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Tuesday, 20 January 2015

How much deflation do you want?! V&D, the Dutch department store, is the next company to travel a dead end road and ask a wage sacrifice from its employees: 5% less wages.

Do you want to know how it feels, when your company for which you do your daily amount of hard labour, informs you that you will get 5% less wages from the next month? 

And how it feels, when your company tells you six months later that they will take yet again 5% of your wages? I know unfortunately. It feels humiliating and makes you feel miserable and angry !

Especially, when such a wage sacrifice is not politely asked for or begged from the personnel, but just announced and presented as an inevitable fact-of-life. Accompanied by the usual babble, that it is necessary to rescue the company; to keep the expanding costs in hand; to survive the long-lasting economic crisis and rediscover the roadmap towards financial better days.

Personnel members have the (Dutch) law at their side, when they would demand a full payment of their contract salary after all – this is even possible until five years after the wage sacrifice event! 

Nevertheless, most employees simply scare away from the hassle and costs, that such a legal battle with their employer – especially a large one – might require. Or they feel that they betray their colleagues and could become responsible for bringing their employer down, when they demand their full salary. And so the employer wins a battle, which it should not win.

Especially, when you reckon that it are generally not the wage levels of the common personnel, which created the problems in such companies in the first place. Mostly, such failures are caused by the usual mixture of:
  • Lack of strategy;
  • Lack of focus;
  • Mismanagement;
  • Vanishing markets, due to overdue business models and obsolete marketing formulas;
  • An earnings model, which has become flawed over the years. 

(Temporary) wage decreases are not the solution in situations when the whole strategy and tactics of a company are flawed, but nothing more than a band aid which only postpones the inevitable demise, when nothing else is done. Simply, because lower wages don’t take away any of the structural problems from which the company has suffered before.

V&D, a once-glorious department store chain in The Netherlands, with a corporate history of over hundred years, is suffering from the typical problems that eventually cost so many retail store chains their life [the first of the following snippets was actually about Halfords, but it is also applicable to V&D- EL]:

The stores are […] not specialized… in anything. It is a little bit of this and a little bit of that, but nothing special at all. To put it bluntly: the store sells nothing that numerous other store (chain)s don’t sell at the same or better prices.

Besides that, the formula has probably suffered from exhaustion, like many other store chains: simply too many stores at too many poor(?) locations.

It seems that the Dutch consumer, still numb after six years of crisis, has enough of the ubiquitous overkill in retail stores and particularly of the overkill in the same boring chain stores. You could call this ‘chain store fatigue’.

There are simply too many C&A branches, too many V&D stores, too many Blokker stores, too many HEMA-stores and too many of all these other renowned chain stores.

V&D’s results for 2014 will probably be disappointing again and  - when nothing changes in the strategy and marketing mix of the company –  the results in the following years will be disappointing too.

Nevertheless, instead of focussing on a new strategy and better tactical and operational choices, in order to let the company make a turn-around and lure the customers back into their brick-and-mortar (or online(!)) stores, V&D chooses to deploy a rough remedy: wage decreases as a remedy for improving the profits and losses sheet and the liquidity position of the company.

The following snippets were published in Het Financieele Dagblad:

Department store chain V&D deploys a set of measures to drastically lower the expenses of the company. The company announced to strike 50 of the 450 jobs in the service centre in Amsterdam. Besides that, the company is planning to renegotiate all its rental contracts, in order to get a permanent rent reduction for its store and office space. The largest expense reduction should be established through a wage sacrifice of 5.8%, which is asked from all employees.

The company, owned by the American private equity-house Sun Capital, has suffered from losses for a number of years in a row and is yet not able to turn the tides. According to the latest data available, the company saw its sales drop by 4% to €619 mln in 2013. The net loss amounted to €42 mln, against €19.2 mln in 2012.

Don Roach, the CFO of Sun Capital and temporary CEO of V&D, states in a press release: “We understand that these harsh measures will have impact on our employees. Right now, we do need the support of all our stakeholders: the shareholders, the banks, the real estate owners, the suppliers and the employers. All of this is necessary to continue the strategy of V&D and to connect the company with the current trends and market developments”.

I doubt whether Don Roach, as temporary CEO, really understands the impact of such measures… For the 5000(!) employees in question, roughly two days of the month are not paid for anymore after this particular wage sacrifice. Besides that, employees of V&D feel much less appreciated as both workers and people. So there is both financial and psychological impact from such a measure. And for what?!

The worst thing is (see red and bold text), that Roach probably really believes that V&D has a winning strategy, which only needs to be persisted to turn the company into a winner on the retail market again. I have serious doubts about that, as the retail landscape in The Netherlands has changed dramatically during the last 20 years.

Personally, I don’t have anything against V&D: the stores look quite attractive from both the outside and inside and offer products for a wide array of customers. The products for sale are of good quality and they are neither very expensive nor too cheap and poorly made. The most popular brands of today are available in the stores. 

The only problem is – yet again for a large retail chain in The Netherlands– that the store is: “jack of all trades, but master in none”. Although I have a large V&D store not far from my home, I virtually never have a particular reason to visit V&D, instead of any other of the numerous retail stores in Almere, The Netherlands. The store chain simply does not stand out with anything! 

Yesterday, BNR news radio presented an interesting interview of journalist Meindert Schut with retail expert Michel van Tongeren of SVT, of which I print the translated contents:

Schut: What do you think about this latest measure of V&D.

Tongeren:  V&D makes substantial losses. How long can you continue with that?! The company has been showing poor results for years now. At any given moment, the money and patience are gone.

Schut: Why does the company not lay off people?

Tongeren: V&D has a lot of stores. When you lay off many people, you might have to close down a few of those stores.

Schut: Isn’t that a good idea?!

Tongeren: That might happen eventually. Now the company has 60 stores and that is much too much for such large department stores. Especially, as they don’t have a lot to offer in a changing market.

Schut: It does not happen often, that 5000 people have to sacrifice a substantial part of their wages. Is this an omen for more unrest in the retail industry?!

Tongeren: When V&D gets away with it, more people and companies might want to do this. HEMA is ready to run the gauntlet too. This company is also going through a rough time these days.

Large retail chains are definitely thinking about such things: at this moment Miss Etam is planning to fire people. This company has 150-160 shops. When V&D succeeds, they might ask their employees for a loan offer.

And that explains the first part of the title of this article...

Yes, there are some cautious signals of returning growth in The Netherlands and the unemployment might improve slowly during the next period. Still, these signals of V&D are not signals of an emerging wage/price-spiral. Not by 15 lightyears! To the contrary: these are strong deflationary signals!

It is very well possible that this request (demand) for a wage sacrifice of V&D leads to a host of other requests, from store chains like HEMA, Miss Etam, Blokker and many other retail chains under jeopardy. Still, I totally reject such wage sacrifices, as a temporary band aid for overdue shopping formulas. 

This development at V&D could even be the beginning of a considerable shake-out among the large retail chains in The Netherlands, as many retail store chains seem to be the answer to a question, coming from 10 years ago. 

Today’s shopper, however, is asking totally different questions and it seems that these retail chains don’t have the answer to that yet!

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