by Adam Hartung | Jun 30, 2015 | Current Affairs, In the Swamp, In the Whirlpool, Leadership
24×7 Wall Street just released its fourth annual analysis of the worst companies to work for in America. By looking across all four reports it is possible to identify likely problems which will be valuable for investors, employees (current and prospective,) suppliers and communities to know.
Trend 1- Low minimum wages & “Wage gap” issues remain a big deal
The lists are dominated by retailers. Of the 30 unique companies identified, exactly half (15) were retailers. A handful were on the list 2 or more years. Consistently these employees complained about low wages.
By paying minimum wage, and often refusing to hire employees full time, the companies keep costs of brick and mortar store operations lower.
However, this takes a toll on employee morale as overall pay does not meet minimum living standards. Further employees feel heavily overworked and stressed, while having no job security. Often this leads to employee unhappiness with senior management, frequently offering low evaluations of the CEO – who makes 1,000 times their annual earnings.
As employees fight for higher wages, and a reduction in the “wage gap,” it will apply pressure to the sustainability of these retailers who rely on very low pay to maintain (or enhance) profits. The trend to a higher minimum wage will challenge profit growth – or maintenance – in these companies.
Trend 2 – Employees often “see change coming” and become negatively vocal
Jos. A Banks jumped onto the list as #4 in 2013. Just before a major shake-up and being acquired by Men’s Wearhouse. Family Dollar also appeared on the list in 2014 (#9,) only to be embroiled in a takeover battle with Dollar General, and finally aquired by Dollar Tree within 7 months. Office Max appeared on the list (#5) in 2012, and was acquired by Office Depot 8 months later. And, of course, Radio Shack made the list in 2012 (#3,) 2013 (#5) and 2014 (#11) only to file bankruptcy in 2015.
Employees can see when something bad is impending, likely jeopardizing their livelihoods, and start talking about it.
Similarly, growing internet threats are often picked-up by employees. hh Gregg employees started complaining loudly in 2014 (#8) as their 100% commission compensation became threatened by a growing Amazon.com. And that same year Books-A-Million was #1 on the list, as part time staffers saw the same advancing Amazon. And in 2012 Game Stop (#10) employees could see how the advancing Netflix and Hulu threatened the “core business” and started to light up the complaint section.
Trend 3 – Ignoring employee unhappiness while focusing on earnings can portend a disaster
Sears and KMart (collectively Sears Holdings) made the list in 3 of the 4 years. The stock was $66 in June, 2011, and $55 in 6/12 when it made #6. By 6/13 it had declined to $39, and made the list at #7. Starting 6/14 the stock was reasonably flat, and missed the list. But then in 6/17 the stock fell to 27 and reappeared twice – as both Sears and KMart.
Employees have consistently expressed their dismay with CEO Ed Lampert, and 80% actively dislike his leadership. After the Radio Shack experience, there is ample reason to listen more to these employees than the CEO who keeps promising a turnaround – amidst a long string of large quarterly losses and declining sales.
But this also opens the door for looking at some stocks that have defied employee unrest. Dillard’s made the list all 4 years. In 2012 the stock rose from $54 to $66, yet appeared #2 on the list. In 2013 the stock rose to $85 as it made the list #3. 2014 the stock made it to $119, and was sixth. In 2015 the stock peaked at $149, but has recently declined to $111 as it made the list #2.
Similarly Express Scripts rose from $53 in 2012 to $62 in 2013 when it appeared on the list in position #2. In 2014 it rose to $71 as it remained #2. And it 2015 the stock is at $85 as it topped the list #1.
It would be worthwhile to look at the clues employees are sending. Express Scripts employees are loudly complaining (louder than literally any other company) across multiple years of being overworked, overstressed, underpaid and without any job security. As are Dillard’s employees, who are the most outspoken in retail. How long will profit improvements be sustainable in these companies?
While the data is less clear on Dollar General, it appeared on the list as #4 in 2013. Then Family Dollar appeared on the list as #9 in 2014. Dollar General subsequently tried buying Family Dollar, and reappeared on the list as #10 in 2015. What are employees saying about the sustainability of the “dollar store” segment in a very tough retail market with growing internet competitors?
Any CEO can slash employee costs and payroll for a few years, but at some point the model simply collapses – aka, Sears Holdings and Radio Shack. Or there is a loss of identity as suffered by Office Max, Jos. A Banks and Family Dollar. It would be worthwhile for anyone to listen carefully to the feedback of these employees before investing in company equity, investing one’s livelihood as an employee, investing one’s resources to be a supplier, or investing one’s tax base as a community official.
There are a number of “one off” issues on the list. Companies appear once primarily due to bad CEO performance (Xerox, #5 this year, HP #8 in 2012 as the revolving door on the CEO office reached a high pitch.) Or due to some change in market competition.
But it is possible to look through these issues – which could become future trends but show limited insight today – to see that an aggregated employee view of leadership offers insights not always found in the P&L or management’s discussion of earnings. If you choose to put your resources into these companies, be aware of the risks warnings being sent by employees!
Please refer to the 24x7WallStreet.com site for deeper information on how the list was compiled, who is on each list, and their editor’s opinions of employee comments. 24×7 list in 2015 – 24×7 list in 2014 – 24×7 list in 2013 – 24×7 list in 2012
by Adam Hartung | Nov 29, 2012 | Defend & Extend, In the Swamp, In the Whirlpool, Leadership, Web/Tech
The web lit up yesterday when people started sharing a Fortune quote from Marissa Mayer, CEO of Yahoo, "We are literally moving the company from BlackBerrys to smartphones." Why was this a big deal? Because, in just a few words, Ms. Mayer pointed out that Research In Motion is no longer relevant. The company may have created the smartphone market, but now its products are so irrelevant that it isn't even considered a market participant.
Ouch. But, more importantly, this drove home that no matter how good RIM thinks Blackberry 10 may be, nobody cares. And when nobody cares, nobody buys. And if you weren't convinced RIM was headed for lousy returns and bankruptcy before, you certainly should be now.
But wait, this is certainly a good bit of the pot being derogatory toward the kettle. Because, other than the highly personalized news about Yahoo's new CEO, very few people care about Yahoo these days as well. After being thoroughly trounced in ad placement and search by Google, it is wholly unclear how Yahoo will create its own relevancy. It may likely be soon when a major advertiser says "When placing our major internet ad program we are focused on the split between Google and Facebook," demonstrating that nobody really cares about Yahoo anymore, either.
And how long will Yahoo survive?
The slip into irrelevancy is the inflection point into failure. Very few companies ever return. Once you are no longer relevant, customer quickly stop paying attention to practically anything you do. Even if you were once great, it doesn't take long before the slide into no-growth, cost cutting and lousy financial performance happens.
Consider:
- Garmin once led the market for navigation devices. Now practically everyone uses their mobile phone for navigation. The big story is Apple's blunder with maps, while Google dominates the marketplace. You probably even forgot Garmin exists.
- Radio Shack once was a consumer electronics powerhouse. They ran superbowl ads, and had major actresses parlaying with professional sports celebrities in major network ads. When was the last time you even thought about Radio Shack, much less visited a store?
- Sears was once America's premier, #1 retailer. The place where everyone shopped for brands like Craftsman, DieHard and Kenmore. But when did you last go into a Sears? Or even consider going into one? Do you even know where one is located?
- Kodak invented amateur photography. But when that market went digital nobody cared about film any more. Now Kodak is in bankruptcy. Do you care?
- Motorola Razr phones dominated the last wave of traditional cell phones. As sales plummeted they flirted with bankruptcy, until Motorola split into 2 pieces and the money losing phone business became Google – and nobody even noticed.
- When was the last time you thought about "building your body 12 ways" with Wonder bread? Right. Nobody else did either. Now Hostess is liquidating.
Being relevant is incredibly important, because markets shift quickly today. As they shift, either you are part of the trend going forward – or you are part of the "who cares" past. If you are the former, you are focused on new products that customers want to evaluate. If you are the latter, you can disappear a whole lot faster than anyone expected as customers simply ignore you.
So now take a look at a few other easy-to-spot companies losing relevancy:
- HP headlines are dominated by write offs of its investments in services and software, causing people to doubt the viability of its CEO, Meg Whitman. Who wants to buy products from a company that would spend billions on Palm, business services and Autonomy ERP software only to decide they overspent and can never make any money on those investments? Once a great market leader, HP is rapidly becoming a company nobody cares about; except for what appears to be a bloody train wreck in the making. In tech – lose customesr and you have a short half-life.
- Similarly Dell. A leader in supply chain management, what Dell product now excites you? As you think about the money you will spend this holiday, or in 2013, on tech products you're thinking about mobile devices — and where is Dell?
- Best Buy was the big winner when Circuit City went bankrupt. But Best Guy didn't change, and now margins have cratered as people showroom Amazon while in their store to negotiate prices. How long can Best Buy survive when all TVs are the same, and price is all that matters? And you download all your music and movies?
- Wal-Mart has built a huge on-line business. Did you know that? Do you care? Regardless of Wal-mart's on-line efforts, the company is known for cheap looking stores with cheap merchandise and customers that can't maintain credit cards. When you look at trends in retailing, is Wal-Mart ever the leader – in anything – anymore? If not, Wal-mart becomes a "default" store location when all you care about is price, and you can't wait for an on-line delivery. Unless you decide to go to the even cheaper Dollar General or Aldi.
And, the best for last, is Microsoft. Steve Ballmer announced that Microsoft phone sales quadrupled! Only, at 4 million units last quarter that is about 10% of Apple or Android. Truth is, despite 3 years of development, a huge amount of pre-release PR and ad spending, nobody much cares about Win8, Surface or new Microsoft-based mobile phones. People want an iPhone or Samsung product.
After its "lost decade" when Microsoft simply missed every major technology shift, people now don't really care about Microsoft. Yes, it has a few stores – but they dwarfed in number and customers by the Apple stores. Yes, the shifting tiles and touch screen PCs are new – but nobody real talks about them; other than to say they take a lot of new training. When it comes to "game changers" that are pushing trends, nobody is putting Microsoft in that category.
So the bad news about a $6 billion write-down of aQuantive adds to the sense of "the gang that can't shoot straight" after the string of failures like Zune, Vista and early Microsoft phones and tablets. Not to mention the lack of interest in Skype, while Internet Explorer falls to #2 in browser market share behind Chrome.
Chart Courtesy Jay Yarrow, BusinessInsider.com 5-21-12
When a company is seen as never able to take the lead amidst changing
trends, investors see accquisitions like $1.2B for Yammer as a likely future write down. Customers lose interest and simply spend money elsewhere.
As investors we often hear about companies that were once great brands, but selling at low multiples, and therefore "value plays." But the truth is these are death traps that wipe out returns. Why? These companies have lost relevancy, and that puts them one short step from failure.
As company managers, where are you investing? Are you struggling to be relevant as other competitors – maybe "fringe" companies that use "voodoo solutions" you don't consider "enterprise ready" or understand – are obtaining a lot more interest and media excitment? You can work all you want to defend & extend your past glory, but as markets shift it is amazingly easy to lose relevancy. And it's a very, very tough job to play catch- up.
Just look at the money being spent trying at RIM, Microsoft, HP, Dell, Yahoo…………
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by Adam Hartung | Mar 9, 2010 | Defend & Extend, In the Swamp, Leadership, Lifecycle, Lock-in
One of the worst impacts of Defend & Extend Management is the placement of a bullseye on your business. Take for example Microsoft. When everyone knows what software Microsoft is going to release, they start targeting it for hacking and otherwise spoiling. Likewise, competitors can predict Microsoft's moves and launch products that compete alternatively – such as Firefox and recently Chrome have done in Browsers. And has cloud computing using mobile devices. As leaders take actions to Defend & Extend the Success Formula the business becomes predictable, and much easier to attack.
And that's now a big problem for WalMart. Advertising Age is now discussing this problem at the world's largest retailer in "Stuck-in-middle Walmart Starts to Lose Share." As WalMart kept promoting, over and over and over, its message of "low price" (how many "rollback" ads did you see on television with images of falling price signs?) a single position was drummed home.
But while WalMart did this, smaller and more nimble competitors like Dollar General have actually been able to undercut WalMart on price – sucking away customers. Additionally, changes to improve margins in WalMart stores, and some redesigned stores, have caused prices to go up at WalMart making the company no longer the price leader! In several categories Target has beaten WalMart in professional pricing surveys! What happens when WalMart, with its concrete floors, limited merchandise and lowly paid employees is no longer the price leader?
Unfortunately, not everybody wants low price – especially all the time. And smart competitors like Target have been figuring out how to beat WalMart on specific items, while also offering a better shopping experience. While WalMart keeps trying to cut prices on the backs of vendors, thus not being the favorite customer of most, Target and others have been smarter about making deals which offered more win/win opportunities. They took specific aim at weaknesses in WalMart's strategy, and are now ruining WalMart's day by beating WalMart selectively while simultaneously offering more! WalMart made it possible by signaling its strategy and tactics so clearly. A result of Defend & Extend management.
WalMart would like to move away from being strictly low price. As the article details, the company has implemented a "project impact" intended to upgrade stores and make them more merchandise and experience competitive. However, this has raised prices and confused shoppers. If WalMart isn't "low price" what is it? Again, when management is all about Defend & Extend then customers aren't able to understand behavior that is different from doing more of what was always done.
WalMart's move to upgrade stores is laudable. But the company cannot implement a change through the traditional store operations. Phoenix Principle companies know that good new ideas cannot survive as part of the existing D&E business. Confused customers, unhappy and confused management and conflicts with historical metrics (like pricing and margin metrics) simply makes the new idea "out of step" with the Success Formula. And as Lock-ins (like "we are low price") are violated discomfort leads to resentment and a desire to get back to old ways of doing business. People start asking for a "return to the core of what made us great." For these reasons, "project impact" is not succeeding and has no real chance of succeeding.
WalMart is in trouble. It's growth has slowed as competitors are figuring out other ways to compete. Ways WalMart cannot follow. Competitors are picking apart the WalMart strategy, and siphoning off revenue and profit. Walmart is stuck in the Swamp, with no idea how to regain growth because the old approach has rapidly diminishing returns and the new approach is not viable in the organization.
To succeed, WalMart needs to apply The Phoenix Principle to "project impact." It must first develop its future scenario, and start spreading that message throughout WalMart and analysts. Otherwise, confusion will remain dominant. Secondly, WalMart must be honest with employees, customers, vendors and analysts about changing competition and how WalMart must change to remain competitive. It must talk less about WalMart and more about competitors and market shifts. Thirdly, WalMart has to be willing to Disrupt itself. Instead of all the incessant "rah rah" about the great "WalMart way" of doing things top management has to start saying that it is going to attack some lock-ins. It is going to force some changes. Then, "project impact" needs to be implemented in White Space. It needs to report outside the existing WalMart operations, have its own buyers, merchandisers, employees (maybe even allowing a union!). It needs permission to violate old Lock-ins in order to develop a new Success Formula, and the resources committed to really do the implementation – including testing and changing.
WalMart is Locked-in and its Defend & Extend Management approach is not good news for investors, vendors or employees. We can see that competitors, from on-line to the traditional Target, are taking shots at the bullseye Walmart has so proudly worn. Market shifts are happening. But WalMart is not establishing White Space to develop a new solution, and as a result the leadership is confusing everybody about "What is WalMart"? The company doesn't need to go back to its old ways – instead it really needs to apply The Phoenix Principle. But so far, D&E Management seems to be leading.
