A conversation between Amber Naqvi and Mike Edwards, President & CEO of Hanna Andersson
Thank you for joining us as we discuss adapting to the new reality for retail in the time of COVID-19. We recently sat down with Mike Edwards, President and CEO of Hanna Andersson, a premier children’s apparel brand. Mike has over 35 years of leadership experience in the retail industry. In that time, he has demonstrated his skill and innovation, overseeing both strategic and operational transformations. His resume includes leadership roles at major digital and physical brands, including eBags, Staples, and Borders. Mike currently serves on the Boards of Directors for Central Garden & Pet and Drexel University and previously served on the Board of the International Council of Shopping Centers.
Our conversation covered challenges retailers will be facing within the next quarter and within the next year. Mike offers his advice from his past experience navigating uncertainty during SARS and the 2008-2009 recession. We also discussed how to ruthlessly prioritize to ensure that your focus is in the right place to come out strong on the other side of a crisis.
A note on format: We’ve split the interview into two parts. Below each clip you will find a text summary of our conversation.
Listen to part 1 of our podcast interview with Mike
What are the challenges that you think retailers will face within the next quarter and within the next year?
Mike Edwards: I think that the biggest challenge retailers will face will be around the supply chain as well as predicting demands in terms of what the economy will look like during the holiday season. Post a COVID-19 there will be a lot of moving parts as there is a lot of uncertainty in the production cycles. As a result, retailers at large will have to make some bets about how the retail business will hold up. How many stores will be open? Will that shift online or not? How will the customer respond if we go into a recession? My biggest challenge day in and day out is more about planning scenarios in terms of what could be possible and whether we invest or not going forward.
Amber Naqvi: I agree 100%, the only thing that I might add is that the impact is going to depend on the segments of the retail industry. In my opinion, apparel in a shopping mall is on one end and perhaps a grocery store is on the other end. There is also a lot of seasonality in retail, having lost half a quarter to store closures throws a pretty big wrench in the mix. How do you get in and out of products that you might want to change based on cycles or seasons? Thinking about how do you make those adjustments and of course, depending on the supply chain as Mike pointed out, how reliable is that going to be is anybody’s guess. We’re lacking the information needed. We’re not in a war against market fundamentals so there is a lot of agency and a lot of people are going to be making smart bets and we’re hoping that we’re able to come out of this in a better place.
Have you experienced anything similar to this level of uncertainty during SARS or the U.S recession back in 2008-2009?
Mike Edwards: I think the biggest difference for me is that I’ve never operated in a business environment where every business shut down, where the whole world shut down, and where all commerce essentially stopped except for select retailers or online players. The 2008 correction, now that had its challenges as well so I put pressure on the balance sheet. Sales dropped fairly significantly and for a period of time and there were a lot of business model readjustments, but we knew it would end. Even with 9/11, as that sort of stopped the world for a moment, it recovered pretty fast and we remained resilient and we were able to work through it. A big difference is is that everyone is in it together. Relationships are changing, business terms are changing, how we treat our team is changing, and with that work habits are changing. I think that a lot of good things will come out of this painful process but it’s a painful process that I never expected to see.
Amber Naqvi: To add to that, there are similarities to all of those. I would say that this is the 9/11 and an economic slowdown and a SARS all wrapped into one. Just like 9/11, there will be changes in regards to safety and precautionary measures that we’re going to take as consumers inside of malls and stores. I think that social distancing is here to stay for at least some period of time and with that, the concern will be whether customers feel comfortable handing their credit card to somebody and taking it back from them within 15 seconds.
My biggest concern is around what this will do to consumer confidence and the spending ability of the consumers. Will consumers become cautious or the opposite, as some have suggested, will there be pent up demand? I think as retailers and as service providers to retailers, I would hope that there is pent up demand. As Mike was saying, this is not something that we understand and as we talked about previously, supply chain is a big question mark. Manufacturers are repositioning their capabilities, how do we deal with that? We’re all in this together and we’re going to make the best decisions based on our best judgments.
Listen to part 2 of our podcast interview with Mike
Ruthless prioritization is key when it comes to navigating through uncertainty, do you agree? Any words to help organizations prioritize the right initiatives?
Mike Edwards: I’ve been connecting with a lot of my peers and I have been getting a lot of insight into what people have been doing and we’re all doing our part by sharing best practices. I think the number one thing right now is that everyone is very focused on liquidity. People are protecting their balance sheets and they are shoring up their liquidity to manage their payment. People are making tough choices in terms of real estate as well.
The second thing everyone is doing is they’re really going through their inventory order receipt flow and making some calculated reductions to make sure that they’re safe. In theory, we are almost skipping a whole season. Swimwear, as an example, is one of the categories in apparel that is devastated right now. Who knows if people are going to be able to go back to the beaches and with social distancing, we’re unsure how it will affect the category. Some businesses will actually get put on pause for a year.
The other piece is that maintaining your team’s productivity and connectedness during this time. Talent is everything and we want people to feel appreciated and respected while staying close to each other. On the retail side, in particular, there is so much design and collaboration work that occurs on the apparel side of retail but right now, it is teaching the team a new technology and keeping them engaged. The other parts of business are more “where do you play defense and where do you play offense?”. On the offense side, the advertising side, digital marketing costs have come down pretty dramatically on a cost-per-million-basis and there is a huge opportunity to build awareness at a very good, very attractive price so you can come out and start faster than you may have by just cutting marketing.
Another piece that I think a lot of people are thinking about right now is in addition to marketing, how do you maintain your online business and good fulfillment while protecting your labor force? How do you make sure shipments are making it out on time to those customers that want to connect with your brand? The last trend is really around brand management and I see everyone is pivoting very quickly to a different kind of messaging, more empathetic, to resonate with their customers.
Brand management is not as much of a formula as it has been in the past. A great example of this out in the marketplace is that some brands are really resonating with their customer in a very appropriate, timely way and then there are some brands that are blowing it. A great case study is Hobby Lobby. Hobby Lobby decided to keep their stores open against all state regulations and lockouts and that created a lot of brand damage. There are companies that are tone death or there are companies that are really using this time as an opportunity to greater build a relationship with their consumer.
Amber Naqvi: The biggest element for us is the people aspect of it. We are a people business, a services firm so we have that double duty to make sure our employees are safe. People are not only our biggest asset, they are our only value to anybody as an organization so we want to make sure that they are safe and protected. We have to be diligent because the only service that we can provide to retailers and our customers right now, is our services. Our focus has been to make sure that we are providing those services in a safe and efficient way.
We are very much available to provide our services right now but a lot of times our conversations are just us reaching out to our customers offering assistance, asking if there is any way we can step in to help that retailer sort out their business. We’re reaching out as much as possible and asking our customers questions like “what does your store look like as you open it?”. We are also providing our customers with some insight we’ve gained on what’s been working in other places and so forth. Mike raises a lot of valid and excellent points, things for all retailers to think about.
As a leader, what is one piece of advice to people, employers, and businesses who are experiencing a crisis?
Mike Edwards: I’ve heard the term many times, “never waste a crisis”. I believe this because others, including myself, are really stepping back and saying, “okay, it’s a new day, it’s a new economy” while asking ourselves questions like “what do I like and dislike about my business model?” and “what am I willing to give up and change forever to emerge as a stronger company and brand?”. Going through that thought process really pushes your comfort level about what is possible.
Speaking on my behalf, I have a whiteboard here that I can start over with and almost get permission to do so. Permission from banks, from investors, all open to the idea of a new business structure. It’s my belief that the consumer buying is going to change so radically, some category are going to be huge heroes and some categories are going to take a hit. One thing for sure is that the tipping point to buy online is real which really makes you think differently about your channel strategy into the future and what your partnerships will be like amongst other marketplaces or Amazon. Thinking about how you’re going to build muscle and technology when you may not have it. You may have been really strong at managing stores, but not so good at digital and now that’s flipping even quicker.
There is going to be a major shakeout in real estate, we already had too much but now this just forces the hand. When retailers stop paying rent and banks start pressuring real estate, a lot of malls will go away or be converted resulting in a shift in how customers buy and how they go about their shopping. Every 24 hours I have a new set of assumptions and every time I do a business plan for one of my investors, I tell him it’s good for 24 hours. We’re in a “pivot fast” world right now.
Amber Naqvi: Being in the technology business, a lot of the same concepts Mike outlined apply to us as well. We can’t stress enough that everybody has advantages from their technology that they need to leverage right now. Your technology is different and it’s been different for a while, which is why people gravitate towards your brand. I believe there is a way to leverage your technology to boost your company so you’re not as blended into the market as everybody else. Standing out is something Logic can help with but ultimately the quicker retailers are able to adopt, the better off they will be.
As an example, which in my opinion is better than Amazon, Logic just created the Curbside Pickup application and I believe the app going to be a big win because once the consumer gets used to staying in their car and having their order brought to them, Curbside will become a sense of normalcy in a changing world. This is also beneficial because some consumers may not want to step inside of a mall so they will do their shopping online and will have the ability to pick up from a store that’s five minutes from their house.
It’s a fun question, If you had a magic power, what would that be?
Mike: My magic power would be the cure Covid-19.
Amber: You know I wish I could travel in time and either prevent some of this from happening or at least be better prepared for it to happen.
Thank you both so much. We appreciate your time and the insights you’ve provided. I look forward to connecting again in the future, hopefully under better circumstances.