MANAGEMENT CONTROL SYSTEM

ANITAS APPAREL

Submittted to Dr.M.P Vithal Faculty of IIPM BANGALORE

Submitted by Group no-2

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CASE BACKGROUND Anita Lamont, founder and CEO of Anitas Apparel, a retailer of high-end womens business apparel, had just opened her fourth retail store in the Midwest. While Lamont was pleased with the companys progress, she was concerned by the growing number of customer complaints and the low sales per square foot compared to some of her better-known competitors. When it was just one store that she individually owned and operated, she was able to control most of the details of the business. While she worked with a few employees, she always knew what they were doing. As the number of stores and the size of the stores increased, the number of employees grew more than proportionately. When she was running the single store, she rarely heard a customer complaint, her pilferage costs were very low, and her sales per square foot were $250, compared with $220 today. This concerned Lamont greatly as her expansion plans for Anitas Apparel had slowed down because the stores were not producing the returns that she expected. When she opened the second store, she added a store manager at each location. While both managers seemed to be doing well, the number of customer complaints increased. Lamont assumed that this would happen when she had more stores and more customers. By the time that she had opened the fourth store, the number of customer complaints had grown by eight-fold from when there was only one store. The store managers were also complaining to Lamont because of the high training costs of bringing on new employees. The turnover rate seemed to be very high and Lamont could not understand why. She was paying one of the highest wages in the area to the sales clerks and store managers, yet they were leaving to go work elsewhere. The customers were also complaining about the lack of helpfulness of the sales clerks. Even after extensive employee retraining, Lamont was still hearing many complaints. Many of her competitors were well known for customer service and high sales per square foot. One of her best-known competitors that had appeared to have solved these problems was Nordstrom, Inc. In a visit to Seattle, Lamont had the opportunity to shop at a Nordstrom and she was impressed by the level of service provided by the cheerful and helpful sales clerks. Lamont could tell that there was a large difference between the level of service that she had received at Nordstrom and the level of service that sales clerks were providing at Anitas Apparel stores. Lamont decided right then that she had to find out more about what Nordstrom was doing that was so different from Anitas Apparel. She began by getting a copy of Nordstroms 1995 Annual Report.

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History of Nordstorm Nordstorm was founded in 1901 as Wallin & Nordstrom shoe store by Carl F.Wallin and John W. Nordstrom. On their opening day, their total sales were $12.50. In fiscal year 1995, Nordstrom had sales of $4.1 billion During the intervening 94 years, Nordstrom had become the largest independently owned fashion specially retailer in the United States, offering a wide variety of fine quality apparel, shoes, and accessories for men, women, and children. The fourth generation has inherited one of the 50 largest retailing chains in the United States and one of the seven largest department stores. Nordstrom operates 93 stores in 15 states, and is expanding into other states. Its 1996 plans called for new stores in Philadelphia and Dallas. Beyond 1996 Nordstrom planned to open stores in Detroit, Denver, Cleveland, and Atlanta. Nordstrom stores have consistently performed well, often at the expense of its competitors. Nordstrom captured one-third of the southern California market in 10 years. The Tyson Corner, Virginia, Nordstrom is credited with driving Garfinckels into bankruptcy. Nordstrom stores average sales of $382 per square foot compared with Federateds $190 and May Departments $183. Nordstrom has one of the lowest shrinkage costs in the industry at 1.5 percent versus the 3.0 percent average. Creating a Customer Service Environment Nordstrom has developed a number of specific systems that are designed to create the Nordstrom customer service environment : Inverted pyramid management Commissions Unconditional returns Rewards Recognition Heroics Inverted Pyramid Management Nordstrom draws its organizational chart as an inverted pyramid. The inverted pyramid shows the customers on top and the salespeople as the top level of the company. Each level below is

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responsible for supporting the salespeople and the customers. As co-chairman Raymond Johnson stated, The only thing we have going for us is the way we take care of our customers and the people who take care of the customers are on the floor. Commissions Nordstrom salespeople have been paid on commission. Standard commission rates in 1995 ranged from 6.75 percent for apparel to 13 percent for childrens shoes. Each salesperson receives a draw against his or her commissions up to $11 per hour. Nordstrom monitors sales per hour: If an employees draw rate is $10 per hour and the employee is selling womens shoes at a 10 percent commission, then the employee would need to sell $100 per hour to cover his or her draw. Before computing sales per hour, any returns are subtracted from an employees total sales. At Nordstrom each department has a minimum hourly sales target. Salespeople who consistently fail to meet the sales per hour quotas receive coaching from their department managers. Salespeople are let go if they miss quota for three consecutive months. Unconditional Returns At Nordstrom a customer can return any item for any reason and receive his or her money back. Former co-chairman Bruce Nordstrom explains the return policy to sales people as follows : If a customer came into the store with a pair of five-year-old shoes and complained that the shoes were worn out and wanted her money back ,they gave their money back. Rewards Nordstroms general manager of its Southern California region, Jammie Baugh, states that at Nordstrom, We tend to manage by contest. When we have something we want to improve on, then we have a contest. Recognition Nordstrom uses a number of different methods to recognize the accomplishments of its employees. Nordstrom management acknowledges employee Pacesetters and Customer Service All-Stars; morning announcements and monthly meetings are opportunities for managers to praise the sales and customer service efforts of the salespeople.

Heroics An additional piece of employee recognition is the stories of customer service heroics. Salespeople who consistently perform customer service heroics are recognized by their

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department and store. They are often selected Employee of the Month and have their deeds printed up in a weekly collection of heroics by the sales associates. Union Dispute the United Food and Commercial Workers Union (UFCW), which represented about 1600 Nordstrom sales associates in the Seattle-Tacoma area, filed a complaint with the Washington State Department of Labor and Industries Employment Standards Section (ESAC). The complaint charged that Nordstrom required or encouraged employees to attend meetings, perform stock work, and attend to customer service activities, such as hand-carrying items to customers or writing thank-you notes, outside of normal business hours without compensation. UFCW felt that the policy of ranking employees and managers on sales per selling hour caused managers to encourage or coerce employees into underreporting their hours worked. ESAC concluded that Nordstroms work practices violated the states Minimum Wage Act and that Nordstrom had to change these policies and retroactively compensate employees for time worked. Joe Peterson, the president of Local 1001, suggested that claims could be as high as $40 million in Washington State and $300 million in California. Based on this news, poor revenue projections, and the threat of a class-action lawsuit being filed by Peterson covering Nordstrom employees nationwide, Nordstroms stock price fell by almost 10 percent in one day. Case analysis APPAREL INDUSTRY ANALYSIS STRENGTH Large domestic market Economies of scale Stratergic alliance R&D Capabilities High efficiency and productivity OPPUTUNITIES Growth of textile market Niche market-looking to speciality apparel Large global market opputunities WEAKNESS Consumer demand at lower prices Low profitability Lack of global vision Market gets flooded easily Inflexibility THREAT Deterioration of domestic market due to imports-low prices Government enforcement of trade laws Intense international competition

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ANITAS PROBLEM Anita first opened a store and her business was growing. After that she opened 4 more stores and day by day customer complaints were increasing ,at that time she thought this could be the result as she was expanding her business.She herself managed one store in which footfalls per square feet were more than the other three stores and the sales is also more. But the other three stores were managed by store manager and store clerks and in these stores the number of footfalls got decreased ,even the sales also decreased .Anita thought that even after offering one of the highest salaries in the area to the employee, employees were not satisfied. Findings for Anitas Apparel Location Opening of the store in that location may not be suitable. Lack of strategy Even though Anita found that she is facing customer complaints she opened other three stores. There were no proper strategies to overcome the problems in the stores . Poor sales assistance The employee does not help customers in selecting the product and other services.. Improper customer satisfaction The employees are not handling customer complaints. Monitoring- Lack of monitoring of employees by Anita could be a reason for inadequate sales. Expansion - Increase in number of stores without analysing the market is one of the reasons for the market failure. Improper Quality of product- Decrease in number of footfalls can be attributed to poor quality. Salary- Merely increasing the salaries of employees without assessing their level of satisfaction is of no use. Reward and recogntion- The management should offer timely and adequate rewards and recognition to the employees who achieve higher sales in order to bring behavioural changes in the employee. Findings for Nordstorm Nordstrom uses a sales per hour (SPH) program to rate their sales employees. The more the employee sells per hour of work, the more their SPH. Nordstrom management uses this SPH figures for remuneration, compensation and promotions but again this was used as a tool for identifying non-performance as well. If an employee had a low SPH, they are ought to have a bad time shift, scheduled fewer work hours, or even terminated.

ANITAS APPAREL THE LACK OF CLEAR DISTINCTION BETWEEN SELLING TIME AND "NON SELL" WORK TIME EXACERBATED THE PRESSURES ON EMPLOYEES

AN APT PERFORMANCE MEASURING CRITERIA The main cause of the problem is the commission incentive for the sales people. It causes employees to work while off the clock to increase their SPH. Even after working off the clock, the employees get paid less. It also causes management to schedule people with high SPH on good hours. Management punishes people with low SPH by giving them extra hours.Hence it should not be the only performance measuring criteria. Behaviour of the employee on the floor, punctuality and the way he or she deals with customer should also be given considerable weightage. PEER PRESSURE Employees at Nordstrom were facing the problem of peer pressure. In order to get the best paying shifts, for example, on the first day of a sale, employees had to put in a no. of off-duty hrs. Every employee wanted to be in the shifts that had maximum sales to increase their salesper-hour. So, there was a lot of competition between the employees themselves which sometimes proved unhealthy. Policies like All Star rating and making the sales figures of individual employee public also put a lot of pressure on the employees. A solution to this problem could be forming sales teams instead of individual sales persons. Even if one member of a team performs exceptionally well and is suitably rewarded, the whole team should also be given a minor incentive at least. MISGUIDING THE EMPLOYEES Employees were not given the true picture about the distinction between selling and non-selling hours.For example, they were repeatedly told on Saturday morning meetings that the punching clock was broken or the time cards were not accessible. They were accused of not being team players if they protested against this practice.Employees should have been clearly told that they would have to put in extra working hours sometimes. It is the companys responsibility to maintain the records of an employees working hours. FOSTERING JEALOUSY, PETTINESS AMONG EMPLOYEES In Nordstrom there is much focus on individual performance. The management and their policies have created an environment of fierce competition among employees which leads to the problem of sharking in order to get ahead of others.When an individual performs well, then motivating an individual is good but at the same time some credit must be given to his team and all co workers, who work and help him directly or indirectly in achieving the desired target.

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Team spirit must be given priority. People should be given training and lectures on helping others and they should be taught the importance of team work. FEAR AMONG EMPLOYEES There was a lot of fear among employees of being fired due to unavailability in achieving the sales target; and the fear of falling SPH leads to termination. The employees should be given sufficient time to perform. The Manager should set reasonable targets and should try to recognise the persons ability clearly because a person good in selling cosmetics may not be good in selling apparel. Therefore, manager should take an informed decision by taking into consideration the persons interest while allocating the person to different counters. Obviously the person should be given two months notice period if there is no other option other than firing. WORK ON OFF-DAYS WITHOUT COMPENSATION The system in Nordstrom was decentralized, hence it gives a lot of power to supervisor and store managers. When an employee is not able to meet the sales target set for him then as a punishment, the managers force the person to come on off days, without any extra compensation or salary for that day. Due to this, majority of the sales force work off the clock. SUGGESTIONS This case clearly shows that how important it is to provide the proper training for the employees in any organization. It is evidently seen here that there was a lack of proper training of the sales per hour (SPH) program and as the program was initiated for the first time into the organization a formal training was needed in order to make the employees feel satisfied and good about it and realise it as another opportunity instead of as a threat. There should be clear policies for the SPH program.The employee training of SPH program should clearly emphasize on the implementation and working methodology of the program, how it will be used for defining relative team goals and individual targets and how it should be used to estimate commissions and incentives over the fixed salary. It should also explain that how flexible work hour scheduling is another boon for an employee in order to work efficiently and effectively.This training program will definitely reduce the dissatisfaction in the employees and will make them feel as an integral part of the organization which is very necessary for a company in order to achieve success.