Adam Torres and Michael Appel discuss retail turnarounds.
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Show Notes:
How do retail stores remain competitive? In this episode, Adam Torres and Michael Appel, Managing Director & Head Of The Retail Practice at Getzler Henrich & Associates, explore the evolution of retail and the role of technology.
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About Michael Appel
Michael is the Managing Director at Getzler Henrich, as the Retail Restructuring Practice Leader. He’s a seasoned executive with more than 40 years of experience leading and advising retail and consumer products companies.
Michael has served as interim CEO, interim COO, and financial advisor for many well-known companies including Baccarat, Inc., Laura Ashley N.A., Caswell Massey, Ciro, Inc., MacKenzie-Childs, and Wilkes Bashford. He has deep expertise in women’s apparel, accessories, jewelry, menswear, childrenswear and all categories of home furnishings across department store, specialty store, offprice, and direct response channels of distribution.
In addition to his turnaround management activities, Michael has provided strategic advisory, due diligence and expert witness consulting services to retailers, financial institutions, and consumer product companies including Ford Motor Company, Castle Harlan, Whippoorwill Associates (Barney’s New York), and AIG.
Full Unedited Transcript
Hey, I’d like to welcome you to another episode of Mission Matters. My name is Adam Torres, and if you’d like to apply to be a guest in the show, just head on over to missionmatters. com and click on be our guest to apply. All right. So today I have Michael Appel on the line. He’s managing director and head of the retail practice over at Goetzler, Henrick Associates.
Michael, welcome to the show. Thank you, Adam. Great to be with you. All right, Michael. So excited to get into today’s topic. So driving performance and results through embracing technology for retail turnaround, and you’ve been working on retail turnaround for quite some time, so excited to get into that.
But before we do, we’ll start this episode, the way that we start them all with what we like to call our mission matters minute. So Michael, we at mission matters, we amplify stories for entrepreneurs, executives, and experts. That’s our mission. Michael, what mission matters to you? Well, the mission that matters to me is to work with with retail companies on all parts of the spectrum from companies that want to improve performance who are doing well to companies that are stressed or for companies that are up against the wall.
And we have a great firm, Getzler Henrich, that has focused on helping companies across all All types of industries for over 55 years to to, to navigate the challenges of of, of business. And I had the retail practice and that’s my focus. Yeah. What like, like how, how’d you get interested in restructuring initially?
Like where’d all that start for you? Okay. Well, it, it, I sort of fell into it to tell you the truth. And I spent the first 20 years of my career. And, you know, as a merchant, first at Bloomingdale’s for 10 years then at a company called Fortune Off, which was the sort of a precursor to Bed, bath and Beyond.
Mm-Hmm. And then I was president of a company called Fritz, which was a gift specialty retailer, national specialty retailer that, that focused on, on cutlery and personal care. And after I, I left that company in the early nineties. Most of the companies that that were out there were experiencing some some form of difficulty.
So I started working with challenged retailers or retailers that needed an interim CEO and and help them navigate through those challenges. And that’s how it’s, that’s how it started. And then I had, I had my, my own firm, for many years. I work for one of the premier turnaround firms called Alex Partners.
And for the last two years, I’ve led the retail practice at Gensler Henry, which is really the premier turnaround and restructuring and operational improvement firm that’s focused on the middle market. So that, that, that’s in a nutshell, all right, I want to, I want to stay in those early years a bit longer because obviously we’re going to be talking about digital and some of the things that are, that are taking place now in present day retail, you know, turnarounds, but what were some of the challenges that people were, were facing or retailers were facing earlier in your career?
Like, like, how did all that start? Well, I mean, look, retail is always is, is, is the fastest moving industry out there because it’s closest to the consumer. So with retail and retail, it’s a difficult business because you have to be good at so many things. So, and you can have, and you can do every right, everything right.
And then all of a sudden you have a macro event and and, and you have to pivot and figure out how to get through it. So, so I think that That’s that’s, you know, that’s a sort of the unifying factor in that regard in the in the, you know, in the early days, I think, you know, when when everything was done sort of manually, right?
You know, I can. I can remember doing assortment plans and, you know, spreadsheets almost manually. And then then you got to excel, right? You know, when you look at the change, it is that, you know, the ability, the ability to process. Large amounts of data Right. And come up with the right answer through technology, I think has been, it’s a game changer.
Yeah. And and, and, and also just the ability for companies to embrace technology. In running their business and turning around their business has made it has made a huge difference. And, you know, you know, that’s something that, that despite the fact that I’ve been in business, you know, for, for many years that I’ve always been very interested in and open to and embraced.
And, and I think, you know, companies, companies, whether they’re healthy or, or, or stressed that don’t embrace that are going to have a really difficult time surviving today. I love, I love a good Excel story, Michael. Anytime I get to plug it in, cause I feel like we, we take it for granted so much right now, but that Excel changed banking.
It, I mean, it changed so many industries. So I just like that you even said it, that at one point for all of our younger audience out there, Excel didn’t exist and we had to do things manually. Right. Exactly. And you know, And somehow you figured it out, but, and, and, but, but that’s, cause that’s what was available.
And now today, if you go into a company and they’re doing everything on Excel, you, you know, that that’s a problem. Right. And, and, and also, you know, the, the. The technology platforms that are available to retailers today, you know, it’s, it’s not very difficult for, for most companies to be able to implement those platforms.
And so, you know, both from a cost and time and resource perspective, it’s just so much easier. And then of course you have the cloud as well. So you’ve got all these opportunities. that are there. The biggest challenge very often with many of my clients is to get them to embrace change, right? Because change is very is for most people is very scary.
I look at it exactly the opposite, which is, you know, this is an opportunity. To turn your business around to improve your operations. It’s great. And, you know, for most of the today, for most of the technology solutions that are out there, most of these companies will, will do a proof of concept. So you’re not, you’re not betting the ranch, you know, in, in, in that regard, you’re able to, to make, you know, to, to to, to do that proof of concept, see the ROI.
Bye. So that when you pull the trigger, you’ve got a pretty good idea what’s going to work. And then the issue becomes, okay, with all of the different solutions out there, what are the ones that are really going to work for your company and have the most impact? And those are the, you know, the prior prioritization of that is, is very important.
Michael, circling back to something you said, you said retail can be a difficult business because maybe you do everything right. And then something macro happens or some other external event happens that you have no control over. And all of a sudden you have to pivot or figure out or to navigate. Other than let’s just say COVID, cause that’s a very recent example.
What are some other examples like throughout your career or example that you’ve seen something and you’re like, man, like all these businesses, you know, like, what are some things that you’ve seen? Yeah, well, well, COVID is an extreme example, but you know but I think it’s, you know, the, the financial you know, COVID is an extreme example, but, but when you look at the, the the financial crises, the real estate crises, the savings and loans crises, they all had an effect. On, on the economy, right? Mm-Hmm. . And in most of these situations, and when you think about the great recession of 2008, 2009, that was a combination of real estate, the stock market that basically, you know, it almost turned out the, turned off the spigot of, of of, of people spending.
for a period of time. And it also affected the luxury market for the first time. So when you, when you think about those things, all right there’s always something that comes around the corner. All right. And, and so you have to be, you have to be able to say, okay, quickly assess the situation, what’s going to happen and what are the levers that you have to pull right to to be able to to, to, to navigate your way through to the other side.
And I would say the, the, the one thing that is always a, a big que a a a big issue is liquidity, right? Yeah. Because if you don’t have the, the, the sufficient liquidity to, to buy you the time. To navigate through these, these crises that could be unforeseen, then you’re going to be, you’re going to be in trouble.
So, and I started as a merchant, so, you know I sort of went to the other side, which is, well, if you don’t have, you don’t have sufficient liquidity, then everything else is immaterial in that, in that regard. So you always have to focus on, on, on that piece of it as well. Do you feel starting as a merchant helped you in being able to execute what you do now?
Absolutely. I think that, you know, it’s sort of my, my, my secret sauce because the world is in your blood, right? Like it’s in your blood. Well, and, and also, I mean, I think the, the issue is today with, with restructuring is that you can, you can. Always, not always, but in a restructuring situation, you can.
You can restructure your balance sheet, but if you don’t fix your business model, all right, you’ll come out of chapter 11 or restructuring and you know. It won’t be long before you’re, you’re back where you started. And I think that the ability, and, and when you’re doing, when you’re doing a turnaround, it’s the ability you have to work on multiple, on, on multiple levels at the same time.
Mm. So you can’t, you have to work on parallel. On parallel paths. So obviously you, you’re looking at liquidity, you’re looking at the, at your balance sheet, but at the same time, you’re looking at the, you’ve gotta start looking at the, at, at business operations. Right. both from a merchandising perspective, supply chain perspective human resources perspective and attack all of them at the same time so that you can you can get to the other side and have a viable business when you’re, you know, when you’re finished with the, with your restructuring activities, whether it’s in court or out of court.
How is it working with, like, what’s it like working with the teams that you’re working with? I mean, and I mean, specifically at the companies that you’re restructuring. I mean, I think I I’m just, I’m, you know, from my outside vantage point, looking in, I’m just thinking, you know, you come into this, this, this this company that needs to be restructured and, you know, maybe some of the management’s going to stay, maybe some of them have to go or be replaced.
You’re also looking at the model overall of a business and seeing, is it viable? Like, what’s it like working with those teams? Well, every situation is different. Okay. And, and so, and you have to recognize that fact and you have to look a, you have to assess, is this going to be a viable business going forward or not?
And a lot of these things you have to do pretty quickly, right? You have to assess the viability of the business and assuming that you feel that it has a viable business model, then, you know, I have sort of my little playbook, right? Assuming that that’s the case, my playbook is A, you have to get a, you have to get a deep understanding of your customer, right?
Mm-Hmm. Because if you have an understanding of your customer, the things that you do will, will, will be logical and make sense. Mm-Hmm? . And very often I go into companies both in retail and cons and consumer products, and particularly in retail. They have very little consumer research. So, you know, we try to, if they don’t have it, we try to, to, to quickly, but thoroughly, thoroughly get consumer research to understand who the customer segments are.
You know, the old, the old retail thing was, was like, I know who my customer is. Well, it’s not one customer. You may have four or five different customer segments that behave differently. And you need to understand that. And you need to decide, well, who are the segments that are going to that you’re going to win with.
Right. So, for example, when I was running Route 21 we had five customer segments. Three of them were very, very interested in fashion. And two regarded, you know, regarded clothing as either utilitarian or I’m gonna buy the cheapest thing that’s out there. Right. So, so if you’re in the fashion business, you don’t want people that are, that are interested, that, you know, are only interested in utilitarian or, Or, or cheap clothing because you’ll, you’ll never make money on them.
So then you have to focus on the customers that are aligned with your brand and you do that. And then, so, so, so you have the, the understanding of your customer, which is kind of basic you would think, but you’d be surprised how many, how many pretty big companies don’t really have a very clear picture of who their segments are.
So, so you need to do that. Then you obviously have to assess your team. Very quickly and say, you know, who, who can, who can stay and who needs to go? And I think there is some, there are some people in the business that they just want to come in and, and clean house. And I don’t believe that. I think you’ve got to look at your team and you may, you know, your merchant.
Your marketing person may be weak, but your supply chain guy and your HR person is strong. So you have to say, okay, you wanna make sure that you keep the DNA of the company, right? You don’t wanna lose that. ’cause it’s very easy to do that. And, and you have to remember too, is that. For most of these companies, they were quite successful at one time.
So why were they successful? You know, what, what do you want to keep and what do you need to change? And then the other piece of it, as I said, is once you have that, okay. Those, those elements, then you can start to execute the other. And, and you have to execute against, against product, right? Because everybody, sometimes when you, when you, when people talk about retail, you hardly ever hear them talking about product.
Okay. It’s AI or theft or this or that, and they’re all important, but it all starts and ends with the product, right? Because that’s the business that you’re in. Why do you think that is, by the way? Like, why do you think that people don’t talk about his product as much? Like, why do you think that is? We’ve gotten away from it.
I agree with you, by the way. Yeah, I mean, I think part of it is because you have a lot of, you don’t have the same, very often, you don’t have the same training. that you had and also, especially with the larger businesses, they’re very siloed. And, you know, when, listen, when I started many years ago at Bloomingdale’s, I mean, you, you had a, a, a different kind of training, all right.
And you had, you had really fabulous merchants where product, you know, it started with the product and understanding the customer. And I think today, That’s not as much of the case where you do see that I think is with the sort of the entrepreneurial startups and that’s where a lot of the talent is today as opposed to the larger more, more kind of siloed companies.
Talk to me about the talk to me about the competition for, for retailers and competing with giants like Amazon, and especially when it comes to, since we’re talking about product, like, and kind of systems, I mean, free shipping, no free shipping. What does that cost? Does it make sense for the model? I mean, talk about just what you see in that space.
I think the issue is, is that, you know, if you’ve got, it’s very important for, for you to have. Differentiated or curated product so that whether it’s online or in stores but you know, whether it’s the it’s your own branded product or if you’re curating that the assortments are Are things that people will come to you for right?
Yeah, and and it will appreciate and I and I think that And when then when you get to that if you if you’ve got something people want Then you should not be in the business of losing money. And I think the issue with Amazon is I’ve always said is that, you know, everybody equates Amazon with free shipping.
Well, it’s not free shipping. You spent 150 bucks a year, right? To, to, but, but people forget after they, they paid the 150 bucks that they think it’s free. Well, it’s not. All right. You’ve just paid your ship. A lot of the shipping up front in that regard. And, and for a lot of retailers, you know, they’re, they’re, they’re, They’re afraid not to offer the same level of free shipping, but it’s not really free, right?
And one of the things we’ve found and Getzler, you know, my firm has been in the forefront of advising our clients, you know, for the least the last two years that they have to look at, at, you know, analytically the shipping thresholds, free returns, all those things. And we found with, with quite a few of our clients is that they were, they were doing free shipping.
At, at, at amounts that were lower than their average their average sale, right? Wow. So and so in some cases we just said, okay, you know, you’re, you’re doing free shipping a over 50 bucks, your average sale’s a hundred. I mean, you should be, you should be charging. For everything under a hundred bucks, or maybe even a little bit more.
And that changes the profitability kind of immediately. And then the other piece of it too, is the issue of free returns, right? And, and free returns are a lot more costly than people think. And, and the thing about it is, is that it is that because when you, when you, when you encourage, when you, you encourage free returns, you’re also encouraging people to order more than they need to, right?
And especially you see this, of course, in shoes or anything where, where, you know, you need to try it on or you’re not sure that both that model. Yeah. Yeah. Well, I, I listen, I was at the, the sourcing journal conference in New York and one of the top executives at Zappos sort of said, he says, you know, my family even does it.
Because it, because it doesn’t cost me anything to return it. On the other hand. On the other hand, it actually does because not only is it the cost of processing, but also you’ve, you’ve also spent this money on marketing, right? Mm-Hmm. to, to make the sale. So you’ve lost that too. So it’s quite, it’s quite costly.
And the other piece of it too is, and, and again, this is about product, okay? Mm-Hmm. , you know, the. Big reason why product gets returned. Other than you just make it too easy for them, the customers is that the fit is a problem. So if you are really, if you as a company really have a fit that consumers trust, then they’re not going to order three sizes or two sizes.
They’re going to order their size. And they’re gonna, they’re gonna keep it. So, and that has a big effect on profitability. And, and it’s, it’s, it’s something that I think that the industry is grappling with now, because all of a sudden we’re seeing even Amazon’s charging a buck. If you return it to UPS.
All right. And, but if you look at a lot of other retailers today, they’re starting to address the issue because, you know, especially if they have, you know, if they have large. E-commerce businesses. Mm-Hmm. , they, they, you know, it financially, it doesn’t work out right? Mm-Hmm. . And you have to decide. You have to decide, are, am I better off to have a bigger business where I lose money, or am I better off to have a business that’s smaller where I make a lot of money?
Mm-Hmm. . And, and and, and I think, again, you know, if the product’s great, the cu the customer, you know, will, will, as long as, as your policies are fair. They’ll, they’ll go along with you in that. Michael, sign me up for that really profitable one. Okay. I’m raising my hand for that one, Michael. Thank you.
Let’s get into the into the technology component a little bit here. So like when we’re talking about retail and turnaround, obviously one of the things you mentioned earlier that I think. I’d like to bring up again is that at some point, like these businesses were at some point successful, right?
Something made them successful to grow at some point. Now over time, whether they would depends on the size of business, obviously, but if they’re but at some point did technology leave them behind, is it, is it maybe like not adopting new technologies fast enough? Like regarding technology, where do businesses kind of get themselves in trouble?
Okay. Well, I mean, I mean, the first thing you have to talk about is really in terms of, of technology as a, as a tool is it doesn’t replace people. Okay. Yeah. It’s a tool for the executives to run their business better. And the problem that the issue that retailers have been facing in terms of profitability is that today, you know, years ago, Retailers work with bricks and mortar, right?
And maybe they had a catalog operation. Today, most retailers, in order to be competitive, right, have to be on the channel. So you’ve got your bricks and mortar, you’ve got your e commerce, you may have a direct mail component, And you have, you have to be active on social media, which means that you, that the cost of doing business has become so much greater than it was when it was a simpler model.
And so therefore, in order to become this, to, to be stay profitable, become more profitable, you’ve got to be more efficient. And so you have to find ways to, to run your business more efficiently. And that can, that can come in many, many different. ways. And so the levers that you have, there are many more levers than people believe.
Okay, how do you improve profitability? Okay, better use of working capital, which means better utilization of inventory. I mean, we used a great predictive analytics firm at rule. to help us figure out what we should buy, all right, and what we shouldn’t buy. And it was based on, you know, it was really based on assembling consumer panels of our customers who, through, through testing and gamification, had a history of choosing the winners.
So we assemble those, you assemble those consumer panels, then you show them product, you’re thinking of buying, and there’s a high correlation between high scores and success. And there’s a high correlation between low scoring items and, and, , big markdowns. So if you’re doing that, you, you’re buying better, you’re buying the right stuff, and you’re not buying the things that will be, you know, that, that will be high markdowns.
Mm-Hmm, . So you’re getting a double whammy in terms of being more profitable and you’re, you’re, you’re able, you should be able. to buy it in the right quantities so that you’re turning the merchandise faster. And that’s particularly, obviously very important in apparel you know, in that regard. So that’s one element there.
And then, but technology extends to every part of your business. I mean, one of the things we did at Roo when I was there was we knew that our customer was a lower income customer and they had limited access to credit. So we were the second company in the United States. adopt Klarna, which was the Buy Now, Pay Later platform.
And that addressed the ability of our customer. They could buy more. They could buy more, one more item. Well, that had an immediate impact. impact on sales in that regard. And we were also kind of serving our customer because they wanted it, but they couldn’t afford it. Right. And so that, that is addressing in now, of course, it’s almost ubiquitous.
Almost, almost every retailer’s got it. So, so that’s another example of, of that, you know, and, and then another example that had to do with, with learning platforms. And, and, and, and because one of the big issues today in retail is recruiting, training, and keeping your frontline employees. We all know that, right.
When we go in and it, there’s nothing that’s more depressing is to go into a store that even if they have employees on the floor, right. You ask them a question and they can’t answer it. Yeah, it hurts, especially it’s so hard to get a consumer in the store. Exactly. Exactly. So if you can, and, and, and there’s statistics on this, if, if you’ve got a great learning platform, all right then, you know, you can, you can, from the point that they come, that start to work for you, their onboarding is done properly.
They’re continually learning. They feel better about their own ability to interact with customers and, and they stay. And reducing turnover can, can have a huge effect on, on both revenue and profitability. And that’s a, and, and the thing about it is, it’s really interesting in, in that, you know, that there’s, again, there’s this feeling, well, you know, for, for most retailers, you know, turnover on the front line, the sales associate’s gonna be over a hundred percent, et cetera.
I, I mean, Costco’s, you know what Costco’s turnover is? Oh my gosh. They, they showed on their badge when something 7%. How much? Okay. 7%. I didn’t know it was that low, but I know on the badges that they have, like, I think it says like they’re the one, how many years they been there. They started, I’m always amazed and shocked when I’m like, wow, how do they do it?
Yeah. How do they do it? They do it because they, they value their, their associates. They treat them right. They pay them well and they get productivity. So, and, and they have, you know, happy employees. So when you go into Costco and you ask somebody a question, they’re more than happy to help you out. So you have a great, you have a great experience in, in, in, in that regard.
And so, and it shows you it can be done, right? There are retailers that can do it and they’re the ones that are making money for sure. Well, Michael, I just have to say, you know, it’s been great having you on the show today to learn more about the work you’re doing, of course. And also just to document, I mean, I learned a lot about retail.
I didn’t know. It’s interesting to track that journey. But that being said, I mean, what’s next, what’s next for you. What’s next for the company. Okay. Well, well, for me, really, it’s like, it’s really to continue to serve our customers and build our retail practice and which we’re doing. And we brought on board some fabulous managing directors and directors and associates.
And we feel that we’re, you know, we give. We give our customers, we give our clients, all right, the same degree of personalized service and expertise that some of the larger firms out there do at a much lower price, which in the, in the, in the middle market is really important because, you know, a 200 million company or a 50 million company just can’t, can’t afford what you know, a multi billion dollar company can do.
Of course. So, and we like to work very, very closely with our, with the management teams so that, so that it’s a collegial cooperative effort to get to the best answer. And so we’ve been pretty successful in that. And we’re looking forward to, to growing the business and continuing to to evolve with, with, with, with the retail and consumer products landscape.
If somebody is watching this and they want to connect with you and your team, how do, how do they do that? Two ways you can, you can email me directly at pel M-A-P-P-E l@getlerhenrik.com or call me directly at (917) 789-3615 and we’re, we’re always happy to, to chat. Fantastic. And, and so we’ll put, we’ll put more information in the show notes, of course, on how to connect with Michael.
And speaking of the audience, if, if this is your first time with mission matters and you haven’t hit that subscribe button, Hey, the way is over to no need to wait anymore. Hit that subscribe button. Now we definitely love to have you back with the daily show. And we’re bringing you experts each and every day, Michael, really, it has been a pleasure.
Thanks so much again for coming on the show. Adam, an absolute pleasure and look forward to staying in touch.
