How Marcus Turned Around Courage b.
I have to confess to thinking that I wouldn’t like this episode because not only is it about a retail operation but about one selling women’s fashions. These are two things I have no interest in. Boy, was I wrong. This episode turned out to be one of the best to date in terms of both the business lessons and the emotional healing that took place.
Well done, Marcus.
Courage b is a small chain of women’s fashion shops concentrated along the East Coast. It was launched in 2008 by a family of immigrants from France. Shortly after arriving in the USA, they opened up a fashion store in Manhattan called Fopp’s. This was in 1987. The following year the father died suddenly at the age of 38 leaving the mother, Noemi, with a 7 year old son, Nicholas, and a 4 year old daughter, Stephanie. The trio managed to survive with that one store which remains part of the seven they own today.
Noemi is the chief designer, while Nicholas serves as over all manager, and Stephanie is CFO. Company headquarters are in Greenwich, CT.
One thing that I found odd was the fact that Nicholas owned 100% of the operation while mom and sister owned nothing. I’m sure there is a reasonable explanation for this since neither woman raised it as a problem. It probably had something to do with protecting family assets during Noemi’s recent and ugly divorce.
In 2013 the seven stores pulled in about $5 million in revenue but lost $500K. Half of this loss was in legal fees resulting from the divorce and half from investing in non-selling inventory.
In 2014 they are expecting to lose money again on an estimated $6 million in sales. According to Marcus, the industry gross margin is 70% while Courage b only averages 50%.
Marcus quickly noted that that stores were a mess due in large part to being cluttered with a bewildering assortment of clothing and accessories. In addition, the look and feel of the stores was low end rather than high end. Marcus also pointed out that some of the items tore easily because they were made from cheap fabrics.
Fopp’s, the original Manhattan store, with monthly sales of around $45K was a huge money loser because of its monthly $28K lease payment.
Monthly sales: $45K
50% Gross Margin -$22.5K
Lease payment -$28K
Ouch. The other stores were being forced to subsidize it.
The negotiations went rather smoothly in this case. Marcus initially offered $800K for 50% of the equity and full control. He then offered to settle for 30% for his $800K if Nicholas agreed to give his sister and mom 15% each. This left Nicholas with 40%. He agreed. Done deal!
Marcus’s Growth Strategy
Marcus immediately grasped that he needed to concentrate on Product and Process rather than on People. His growth strategy focused on drastically reducing the range of items carried and improving the quality of the remaining ones. He did this by introducing the concept of the “five foundational product pillars” for the rebranding: dusters, dresses, tops, pants, and bags. His next step was to hire designers to create new products for these categories. In addition, Marcus switched supply to manufacturers who could meet his higher quality standards.
As usual, Marcus held a fire sale to blow out the $250K in bad inventory. We weren’t told what the proceeds were but a good hunch is about thirty to forty cents on the dollar. As I have mentioned before most owners have a difficult time letting go of bad inventory because it means both admitting that they made a mistake and accepting a one time financial hit.
Finally, Marcus brought in a branding team to completely redesign the look and feel of the stores. This necessitated shutting down Fopp’s for a month before reopening it under the Courage b brand. I also learned about a merchandising tool called a the Planogram which helps to ensure that all stores in a chain have the exact same look and feel inside.
I won’t go into the healing that occurred between mother and son but it was heart-warming to see. Even Marcus had a tear stream down his cheek as it was happening. These are all nice people. (I suspect that next week we will get some drama queens.)
The final result after Fopp’s reopened as a Courage b store was stunning. Like I said off the top, fashion is not something I have any interest in but the new look was simply fabulous! All that was missing was the “husband’s bench” out front for us guys.
The Profit just keeps getting better and better.
Visit the company’s website.
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