meredith Thompson: "It seems like catalog companies are struggling. If I want to have a future, I have to work at an internet company. And I don't think I'm qualified to do that."

Kevin: "Why do you think you aren't qualified to work at an internet company?"

Meredith Thompson: "Earlier this week, I attended the SocialMerch conference in Atlanta. It's the premiere merchandising analysis conference for the online merchandising community. I was absolutely lost."

Kevin: "How so?"

Meredith Thompson: "Let me give you an example. I attended a session called 'Maximizing Merchandising Conversion Rates'. The speaker said that if less than 10% of your website visitors want to purchase your merchandise, then you are a huge failure. And everybody took notes, and they had a big screen with all kinds of comments from folks on Twitter, and they all agreed with the speaker."

Kevin: "Is it possible that everybody was wrong?"

Meredith Thompson: "I doubt it. I mean everybody agreed with the speaker. And our conversion rate at Gliebers Dresses is a lot less than 10%."

Kevin: "Might I suggest that your speaker hasn't worked with a thousand different companies, so s/he doesn't know what an acceptable conversion rate should be? And is it possible that all of the comments on Twitter were from people who also haven't worked with a thousand different companies and don't truly know what the right answer is?"

Meredith Thompson: "Yeah, sure, I guess. The speaker said you have to maximize conversion on non-branded keywords. The speakers said you have to maximize conversion on branded keywords. The speaker said you have to have a mobile marketing strategy. The speaker said you have to offer cross-sell and up-sell opportunities. The speaker said you have to use banner advertising remarketing programs. The speaker said you have to be completely integrated with the social media community in order to survive. The speaker said you have to have deep relationships with customers via mobile marketing, or you'll be finished. The speaker said you have to have big orange call-to-action buttons or conversion rates will decline by 8%."

Kevin: "What did the speaker say about finding great merchandise?"

Meredith Thompson: "Well ... nothing."

Kevin: "Exactly!"

Meredith Thompson: "What do you mean?"

Kevin: "Think about the words of the speaker. Not once, according to your comments, did the speaker suggest that a customer purchases something because of the merchandise you have to offer. The reality is that is the ONLY reason the customer purchases from you ... because you have merchandise that meets or exceeds a customer need. Now, there's a lot of truth in what the speaker is saying. But if you don't have great merchandise, none of that other stuff matters. And guess what your job is?"

Meredith Thompson: "No, but the speaker kept talking about satisfying the needs of the MODERN customer. The speaker mentioned how important it is to maximize conversion rate. I have no idea how to do that. Does the modern customer even care about merchandise?"

Kevin: "It sounds like the speaker specializes in social and mobile and website conversion. So those are the things that the speaker is an expert in. Again, you are a merchant. You have to be an expert at getting great merchandise, right?"

Meredith Thompson: "Maybe."

Kevin: "Did the speaker ever work as a Director or Vice President at a non-vendor-based company?"

Meredith Thompson: "Well, no. The speaker has been with an online marketing firm since 2002. But the speaker has a really popular Twitter presence."

Kevin: "Exactly."

Meredith Thompson: "The speaker said that almost all pieces of direct mail are thrown out, that direct mail is dead. The speaker quoted a statistic from Woodside Research suggesting that the Post Office will be bankrupt in 2019."

Kevin: "You'll be retired in 2019, assuming that Woodside Research is so smart that they can accurately predict things that will happen nine years from now. And if Woodside Research is that smart, then they should have been able to predict the economic collapse. Go find a white paper that shows that Woodside Research was so prescient that they were able to identify when the Great Recession was coming and then warned every one of their clients about impending doom and then protected every one of their clients from the collapse of our economy. Until you find that document, listen to their predictions with a grain of salt."

Meredith Thompson: "But until then, I may have to find a job. How do I compete against these 30 year olds who know how modern customers behave? I mean, these people have all of these statistics to prove how customers perform. I don't have any statistics to counter them. They claim to know how to make a campaign spread virally. I try to avoid anything viral, I don't want to get sick!"

Kevin: "You are assuming that these 30 year olds know exactly how customers behave. What they truly know is how customers "click". They don't know why customers do anything. YOU know WHAT customers buy. That gives you a significant advantage over every single 30 year old preaching to you about how you have to market to modern customers. Anybody can become an expert at analyzing clicks, there's free software to allow you to become an expert. Almost nobody has the instinct to know what merchandise a customer will want to buy nine months before the season begins, knows how to source the merchandise, and knows how to present it to the audience in a way that causes her to buy something that she never even knew she wanted to buy."

Meredith Thompson: "Still, this whole internet thing feels really uncomfortable."

Kevin: "Play to your strengths. Every time a 30 year old internet whiz with five years of social media experience blasts you for not pursuing a valid social media or mobile strategy, ask the 30 year old internet whiz to predict for you what merchandise is most likely to sell nine months from now. Stand up for yourself!"

Meredith Thompson: "Ok Kevin, thanks for the encouragement."

Gliebers Dresses: An Announcement

You are listening to a special Gliebers Dresses Executive meeting, where Mr. Glieber is set to make an announcement.

Glenn Glieber (Owner): "Folks, I gathered you together this morning to make an announcement. Thank you all for joining me at this early hour."

Meredith Thompson (Chief Merchandising Officer): "Kevin, is that you?"

Kevin: "Yes, it is me."

Glenn Glieber: "Folks, I want to introduce you to Fitz Gleason. Fitz is a Principal at Gleason Investments, a Private Equity firm that specializes in the acquisition of Catalog brands. I asked Mr. Gleason to consider the acquisition of Gliebers Dresses. Mr. Gleason believes that Gliebers Dresses may be a good fit within his portfolio of Catalog brands, and would like to explore the opportunity to acquire our brand."

Meredith Thompson: "You are selling Gliebers Dresses to a Private Equity firm? Isn't that what people do when a company is distressed? We're not distressed, are we?"

Fitz Gleason (Principal, Gleason Investments): "First of all, I would like to thank all of you for the opportunity to consider acquisition of your fine brand."

Lois Gladstone (Chief Financial Officer): "Wait a minute, just wait a minute. No disrespect, Mr. Gleason, but we've largely fixed this business, Glenn. Pepper's new catalog strategy is trending +11% to last year. Our loyalty program has the potential to catapult us into new levels of sales opportunity. Sure, we've lost money for several years in a row. That doesn't mean we're distressed, however."

Fitz Gleason: "Team, I don't think we're focusing on Gliebers Dresses as a distressed company. Gleason Investments has a long and proud history of helping Catalog brands achieve improved performance through operational streamlining, backend efficiency, merchandise analysis and strategy, marketing excellence, financial prudence, and overall brand alignment."

Roger Morgan (Chief Operations Officer): "Let me understand your role, Mr. Gleason. Woodside Research recently released a report suggesting that Private Equity firms would aggressively pursue purchase of distressed Catalog brands in 2010, in order to extract value from brands struggling to meet the needs of a modern customer. Are you suggesting that Gliebers Dresses struggles to meet the needs of a modern customer?"

Fitz Gleason: "Mr. Morgan, I haven't even had an opportunity to properly introduce myself yet, much less address a comment from an obscure report from a research organization looking to profit off of theoretical predictions that may or may not come true."

Pepper Morgan (Chief Marketing Officer): "Why don't we give Mr. Gleason the opportunity to share his views with us first, before judging his intentions?" (Pepper glares across the table at Roger. Roger simply shrugs, in response to Pepper's glare. At the same time, Lois is busy rubbing her right hand across her thigh in a tense, back and forth motion. Meredith's right foot can be seen tapping the floor).

Fitz Gleason: "Thank you Ms. Morgan. Look, I am strongly considering purchase of your business. During the next few weeks, I will spend time with each and every one of you. I want to thoroughly understand how you manage business today, so that I can determine an appropriate purchase price, so that I can properly assess how the management of this business will be addressed going forward."

Roger Morgan: "I can't believe you are doing this to us, Glenn."

Meredith Thompson: "Frankly, I'm in shock. I wish I'd have known about this before sitting down here today. Anyway, Mr. Gleason, can you describe some of the things your organization does in order to improve business performance?"

Fitz Gleason: "Certainly Ms. Thompson. Let's look at Marketing. I tend to combine customer databases across my brands, for the purposes of cheap customer acquisition. Why pay a co-op six cents or twelve cents or twenty-four cents per name when you can walk up to the Gleason Investments trough and pay nothing for access to names from our family of Catalog brands? Our statisticians can mine the data in a way that allows you to find the best prospects for your business. That's money that simply drops to the bottom line."

Roger Morgan: "You would combine our customer database with other companies? Oh boy. Neptune Research issued a research report that suggests customer privacy is violated when database information is combined across brands. And when customer privacy is violated, customer trust is eroded. And when you erode customer trust, you lose loyalty. Frankly, that doesn't sound like a good outcome ... reduced loyalty in exchange for saving a few pennies here and there."

Fitz Gleason: "Mr. Morgan, thank you for your concern. Let me make something clear. In my world, we don't reference research reports. We either stand by our own personal convictions, or we get out of the way. Another thing we do at Gleason Investments is to focus on departmental accountability. In other words, the Operations Executive cannot cross the firewall between Operations and Marketing. It is the job of the Operations Executive to excel at Operations. And when that isn't possible, I combine Operations functions across sister brands in order to better leverage the profit and loss statement. This may mean that the Operations function is absorbed by corporate Operations at Gleason Investments. You and I will spend considerable time together, judging whether this is the best way to proceed, should I decide to purchase Gliebers Dresses."

Lois Gladstone: "I assume, Mr. Morgan, that you have a strong partnership with Finance, and that you require a strong Finance function that sits outside of the corporate org-chart, correct?"

Fitz Gleason: "Yes, Ms. Gladstone, I require a strong partnership with Finance. In many cases, the partnership is best served by having Gleason Investments absorb all Finance responsibilities into the corporate Finance function. Often, we can deliver the best return on investment to Gleason Investment shareholders by streamlining corporate functions into one corporate structure. We can leverage corporate finance to do much of the work done by existing Finance teams, allowing profit to simply drop to the bottom line."

Lois Gladstone: "Yeah, but, ... but where would my team drop to?"

Fitz Gleason: "I assure you, Lois, a thorough review of every job function is part of the purchase process. When we find value, we extract it. When we find efficiencies, we exploit them. Look, this isn't personal, it's business. Your business is not generating profit. My business is all about generating profit. We're simply going to make decisions that are in the best interest of the brand."

Lois Gladstone: "It's personal to me. That's the same kind of crap that Tom Hanks said to Meg Ryan in 'You've Got Mail' as he was in the process of running her out of business."

Meredith Thompson: "It sounds like you are focusing on carving up our Executive team, and then assigning the backend functions into corporate departments at Gleason Investments."

Fitz Gleason: "If I decide to purchase this business, it will be my first priority to make sure that I extract the best return on investment humanly possible from this business. This may mean that I have to strongly consider streamlining backend operations in order to better leverage the profit and loss statement. We have to face the modern realities of Catalog marketing. Costs have escalated, but in spite of all of the multichannel chatter out there, response hasn't improved in a decade. Eventually, you have to make touch choices. You either raise prices while holding cost of goods flat, or you hold prices flat while reducing cost of goods sold, or you reduce marketing expense, or you attack the corporate expense structure. Those are your choices, Margaret. I'm looking forward to seeing your action plan for either raising prices while holding cost of goods flat, or for holding prices flat while reducing cost of goods sold."

Meredith Thompson: "My name is Meredith."

Roger Morgan: "You can't even get Meredith's name right? Come on!"

Meredith Thompson: "What is your Merchandising strategy, Mr. Gleason?"

Fitz Gleason: "Again, I will leverage all possible internal resources at Gleason Investments, in order to deliver the best possible return on investment for Gleason Investment shareholders. That being said, without merchandise, there is no reason for Gliebers Dresses to exist. So I demand absolute ruthless analysis of every single sku at every company I manage. There must be a concrete reason for a sku to exist. Each sku must cover research and development costs, inventory costs, operational costs, marketing costs, liquidation costs. I'm certain that, as a team, you already have a process for ruthlessly analyzing every single sku across every single channel, right?"

Roger Morgan: "Do we, as an Executive team, have the time to analyze every single sku? That's the definition of micro-management, right? And, besides, you told me not to step out of my silo to offer opinions, so I'd never micro-manage Meredith's business."

Fitz Gleason: "Mr. Morgan. Can you tell me the percentage of distribution center expenses allocated to the worst selling third of skus? In other words, tell me if 52% of your expenses are required to maintain the worst selling third of skus, or if the percentage is 82%, or 33%. Can you give me that percentage, Mr. Morgan?"

Roger Morgan: "At Gliebers Dresses, we have a long history of operational excellence. We've developed proprietary methods that accurately outline all relevant expenses associated with managing a distribution center."

Fitz Gleason: "Mr. Morgan, if I elect to buy your business, I will personally sit down with you to review every single proprietary method or metric you've developed. I will also share the set of metrics that my business leaders use to accurately measure distribution center excellence. Following our discussion, we will arrive at a set of metrics that best illustrate your performance, benchmarked against competing brands."

Meredith Thompson: "This doesn't sound like it will be a very pleasant experience, Roger!"

Fitz Gleason: "I think it can be a pleasant experience, Ms. Thompson, if you view this as a learning opportunity, as an opportunity to go from being unprofitable to being profitable. If you want to continue to do things the way you've always done them and are willing to use your credit cards and home equity accounts to fund Mr. Gliebers losses, then by all means, have at it. Mr. Glieber told me he cannot continue to lose money. Only Mr. Glieber bore the burden of financial losses over the last half of the past decade. This Executive team does not have an ownership stake in this business. If you had an ownership stake, you might have viewed the losses differently."

Roger Morgan: "Does that mean we will have an ownership stake in the business if you decide to purchase it?"

Fitz Gleason: "No. I will provide generous compensation for the Management Team that is assigned to this business, via bonuses that are aligned with Gleason Investment objectives."

Roger Morgan: "Do you pay retention bonuses to Management Team members, in order to provide much-needed continuity? I mean, I'd hate to see the business fall off of a cliff while Management focuses on transition issues as a priority over business issues."

Fitz Gleason: "No."

Roger Morgan: "Why is Kevin here? What role is he going to play in this potential purchase? Is he responsible for this happening in the first place?"

Fitz Gleason: "Mr. Hillstrom will use his Online Marketing Simulations methodology to determine the five year sales potential of this business. The analysis will determine the purchase price of the business, should I wish to acquire Gliebers Dresses."

Glenn Glieber: "Ok team, that's a lot of information to absorb for one morning. Let's stop right here. I will be working with Mr. Gleason and Kevin over the next few weeks to help Mr. Gleason decide if he wishes to acquire our business. Thank you for your support."

Gliebers Dresses: Sitting With The Owner

Today, a private meeting with Glenn Glieber.

Glenn Glieber: "You're aware that we lost $800,000 last year, Kevin."

Kevin: "You bet."

Glenn Glieber: "Explain something to me, Kevin."

Kevin: "What's that?"

Glenn Glieber: "We've done everything we were told to do. We were told that we had to be 'multichannel'. Our paper rep would come in here and tell us horror stories, he'd remind us that Lands' End cut back on circulation in 1999 and it killed them, then he'd sell us more paper. Our printer came up with all sorts of fancy technologies that allowed us to do great things and add pages at minimal cost. We have an e-mail program, and we don't 'over-mail' because our e-mail vendor told us not to or we'd have customers unsubscribing at huge rates. ResponseShop does our matchbacks, and even though business is declining, they keep telling us our catalogs match to more and more and more online orders, resulting in us using their services more and more and more. Think about that one for a minute. Our list rental vendor keeps telling us to maximize revenue by selling our list to competitors --- so we do that, only to have a third party opt-out service hammer us publicly for sending catalogs to customers who don't want them, causing us to honor their requests, to be a slave to their opt-out process. We have a loyalty program that does not appear to be causing any increase in loyalty whatsoever. Our loyalty program is based on free shipping, something all of the consultants tell us we have to do to make customers happy, but when we do it, we don't seem to make any customers happy. We were told to jump into social media, and we did that with absolutely no results --- we could measure the sales from social media on our hands and toes. We optimized our site for search, only to have Google change the rules every twenty minutes. The USPS killed us in 2007 and now they demand that we continue to put catalogs in the mail, because doing so benefits their business, not ours."

Kevin: "So you did what the marketing experts told you to do."

Glenn Glieber: "We sure did. And here's the thing, Kevin. None of it worked. These marketing experts, they don't have any skin in the game. They make these statements to benefit their business, not to benefit my business."

Kevin: "Then why do you listen to them?"

Glenn Glieber: "Their arguments sound so convincing, and so easy. They tell us that if we have a free-shipping based loyalty program, then we'll make customers happy and loyal. You ever see one of those fancy case studies, the ones with beautiful fonts and fancy colors and the grand proclamations of unfettered profit?"

Kevin: "Have you ever noticed that only positive case studies are published?"

Glenn Glieber: "What do you mean?"

Kevin: "Well, when you read a case study, you read about a success. Who is going to publish a case study outlining ten companies that failed? Who benefits from a negative case study? It's like somebody writing a case study about playing Roulette ... the person has a 'system' where betting on '27' worked for them ... the person won $12,000 by putting $400 on '27'. Never mind that every single person who bet on '27' the next thirty times lost money, this person won, and the way the person won was by putting $400 on '27'" If a person lost by betting on '27', the person will be told that he 'did it the wrong way', that he failed because he bet $350 on '27', had he bet $400, he might have done better".

Glenn Glieber: "And then the entire catalog ecosystem decided to pick a series of numbers, only to have green zero come up ... and the house cleared the table."

Kevin: "That's what our recession is all about, isn't it?"

Glenn Glieber: "So how do I get a customer to buy from a catalog?"

Kevin: "Is that the right question?"

Glenn Glieber: "Look, I'm not going to do what Anna Carter did. I am not going to discontinue my catalog marketing program. We love catalogs."

Kevin: "But does the customer love catalogs?"

Glenn Glieber: "Where is this all going, Kevin?"

Kevin: "Oh, it's going somewhere. Your business was built off of the Baby Boomer generation. And this generation is changing habits in a way that is not complimentary to your business model. They have unlimited choice, and for the first time, they don't have unlimited money. Twelve years ago, this customer was 43 years old, spending $3,000 a year across a dozen catalogers. Today, this customer is 55 years old, spending $3,000 a year across fifty catalog and online and retail brands. And remember, this $3,000 is really $2,000 after adjusting for inflation."

Glenn Glieber: "And now the Baby Boomer generation has to save for retirement, with no home equity and a 401k account that is two-thirds what it was in late 2007."

Kevin: "So given those facts, how can you grow your business?"

Glenn Glieber: "We have to find new customers."

Kevin: "Most of the new customers are likely to be younger than 45 years old, right?"

Glenn Glieber: "Gen-X has the most money right now. But I don't get Gen-X. That generation isn't motivated by the same things that Baby Boomers were motivated by."

Kevin: "Does it matter that you don't understand Gen-X? Shouldn't you have merchandising and marketing experts who understand that generation?"

Glenn Glieber: "Couldn't we just work harder to gain market share among Baby Boomers? Couldn't I do that for a few years, fix this business, then retire?"

Kevin: "How has that strategy been working for you?"

Glenn Glieber: "Baby Boomer kids, I get them, heck, we've all had kids. I understand what motivates them. I don't understand the technology they use, but I understand how to speak with them. These Gen-Xers, there aren't enough of them in their generation to fuel growth, and nobody knows how to reach them. That's going to create problems, isn't it?"

Kevin: "What's amazing is that your generation created what is called 'multi-channel', and then Gen-X is the generation most likely to straddle old-school channels like television and catalog and newer channels like the internet and emerging channels like mobile and social media. This is what you wanted, and when you got it, you didn't know what to do with it."

Glenn Glieber: "I think we wanted Gen-X to use all of the new channels to facilitate a purchase from the channels we managed, like catalogs. And when it didn't work out that way, we suffered. I suffered. My business suffered."

Kevin: "You can't wait for Gen-Y to arrive, either, they are a decade or more away from spending the kind of money that fuels a business. So if you want to grow, you're going to have to figure out how to crack that Gen-X nut, aren't you?"

Glenn Glieber: "Can I tell you something, Kevin?"

Kevin: "Sure."

Glenn Glieber: "I'm going to bring in some private equity folks, have them look around, see if they might want to buy my business."

Kevin: "Really? Wow. Why private equity folks?"

Glenn Glieber: "You and I both know this business doesn't have much value. We've lost money for several years. Amazon isn't going to overpay for my business like they did with Zappos."

Kevin: "Does your staff know about this?"

Glenn Glieber: "No, and I haven't decided yet when I'm going to tell them. You know, I just don't have any answers left. We've tried everything, and nothing worked. Maybe somebody else can figure out how to make this business profitable, and I can at least retire with something to show for my efforts."

Kevin: "The private equity thing can be positive, or it can be ruthless. I think they'd really test the mettle of your folks."

Glenn Glieber: "Maybe it is time that my people have their mettle tested."

Gliebers Dresses: The Return

Welcome to the Gliebers Dresses Executive Meeting. I've been invited back this week, in fact, I've been invited to sit in, in person.

Glenn Glieber (Owner): "So that's the year in a nutshell. We lost $800,000, yet another year where we didn't meet expectations. But maybe we weathered the storm. Maybe we have something to look forward to in 2010. We have a new catalog contact strategy that is off to a good start, thanks to Pepper Morgan, in fact, the new strategy is 15% over plan, so that's amazing! And we're going to ride our loyalty program through mid-year, to see if it can deliver the results that were promised."

Roger Morgan (Operations and IT): "I see we have Kevin in the room today. Did we want to ask him questions now, so that he can leave and then we can focus on more important things like company strategy?"

Meredith Thompson (Merchandising): "Hi Kevin, nice to have you back. We heard you worked on a project for Anna Carter during the past month, is that correct?"

Kevin: "Yes, I worked on an Online Marketing Simulations project with their Executive team."

Roger Morgan: "What did you learn? Did they kill their catalog and now they're struggling to stay afloat? I'll be that's what happened, right? They probably wanted you to talk about our catalog strategy secrets. Idiots."

Kevin: "You know I cannot share those findings with anybody."

Lois Gladstone (Finance): "I'll bet they wanted to know all about our loyalty program, didn't they? They are probably having big problems without having a catalog to support their business. I heard their business last Fall was down 30% to last year. HA! Serves them right. I'll tell you what, we sure weren't down 30% last Fall."

Roger Morgan: "But did you learn anything about how they drive sales without a catalog? I heard from our Woodside Research rep that they're doing some really interesting things with landing pages, something about the way they are leveraging their IT staff to create customized employee stores. I'd love to learn about that."

Kevin: "They did share a lot of their strategies and initiatives with me. Of course, you know I cannot share those findings with you."

Pepper Morgan (Marketing): "I'm following the Twitter feed of their Chief Merchandising Officer. She has a daily special on Twitter ... she introduces one new item a day, and her items do not appear anywhere else on the site except via a landing page that you click through via Twitter. When you check out, you have to enter her Twitter ID in order to be able to purchase the item. It's like she's developed her own marketing program for new items, she's created exclusivity. And heck, she has 14,995 followers. I've never seen a strategy like that. Does that work, Kevin?"

Lois Gladstone: "Their CFO also has a Twitter presence, with 82 followers. And she's hawking merchandise, too. You know, I cannot imagine an environment where you'd let your own employees do their own marketing. What do you do, pay them a commission each time they sell something?"

Roger Morgan: "And imagine the IT nightmares you'd have. You have to enter a Twitter ID on the order form in order to purchase the item? What a terrible customer experience! You make things as easy as possible for the customer, you don't ask them to enter a Twitter ID. Heck, we'd have to put something like that on our book of work, and prioritize it with everything else we're doing."

Meredith Thompson: "Honestly, my time is better spent finding great new fashion merchandise than hawking my own wares. I don't have the time to do what they're doing. I think it is the job of marketing to promote my product. And Pepper's new catalog strategy is +15% to plan, so she's clearly doing her job the right way!"

Pepper Morgan: "I counted over 100 employees who have either a Twitter presence or a blog on the company blog page. It seems like it is an organized yet decentralized marketing strategy they are trying to employ."

Roger Morgan: "It sounds like the desperation of a company that killed a catalog program and is now trying to find ways to recoup the 30% sales drop they experienced. Idiots. Our rep at ResponseShop told us they'd be doing desperate things once they didn't have the multichannel marketing support of a catalog, and now, sure enough, they are doing amazingly desperate things."
Lois Gladstone: "I noticed that they have an iPhone app that takes you to a micro-site that has merchandise that is only available on the micro-site. Isn't that nuts? Aren't you supposed to integrate all channels? Why would you only offer special merchandise for iPhone users? That's arrogant. It seems like they are grasping for straws."

Roger Morgan: "Woodside Research says that mobile commerce will outpace e-commerce by 2021. That's way out in the future. So why would you want to be on the bleeding edge of mobile commerce? I'll tell you what, there's still nothing like receiving a catalog in the mail, thumbing through it, and then carefully ordering merchandise on a secure e-commerce website. Who even wants to shop on a 320x240 pixel screen? What a terrible customer experience! Don't these new marketing gurus know anything about how actual customers shop? Did Anna Carter adopt a marketing strategy from the blogosphere? Geez. That's desperate. Those vendors and bloggers don't have any skin in the game. It's easy for them to tell us to do something, they don't have p&l responsibility like we have."

Meredith Thompson: "And Pepper's new strategy is up 15% to plan, so the key to catalog marketing is all about finding the secret sauce. I think marketers spend too much time on the shiny new toy, and not enough time optimizing existing marketing channels."

Roger Morgan: "I heard that we're going to be eligible for all sorts of paper discounts this year as well, so if catalog marketing becomes a bit cheaper, we can leverage it to a greater degree."

Lois Gladstone: "Kevin, why would Anna Carter's CFO be on Twitter? It doesn't make sense."

Kevin: "Again, I cannot share their strategies or their reasons for executing different strategies."

Roger Morgan: "Well then why are you even here?"

Kevin: "Let me ask you a couple of questions, Roger. First, you've been here throughout the entire downturn that Gliebers Dresses experienced. What percentage of the downturn would you attribute to your strategies, to company strategies, to the economy, and to the shift from print marketing to digital marketing?"

Roger Morgan: "I doubt my strategies play a role in our sales, I'm only the operations guy. I think our problems are half due to the economy, and half due to the shift from print marketing to digital marketing."

Kevin: "Ok, well, you cannot control the economy, so then the stuff that is within your control is, in your opinion, due to the shift from print marketing to digital marketing, right?"

Roger Morgan: "I guess so."

Kevin: "So let me ask you another question. If the shortfall in business is due to a shift from print marketing to digital marketing, do you not have a responsibility as a Vice President at a major company to try digital marketing strategies, in the hope of finding something that might work? Is it not your job to mitigate the decrease in sales with a new strategy?"

Roger Morgan: "Of course it is. That's why we have a book of work. That's why I prioritize all projects, focusing on those that have the best ROI."

Kevin: "Why don't you tell us what the top three projects are, based on your estimation of ROI?"

Roger Morgan: "Let's see. The top three projects right now are to eliminate invalid free shipping codes found on rogue sites on the internet, then to enable employees to get 15% off of all merchandise purchased in employee orders instead of the standard 20% they've always had due to a new expense control project, and third is to log the number of minutes employees in the contact center spend talking to customers to see if we can trim expenses in some clever way."

Kevin: "If in your words the biggest issue within your control as a business is the shift from print to digital, then why have you prioritized the three projects you mentioned as most important, given that not one of those projects deal with the shift from print to digital?"

Lois Gladstone: "I don't see how this line of questioning benefits any of us. Roger does a good job."

Kevin: "I'm sure he does a good job. But none of the three most important priorities on Roger's book of work have anything to do with selling merchandise in a digital marketing environment. If your company is being hurt by the transition from print to digital, as Roger suggested, shouldn't the top three priorities have something to do with facilitating a digital customer experience?"

... silence ...

Kevin: "What I can tell you is that there are companies out there who are fully embracing this transition. There are companies that use web analytics to measure website performance in real time, and make strategic merchandising changes on the fly. These companies are re-wiring their own neural systems to handle the complexities of modern digital marketing. What they are doing isn't easy, and is fraught with failure. But they are trying. They prioritize digital projects over analog projects, forcing themselves to manage a future they don't yet understand."

Lois Gladstone: "Those are good points, we'll take them under advisement. But I look at what Anna Carter is doing, and I just think they are grasping at straws. I think with Pepper's new catalog strategy, and the 15% increase we're seeing, that we can just double-down and try harder and make 2010 work. Then we'll address 2011, we'll keep making incremental improvements. Customers love catalogs. I was at Applebees last week, and there sat a couple, probably in their early 60s, each reading catalogs while waiting for dinner. The wife wanted a new sofa, the husband said something about buying new shoes. See, that's what we're talking about here. We can grab market share among a receptive audience."

Roger Morgan: "EXACTLY! Kevin, I think we're done with your questions for today. You can leave now. Folks, let's move on to the strategic portion of our meeting. Let's talk about the change from 20% off of company merchandise for employees to 15% off. Lois, how much profit will this generate in 2010, based on your estimates?"

Gliebers Dresses: Anna Carter, The Interview

I have been invited to meet with Anna Carter, President of Anna Carter, the main competitor of Gliebers Dresses.

As you may know, Anna Carter elected to discontinue their catalog in Fall 2009. Ms. Carter's office building is almost space age, in comparison with the office space leased by Gliebers Dresses. Ms. Carter's office is lined with LCD televisions on the walls. One LCD monitor posts a dashboard with call center and live chat information. Another lists daily website metrics, including conversion rates and bounce rates, new/existing visitor information, that kind of stuff. Another LCD monitor scrolls live customer feedback on Twitter. Yet another LCD monitor scrolls through updates from various fashion blogs.

These monitors are posted in every Executive's office, and hang from the walls of every major congregation point in the building. In fact, all aspects of the office building are positively 2010 in nature. On-site daycare, company paid iPhones for all employees, Twitter accounts for all employees that require, as a condition of employment, one tweet per day. There is an amazing cafeteria that is subsidized at a rate of $10 per employee per day, enough money for employees to enjoy breakfast and lunch. A workout room is fully furnished with clean towels and the latest equipment, and is staffed with a Wellness Director. This individual prescribes workout routines and dietary opportunities that can be supplemented in the cafeteria. Employees can pay an annual fee of $2,500, and in kind, receive free health care for the year ... in fact, an on-site nurse practitioner deals with daily issues, referring employees to medical attention as appropriate. Employees who drive Hybrid vehicles, who take public transportation to work, walk to work, or ride their bike to work receive free health care ... their $2,500 annual health care fee is waived.

In other words, Anna Carter has gone to great lengths to create an environment where an employee feels valued. Let's chat with the person behind this company.


Kevin: "Thanks for inviting me to be here today, Ms. Carter."

Anna Carter: "Please, call me Anna."

Kevin: "Let's get right to the question most people would want to know about. Why did you end your catalog marketing program?"

Anna Carter: "Oh, this is a complex issue. Let me start by asking you a series of questions, Kevin. When is the last time you subscribed to a newspaper?"

Kevin: "At least ten years ago."

Anna Carter: "Why do you keep a landline-based phone?"

Kevin: "I need it for my DSL service, and use my cell phone for almost everything else."

Anna Carter: "What is the ratio of CDs you've purchased in the past year to MP3s?"

Kevin: "I think I purchased 124 songs on iTunes, and purchased one CD."

Anna Carter: "When is the last time you purchased a DVD, and when is the last time you got a movie via Netflix?"

Kevin: "I only purchased one DVD last year ... I get three movies a month from Netflix."

Anna Carter: "What is the ratio of time you spend watching network television, vs. watching cable networks?"

Kevin: "I probably only watch 4-5 shows that are on network television. Most of what I watch is on a cable network."

Anna Carter: "When is the last time you purchased something from Amazon.com, and when is the last time you ventured into a department store?"

Kevin: "I bought from Amazon last month, I probably haven't purchased something from a department store in six months."

Anna Carter: "We could do this forever, Kevin. Times change. In 1999, I went to Tower Records, and I browsed a hundred CDs before walking out of the store with a half-dozen CDs. Today, I let iTunes and Genius recommend to me what I would like to listen to, and then wirelessly add the song to my iPod touch. It's magic. How the heck would Tower Records compete with that?"

Kevin: "They couldn't. And now Best Buy and Wal-Mart are shrinking their physical music offerings, too."

Anna Carter: "At some point, you ask yourself a simple question. Are you in business because of the technology that delivers product to a customer, or are you in business because of the merchandise that customers want to buy from you? The catalog is simply a technology. My brand is about connecting customers with fashion. I don't need a catalog to facilitate that connection, do I?"

Kevin: "But what if the technology is still viable? Why kill the catalog altogether? Why not target it to the customers who want catalogs, and let everybody else shop online or via the micro-channels they prefer?"

Anna Carter: "That's an oversimplification of an issue, Kevin. That's a theoretical question raised by folks who have a vested interest in CRM, or in selling paper or printing services, or in hosting a co-op database that pays them whenever somebody rents a name."

Kevin: "Well, no, if it is more profitable to target only those customers who want a catalog, then why not make the more profitable decision?"

Anna Carter: "Profit is a flexible concept, Kevin."

Kevin: "How so? Isn't profit a simple mathematical calculation?"

Anna Carter: "Let me give you an example. Our catalogs averaged 124 pages, and we mailed them about seventeen times a year ... no remails. This means that we had to create 2,108 unique pages each year. You don't do that with a small number of individuals, Kevin. It takes a boatload of talent to put 2,108 pages in the mail. It costs us $1,500 just to produce each page. And we paid $0.67 to put each 124 page catalog in the mail."

Kevin: "And then you received $3.00 per catalog, yielding you $0.25 of profit."

Anna Carter: "The issue, Kevin, is what COULD you do with the $0.67 of catalog marketing expense. Could you do something that generated a better return on investment?"

Kevin: "But why not spend the money on catalog marketing and spend additional dollars on the other activities that generate a better return on investment ... then you win on both fronts, right?"

Anna Carter: "That's not the way marketing works, Kevin, and you know that, you talk about that issue all of the time on your blog. We tested not mailing catalogs in Q1-2009. After two months, the performance of our e-mail marketing campaigns doubled. You mention that marketing is a big game of whack-a-mole on your blog. Well, that's exactly what it is. In our test, we learned that customers age 55 and above are nearly 100% dependent upon catalog marketing. Customers age 40-54 began to migrate to e-mail marketing, paid search, portal advertising, that kind of stuff. Customers age 30-39 were into e-mail marketing and social media. Customers age 20-29 are a whole different ballgame, we haven't learned how to market effectively to them. But in all cases among customers age 20-54, catalogs did not yield the sales that our matchback reporting suggested."

Kevin: "Explain that concept to me, because the co-ops keep telling catalogers that if you don't mail a catalog, you don't get sales in other channels."

Anna Carter: "Of course they tell you that, because if you cut back on catalog mailings, they lose revenue. They don't technically lie to you. They tell you that customers who received the catalog spend $2.20 online in the sixty days after receiving a catalog. Well, technically, that statement is 100% accurate. Of course, it doesn't mean that BECAUSE the customer received a catalog the customer spent money online. Our tests showed us that 50% of the demand matched back to a catalog would happen anyway if a catalog was not mailed.

Kevin: "So in your case, the matchback algorithm grossly overstated how effective the catalogs were?"

Anna Carter: "Exactly. We ran a profit and loss statement on the incremental demand generated by catalogs. We were generating 3% EBIT on our catalog business. I could spend $10,000,000 of marketing expense mailing catalogs to generate $750,000 profit, or I could put $10,000,000 in a CD at 3% interest and earn $300,000 profit, without doing any work whatsoever."

Kevin: "You still make more money doing the catalog marketing, right?"

Anna Carter: "This brings us back to the question of what we could do with $10,000,000 of catalog marketing expense. We used the results of our test to forecast what we could spend in online marketing if a catalog didn't exist. For instance, we learned that we could quadruple our paid search investment if we didn't have a catalog."

Kevin: "How is that possible?"

Anna Carter: "Part of the increase happens because paid search orders were no longer being matched back to catalogs, causing paid search performance to look much better. But here's the really interesting part of the equation. We took our creative staff, folks who used to work on catalog spreads, and gave them a new challenge. We assigned each creative staffer a set of keywords, and told them to design landing pages customized to the keywords assigned to them. Our landing pages were good for crap when we focused all of our efforts on catalog spreads. Our landing pages absolutely blossomed when a creative person designed a page tailored to a family of keywords. Conversion rates for tailored landing pages increased by 125% when catalog creative folks designed the pages. This fact alone allowed us to triple our paid search spend."

Kevin: "But those customers have significantly lower long-term value, compared with a catalog customer, correct?"

Anna Carter: "Yes, that's correct. But so what? If I can acquire 10 customers at break-even with $20 of long-term value, I am better off than acquiring 3 customers at break-even with $40 of long-term value. You simply change your mindset. You ask your people to focus on something different."

Kevin: "Ok, but how do you acquire customers now that you don't have a catalog?"

Anna Carter: "That one is harder to solve, Kevin. Starting in February 2010, we will offer $3 shipping on all orders, and free returns on all orders. We can do this because we know that our conversion rate will increase by 20% with this strategy, offsetting some of the lost shipping and handling revenue. And then we acquire new customers, because first time visitors to the site bail on us when they get to shipping and handling expense. We will use catalog marketing dollars to subsidize $3 shipping and free returns."

Kevin: "That still doesn't solve your new customer acquisition problem."

Anna Carter: "Nope, it doesn't. And honestly, I don't care. Traditional customer acquisition through list rental was wiped out by the co-ops. And now the co-ops are being wiped out by Google. In five years, the co-op business model will not work anymore for catalogers. I'd rather get a five year head start experimenting with new strategies than wait for co-op customer acquisition to completely implode."

Kevin: "This has to have a brutal impact on top-line sales, right?"

Anna Carter: "Sarah Wheldon thinks sales will drop by 35%. I am forecasting a 40% drop in sales in 2010. But we will be more profitable in 2010 without a catalog than we were in 2009 with a catalog."

Kevin: "So you had to fire a bunch of staffers, right?"

Anna Carter: "Yes, in the call center and distribution center, it wasn't pretty. But we kept about ten of our best sellers in the call center, and gave them a new title --- Social Media Store Manager."

Kevin: "Describe that job title to me."

Anna Carter: "Their job is to use blogs and Twitter to solve customer service problems, to build an audience, and to sell to customers. It's a $400,000 investment that we'll try for one year."

Kevin: "How does one sell on Twitter?"

Anna Carter: "Here's the thing, Kevin. We gave every employee, not just merchants or Social Media Store Managers, but every employee a new level of accountability. We told them that SPREADS = LANDING PAGES. In other words, everybody used to work hard to merchandise a spread in a catalog. Now, our merchants and creative staff focus entirely on creating landing pages. They get to see the performance of their landing pages, in real time, via our web analytics tool. Employees who design the best performing landing pages earn a weekly bonus. Employees who refer customers to the best performing landing pages via their blogs and Twitter accounts receive a weekly bonus. We froze salaries for 2010, and told employees that they can earn that money back via bonuses. The average employee would have received a $1,500 salary increase. As long as the employee has a social media presence and updates their social media presence at least twice a week, they get $500. Then, the best performing employees all earn bigger bonuses based on what they sell via their social media presence --- I mean honestly, we pay affiliates a percentage of every order they generate, so why not do the same for every employee? I mean, who has more passion for selling, an affiliate, or one of our employees?"

Kevin: "That's interesting."

Anna Carter: "It sure is. There is an insane amount of competition to create highly performing landing pages. Landing pages that don't work are killed, quickly. You have merchants doing de-centralized marketing on their own Twitter pages, driving customers to the their own landing pages. You have creative staff doing de-centralized marketing on their own Twitter pages, driving customers to their own landing pages. You have employees competing against each other, trying their hardest to outperform each other, creating a Darwinistic style of landing page evolution that we could never have learned on our own when we have a catalog. In fact, conversion rates on our landing pages have improved by 80% since we terminated the catalog and developed this style of competition."

Kevin: "Have you had any problems on Twitter, using this strategy?"

Anna Carter: "We have three rules. Don't lie. Always reflect the brand favorably. And you're not allowed to offer discounts or promotions. Everything else is fair game. If you want to see innovation on Twitter, you'll see it using this strategy. We have employees offering merchandise deals of the day. We have employees who offer social media links to anybody who promotes our merchandise on their blogs. In fact, we now see that 17% of our website traffic comes from social media. The important thing is to allow each employee to be their own "store manager". They get to pick and choose the landing pages that they like best, and then they are rewarded when customers buy from their landing pages or via their social media presence. I've seen merchants who earn bonuses by selling the merchandise offered by a co-worker ... if that merchandise is working better than what the merchant is selling, you'll see merchants promote other merchandise over their own. You won't see that happen in a traditional catalog business."

Kevin: "All of this happens because employees aren't focusing on catalog spreads anymore?"

Anna Carter: "And it happens in real-time, Kevin. If a landing page isn't working, it gets pulled down, and fast. If a catalog spread doesn't work, it sits there in homes for sixty days, and we don't fix the problem for maybe six months. We optimize our business on the fly. Do you have any idea what we've learned about customer behavior since disbanding the catalog, stuff that we never had the resources to learn previously?"

Kevin: "Sounds like you need web analytics and information technology alignment to pull this off."

Anna Carter: "You have no idea. It's nice to have an information technology executive who is incented to provide a framework for dynamic landing pages that can be modified by any creative staff member. And you should see the merchandising, creative, and information technology integration that happens ... they all realize that they need each other to make the business work. And you should see how merchants all of a sudden are spending time in the contact center, encouraging employees to use live chat or Twitter to promote their landing pages. All of a sudden, employees are working together in ways we never imagined."

Kevin: "So this is how you make more profit than by running a traditional catalog business?"

Anna Carter: "Yes, this is how you do it. But you cannot do it if you are passionate about catalog marketing. You can only do it if your are passionate about selling merchandise. This is the mistake that old-school marketers make. They are passionate about the form of distribution. The music industry wanted to sell you music via a CD, they didn't want to sell you music. The newspaper industry wanted to sell you news via paper, they didn't want to sell you news. I want to connect a woman with a dress, and I'll go door-to-door to do that if I have to. I do not care one bit about the way I connect a woman with a dress. I care deeply about having passionate employees who want to sell!"

Kevin: "Based on the benefits employees have, it looks like you re-invested catalog dollars in a lot of employee programs."

Anna Carter: We sure did. We built the workout center, the cafeteria, we hired a Wellness Director, we added the daycare center, we did all of that with the money we used to spend on catalog marketing. Our employees, in kind, spend more time here, they are healthier, happier, and work harder at merchandising and marketing our website."

Kevin: "Thanks for taking the time to chat with me today, Ms. Carter."

Anna Carter: "And thank you for spending time working with Sarah Wheldon on a five year forecast for where our business will be in 2015 without catalog marketing. I appreciate the Online Marketing Simulation work you did for us. If Gliebers Dresses invites you back, be sure to pass along my best wishes to Glenn. I'm sure that our decision to kill the catalog is absolutely knawing at him."