The Children’s Place – A Case Study For Winning

Written by:

Share

Facebook
Twitter
LinkedIn
Pinterest
Email
Print

\"RRThere’s such a dark cloud of bad news for most general merchandise and apparel retailers today that when I examined how The Children’s Place rose from the near-dead in 2010, made it through a tepid economic recovery, exacerbated by the chaotic Technology/Digital Revolution, I felt like Dracula hit by sunshine. Whammo!!

As you can imagine, I wanted to further explore this phenomenon. How did The Children’s Place do it?

First of all, as with all turnarounds, it starts with a strong, experienced and visionary leader. In this case the leader was (and, still is) Jane Elfers, who took the helm as CEO in 2010. Almost all parts of the business were a mess upon Elfers’ arrival. During the four years leading up to Elfers becoming the CEO there were scandals and irregularities attached to questionable management practices, which was followed by a class action lawsuit. There were negative comp store sales during the 2009-2011 period, and a gross profit decline of 210 bps, no growth in operating profit and free cash flow decreased by 54 percent between 2008 and 2011.

Indeed, as Elfers stated, the company was “rudderless.” It would be an understatement to say she had to hit the ground running.

One year into the job, in 2011, I interviewed Jane, she was well into turnaround mode, and her vision was to become the number-one pure play children’s specialty apparel retailer in the U.S. Check that goal off as delivered. Indeed, The Children’s Place is “number one,” with revenues of around $2 billion and a fleet of stores numbering about 1026.

More significantly, the stock price was at $29 and change when she took over in 2010 vs. $125 earlier this year. And PLCE had a market cap of around $800 million in 2010. Today it rounds out to about $2 billion.

And if you want a real jolt, put on your sunglasses and look at the accompanying charts of competitive, peer group and stock index comparisons. Also the spreadsheet shows remarkable results over the past three years in same-store sales, operating margin and earnings per share as they compare to the apparel retail sector and against their competitors. Outperforming might also be considered an understatement.

All of the numbers are clear measures of successfully executing the four key strategic pillars that Jane established for long-term success: 1) product, 2) business transformation through technology, 3) alternate channels of distribution, and 4) fleet optimization.

\"\"

Setting the Foundational Strategy

So Jane had a vision — and she had a strategic plan. When I caught up with her I said, “Okay, great – you declared what you wanted to accomplish and how you were going to do it. So what became the most important element in getting it done?” Without hesitation, she replied, “Talent – the right people – the team is the overlay for these strategic pillars. Without the talent you cannot be successful. Operational excellence is the foundation. “ The lesson here? Getting the right people with the right skills and motivation is the biggest challenge in a turnaround, making it the number one job for a CEO.

In setting this foundational strategy, Elfers said, “…I populated the senior leadership team with subject matter experts with the leadership experience and the drive to win. We upgraded over 90 percent of the headquarters staff with executives that knew what ‘good’ looked like and who could hit the ground running. And then we built the vision that unified the team around the mission.”

I repeat, priority one and starting day one, if you don’t get the right people to execute, it doesn’t matter how great the vision and strategies are, they will fail.

Today, seven years into her original vision, having successfully executed the four strategic pillars (which will remain intact going forward), Elfers has upped her vision, stating, “Vision 20/20 (the year) is to become a leading global children’s specialty apparel and accessories retailer.” Conclusion: That would suggest aggressive global expansion.

Strategic Pillars

\"\"

Product

When I asked about her first strategic pillar, product, she replied, “…Very dated—needed a facelift—product aesthetic had been moving younger and younger—we were not appealing to an older kid, and we were losing many at the top end of our size range which was, at that time, size 14. Demographics were not in our favor. Births had been declining since 2008 and were on a trajectory to continue that way for years to come—as a matter of fact, the decline has only just started to level off—many years past the original predictions for stabilization. So a focus on product and marketing for an older kid was a priority.

“We also saw a void in “head to toe” outfitting, including fashionable shoes and accessories, and we went after it aggressively. We also made huge strides in sourcing efficiencies under our SVP of sourcing, Greg Poole. He inherited a sourcing structure that the previous management had developed that was heavily reliant on agents. Greg discontinued the agent relationships almost entirely and moved us to a fully direct model.

“While we made significant progress on our product, including appealing to an older kid, by 2014 we had stabilized the business and I felt it was time to really make a strong play for market share. We hired Jennifer Groves and she brought with her an extremely strong background in kids’ design and was really the catalyst we needed to take us to the next level. At the same time Jennifer came on board, I knew that my strong merchandising skills, built from decades of experience in product and merchandising, would complement Jennifer\’s design talent and we would make a formidable team. So, I added the Chief Merchant Role to my responsibilities in 2015.”
During the past year, Jane explained how she took the design and merchandising team to another level by hiring Pam Wallack, considered by Jane to be “one of the best children’s merchants in the country.” Wallack, President of Global Product, is in charge of design, merchandising, sourcing and production. She is also working once again with Jennifer Groves. According to Elfers, Pam and Jennifer were the team that put the original Gap Kids “on the map.”

\"\"

Elfers says, “We are a one-stop shopping destination for Mom and the Kids. We have a complete head to toe offering with unmatched choice and convenience. We are known for our quality our value and our fashion. Our motto is BIG FASHION, little prices.”

Business Transformation Through Technology

If product was a problem, here’s what Elfers had to say about technology and systems, “It was a mess. Systems had not been touched in over two decades. We were woefully behind, not only in the digital space at the time, but also, more importantly, the inventory management areas–e.g. planning and allocation and replenishment areas. We did not even have an ERP system when I arrived in 2010.

“We spent a lot of time and energy putting in the overdue foundational systems needed to support a 1000-plus door vertical retailer. These implementations were extremely complex particularly in light of the fact that we were going through a transformation on such a large scale involving people, product, process and systems. We didn\’t have the luxury of time–I remember someone in the industry once described it as \”changing on stage during the play!

“We were able to deliver the foundational ERP systems without the major missteps we have seen from so many other companies, which was a very important step in our transformation. We also had the foresight to implement a global vendor portal — a key enabler to be able to implement a direct sourcing model across the globe to more effectively manage our brand and average unit cost.

“We viewed transformation through technology in two key buckets: inventory management and digital transformation.”

  1. Inventory management–planning and allocation systems—sizes, pack sizes, allocation, assortment planning, etc.
  2. Digital transformation and personalization.

Elfers explained that her first priority was to go for the “low-hanging fruit.” So, her first four years focused on the first bucket of inventory management systems and processes. While continuing to evolve the systems, the focus is now on digital transformation and personalization.

“First we had to re-platform our foundational digital systems in 2015 because we had no omnichannel capabilities and the legacy digital systems were not scalable. We also launched a mobile architecture to enable our Mobile First strategy. This along with site optimization and predictive data analytics will lead to what I see as a huge opportunity, particularly in our space. We have a dream customer for personalization. A Mobile Millennial Mom who is pushing us on the technology front. She wants to shop how and when she chooses and we are focused on two key guiding principles of our digital personalization strategy—speed and ease. There are not too many things our Mom appreciates more than speed and ease and we use these as guiding principles in all of our decision making – from product design to in-store experience. But it is especially important when designing our personalized customer experience.”

\"\"

Alternate Channels of Distribution

It’s hard to believe that upon Elfers’ arrival in 2010 that The Children’s Place had “…no digital strategy. There was no International Strategy. There was no wholesale strategy.” Elfers is now well into their digital strategy, in fact prioritizing it. Roughly 20 percent of their business is online and growing in the double digits.

Regarding international business, Elfers says, “I knew that with the North American brick-and-mortar retailing stalling and falling, that we needed alternate growth engines for our company. In 2012 we launched our first International business in the Mideast—we did not have the systems or process to support an international business but we had the strong desire to test our brand outside North America. So we figured out how to use the antiquated systems we had and we made it happen. It was a huge success and the beginning of a very important part of our strategy.

“We have gone from a few stores in the Middle East in 2012 to over 161 points of distribution in 19 countries today. Our product has really resonated everywhere we have launched and we feel that there is a significant opportunity to continue to roll out globally—both in brick-and-mortar stores — and digitally as well. We have added markets with the largest demographic potential –e.g. India and China.

“As for wholesale, early on we knew we wanted to partner with Amazon. Unlike most other retailers who were, and still are reticent to do business with Amazon, we greatly admired them from day one and reached out to see how we could become a partner. This was the beginning of what we consider an incredibly fast-growing channel of distribution, 20 to 30 percent a year.”

Fleet Optimization

In talking to Elfers about fleet optimization, I hear several strong messages that resonate with my mantra around distribution. It’s about location (making it easier, quicker, more convenient for Moms). It’s about the right size and number of locations, rents and flexibility, for maximum productivity and comp store sales. It’s also about localization and personalization of both the products and the experience.

Elfers said, “When I first arrived, there was no fleet optimization strategy. The previous management team had opened hundreds of stores that were way too large, way too expensive to build, hard to navigate, and with very high rents. One of the first things, when I arrived, was to challenge the team to develop a store build-out at less than half the cost of the previous one. After that, we focused on opening stores off-mall — that would give us the opportunity to replace volume at much lower build-out and occupancy costs, while at the same time giving us the ability to start getting out of the oversized stores and overpriced leases.

“The next major step in our fleet optimization coincided with the arrival of our COO, Mike Scarpa in 2012. We doubled down on our strategy and developed a sophisticated model for more efficient and effective decision-making and to better understand transfer rates. Following this analysis, we planned to close 200 stores. However, based on the model improving over time, we recently upped the closures to 300 by 2020, and have already closed approximately half that number. We now have an average lease length of 2.7 years and 300 lease events annually over the next 3 years which provides us with tremendous flexibility.”

Bottom Line and the Future

Bottom line, The Children’s Place successful turnaround and its future is a result of its leadership’s vision and four strategic pillars, but more importantly, its people, its teams who execute excellently.

As Elfers puts it, “The team is gritty. The team is scrappy. The team is focused. The team is tenacious. The team is impatient. The team is candid. The team holds their peers responsible. The team communicates cross-functionally. In addition, the people who are most successful at The Children’s Place have one speed—win speed.

“And, we are winning because we are doing it the old-fashioned way—brick by brick. We don’t use shortcuts and we don’t make excuses. We look across the landscape of the industry, we look at the competition and we dig into the analysis and we make decisions that propel the company forward.”

As I assess Elfers’ plan for the future, it’s going to be “back to the future.” Her vision has not changed. The four strategic pillars may evolve, but will not fundamentally change. And the culture, team spirit and excellent execution of the strategies will just get better.

In my opinion, the story of The Children’s Place turnaround will successfully shift to The Children’s Place accelerating growth into the future.

Related

Articles

Scroll to Top
the Daily Report

Insights + Interviews right to your inbox.