It All Comes Back to Management

When Yogi Berra uttered the immortal words, “It’s déjà vu all over again,” I am certain he had neither the business world nor the jewelry industry in mind. Yet here we are again looking at another major in trouble. Chapter 11 trouble. I am referring, of course, to Kmart. But more specifically, I am concerned about the manufacturers who supply the Kmart stores.

In the past 10 years, we have witnessed the demise of an entire category of jewelry business at retail—the catalog showroom. First it was Best Products. Next it was Service Merchandise. Kmart’s foray into Chapter 11 territory will be successful, we hope, at least from the perspective of the thousands of individuals employed by the retail giant as well as those employed in the jewelry manufacturing firms that supply them.

Based on history, that’s optimistic thinking. According to those in the know, all of these majors had thriving jewelry businesses. The jewelry manufacturers that supplied Best and Service hoped that these firms would emerge from Chapter 11 … but in the end, the manufacturers returned to the same well looking to do more business with the remaining majors.

Most manufacturers that deal with majors are themselves only marginally profitable. They allow themselves to be pushed and shoved—nicely, of course—into bad business deals. Returns and memo programs are two of the biggest problems manufacturers face. None of the costs associated with returns and memos are ever part of the pricing model—and they should be. The threat of competition is always there. Suppliers from India, Asia, Mexico, and Turkey are just waiting to step in and take over the business.

The history of failed businesses is a great teacher. In general, they fail because the management team doesn’t properly understand what business they’re in; who their customers are; who their competition is; and most importantly, what their unique selling proposition is. Is this channel the best opportunity for profitability? What differentiates a firm from its competition? Is it price? Service? Image? Location? People? Design? Low cost? Technology? Is the USP verified or merely management’s opinion?

Does top management—specifically, the CEO—know and understand the market landscape? Does he or she regularly communicate a vision to the troops in the field of commercial battle? And equally important, does he or she serve as a motivator? Or is the leader just one of the complainers?

Effective leadership requires the best people at the point of commercial attack. Don’t listen to them, don’t motivate them, don’t pay them … and you’ll lose them. Too often, the leaders’ visions are based on assumptions that are no longer true. They don’t listen. Instead, they fall back on blaming manufacturing, sales, marketing, foreign competition, or the economy. Someone else is always at fault.

It’s the CEO who sets the tone and provides leadership and motivation to the troops. As President Truman said, “The buck stops here.”

fdallahan@reedbusiness.com