Sounding Board: Letting go

Sometimes the best way to turn around a retail operation is to demolish it to make room for something better.

There is finally proof of life after death.

No, it is not what you are thinking and I apologize for offending anyone out there. But I am talking about retail.

We have all heard the tales over the years about dramatic turnarounds of companies that were about to doze off in the arms of Morpheus. There was, believe it or not, a time in the 1990s when even the mighty Apple was thought by some to be a candidate for the boneyard.

It just goes to show you what a little vision can do. Hopefully, time will put companies such as Best Buy, J.C. Penney, Supervalu and others on a similar path for the sake of employees, consumers and the economy at large.

You do not have to be Steve Jobs. But it does take guts, determination, study and the willingness to lose a lot of sleep.

A case in point, and one of the more interesting stories I’ve heard lately, is a company that everyone thought was a dead issue—the Tengelmann Group—the former German-based parent of A&P and Pathmark. The company’s entry into U.S. retailing in the late ‘70s sparked some pretty humorous outcries of a European invasion and whose less-than-celebrated exit from American retailing was quietly applauded by many in the food industry. Frankly, most do not care what happened after that.

However, the story of this fifth-generation family-owned company, which also lost its dominant position in the European supermarket industry, holds more than a few lessons about visionary leadership and how to successfully reinvent a company in a retail environment that is even more intense and overcrowded than the U.S. I came across the story recently in a German retail blog published by Lebensmittal Zeitung, a publication that I know many in the grocery business are familiar with or should be.

The interview was with Karl-Erivan Haub, who took over the helm of the company in 2000, downsized and reinvented it. The result is that Tengelmann is a very different company then it was a decade ago when thousands of the large and unwieldy Plus discount stores dotted the European landscape. These were systematically sold to competitors. More recently, the company shed the A&P money pit, which was a tiny part of Tengelmann but still a thorn in management’s side.

Tengelmann now consists of stronger regional supermarkets, D-I-Y outlets under the Obi banner, discount clothing stores called Kik and a very aggressive online clothing and shoe business called Zalando, which currently posts losses that are viewed as a necessary evil for a work in progress. As Haub puts it: “We are investing in an area of the business that belongs to the future. Our investments are limited because we participate in start-ups where the costs are relatively small. We don’t intend to throw our money out the window.”
And when asked whether it is brick-and- mortar or Internet ventures that have a better chance to succeed in retail, he replies: “I think the better question would be what can both systems learn from each other, and where are the advantages in each?”

Haub is no Pollyanna when it comes to the downside of online retailing. These operations may not have to pay rent. But doing it right can involve tremendous expenditures for IT and software. Nonetheless, the potential is such that the company has formed Tengelmann New Media to deal exclusively with online marketing issues.

Haub notes that Zalando is still in the development stage and is still losing money. But he knows that the potential is worth the investment. “We are investing in an area of the business that belongs to the future.”

It has never been easy to rebuild a shattered competitive advantage and the current uncertain economic climate can make this a frightening prospect for even those strongest of heart. Basically, you are putting your reputation—not to mention money—on the line.  Both are significant investments, but the former may be harder than the latter to get back once you have lost it.

There is no telling how successful Tengelmann’s reinvention strategy will be. But if there is one traumatic lesson facing any company in this situation it is that sometimes you have to let go and be willing to tear something down in order to build something better.

Len Lewis, a regular Grocery Headquarters columnist, is a veteran industry journalist, commentator and editorial director of Lewis Communications, Inc. He is the author of The Trader Joe’s Ad­venture—Turning a Unique Approach to Business into a Retail and Cultural Phenomenon. He can be reached at lenlewis@optonline.net or at www.lenlewiscommunications.com.

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