Is C&A Europe following C&A UK into bankruptcy?

A short open letter and question to Giny Boer and the Sneekerking:

This morning I listened to the "Lekker Anders" podcast with you Giny.

The theme was #directheid and "It is kind to be clear."

We Dutch who have lived under sea level for centuries and depend on working together to build windmills, and dig canals and dykes, need to be able to call a spade a spade to survive and thrive ;)

When I read LinkedIn it seems C&A Europe is flourishing, but when I listen I hear same-store sales were down 16% last year (?) and the "Never Out of Stock" orders for this spring have been canceled, "but gross margin percentages are up".

The Brenninkmeijers and C&A were known for a culture of extreme secrecy... A few months ago, a book called "Breakthrough: C&A's Secret Formula Rediscovered" went on sale in The Netherlands. It describes how C&A kept its Deckungsbeitrag and Opportunity Cost framework so secret it was eventually forgotten. An excerpt:

"The end of C&A UK:

In practice, the following mistake was made at C&A during the late 1990s: Planners said BCP Fund / m2 is fine as an expression of Gross Margin income, but a certain predetermined minimum BCP%? is needed to cover Operating Expenses. The BCP target percentage was set about 5% higher for C&A England than C&A Germany because sales per m2? in England were lower than in Germany. Operating Expenses expressed as a percentage of sales were higher in England than in Germany. As a result, the target BCP% was set relatively high and customers could get better value for money at Marks & Spencer than at C&A. The increasingly high BCP% target set for C&A England was an unnecessary constraint for Product Managers (buyers) and merchandisers who should have been focusing solely on increasing Contribution (BCP Fund / m2) with articles with either high or low BCP%’s.

In short: If sales decrease in a bad year for any reason, a conventional store will often increase its BCP % target ‘to maintain profits’ and/or ‘breakeven’ the next year. The next year higher prices lead to lower sales and the company calculates a new so-called ‘break-even margin’ and raises its prices once again. Eventually, the store goes bankrupt."

(Ironically, in the last closing weeks, during a wildly successful “Goodbye, good buy” fire sale, many C&A UK stores were profitable for the first time in years, shortly before the lights went out…)

Many other chains have also gone into a gross margin percentage death spiral. It happened with Kmart and A&P in the USA and recently with Super de Boer Supermarkets in the Netherlands. If these stores had focused on the articles that contributed the most to the bottom line instead of those with the highest BCP %’s, they might not have done so badly.

The founder of IKEA, Ingvar Kamprad, described the problem as follows:

Our pricing policy is fundamental. The stumbling block is when we price ourselves out of the market. Our retail “experts” constantly go on that we must keep our ‘total gross profit margin’ to a certain percentage. I say to the economists, ‘What the hell is ‘percentage’ anyhow?’

Kamprad sees this phenomenon occurring at IKEA as the Number 1 threat to the company. As he wrote on the last page of The IKEA Concept Description:

I can depict at least seven major threats to the continued success of the IKEA concept in the future. I would like to share these with you so that you recognize them when one or several appear in your workplace, organization or neighboring organization. False steps may be insignificant in the beginning but prove to be fatal later on. Be aware of these trip-wires:

Number 1. Mark-ups in pricing, resulting in an out-of-the-market situation,? due to wrong pricing strategies, too high costs, and/or unsound margin-raising instead of counting money.

Hello! Good buy?

You have an opportunity to become (more) profitable as C&A UK was during the last months, without turning off the lights.

Businesses come and go because of changes in the available building blocks. Re-adapting a framework of counting money whilst ignoring gross margin (BCP)%s is one of those pieces.

As my former IKEA colleague who is currently at C&A explained to me: "Hej Ansgar John , ja DB (Deckungsbeitrag) is de basis van IKEA’s ?vertag en ik ben het helemaal eens dat je niet kunt eten van percentages. Morgen m’n eerste dag in Düsseldorf, curious en excited!"

Personally, I have my hands full with ValueMachinesFund: reading Warren Buffett's Letters and counting the cash flowing in. (I tap dance to work every day.) I do however give a sh*t about C&A and try to help for example by teaching Cofra colleagues how C&A could and can "count money" on Friday, May 10th 16:00 in Draiflessen (the former CandA factory) in Mettingen.

For you and the C&A colleagues, I wish you:

"A glorious future!

The feeling of having finished something is an effective sleeping pill. A person who retires feeling that he has done his bit will quickly wither away. A company that feels that it has reached its goal will quickly stagnate and lose its vitality. Happiness is not reaching your goal. Happiness is being on the way. It is your wonderful fate to be just at the beginning. In all areas. You will move ahead only by constantly asking yourselves how what you are doing today can be done better tomorrow. The positive joy of discovery must be your inspiration in the future too!"

Ansgar John B. Amsterdam

All colleagues and family: Feel free to call +31629547689

I (try to) listen ;)