STORE 1997 SPEECH

Februa ry 28, 1995

WHAT DOES THE BON MARCHE DO NOW?

As with any of the changes that The Bon Marche has undergone, the issue has always been defming “what” we are trying to accomplish and then creating the policies, standards, and procedures  for managing the business.

The process is always the same.    The basic change model starts with defming where we are.    The next step is defming what we should be.   And once defmed, we figure out how to get there. Our history is rich with high levels of execution and accomplishment  of our goals./

I would like to take a minute to use this change model to explain where we were, where we are now, and where we believe we are gomg.

In 1980, our “Current State” was defmed by Allied Stores. Allied was a tightly run organization that valued auditors more than customers.   We lived with lots of double checks and double

signatures.   We spent most of our time focusing on the control side of the business.

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Bill Fix decided that we needed to change our focus by adding

the customer to our formula for success.       Bill created a “Desired State” that emphasized customer service with the “I Guarantee It”

and “Customer Service From The Heart” programs as the driving visions.   I  Our “Desired State” was to emulate Nordstrom.     The picture was clear, and over the last 14 years, we have taken the service portion of the business to higher levels of success than many felt possible.              But now we have made the execution of “I Guarantee It” very difficult for our associates.    Our effort to drive comp store growth, our promotional beat and merchandising policies have put them in a difficult spot.

It is very important to remember that, while we shifted our cultural focus towards customer service, we did not lose our Allied culture of maintained expense control.    In essence, we kept the

best part of the Allied culture and added a new dimension that served us well in the late 80s and early 90s.

The Bon Marche is again faced with the problem of taking the business operation to the next level.      The “why’ s” are many: Federated’s challenge, change in our customers, change in our competition — a combination of all the pieces of information that have already been presented today.

We need to create a new “Desired State,” one that maintains the expense control culture brought to us by Allied, and the service culture brought to us by “I Guarantee It.”                    If The Bon Marche is going to maintain its leadership position, we must not only meet our financial goals, we must also change many of the standards, policies, and procedures that our customers are telling us they don’t like.

Remember the focus group tape at the beginning of this presentation.    Customers are changing; we can no longer be out of stock in basic merchandise.    We need to have a promotion calendar that our associates and our customers can understand and respect.                We must have orderly and easy to shop stores that keep our customers from becoming confused.            We must carry desired items in sufficient depth, exciting new products that will keep our loyal customers coming back, and create ways to capture new customers from our competitors.

In many areas, we are in danger of losing our credibility with our associates, and in tum, our customers.            We must define our “Desired State” and clearly go about the process of re-defming of our standards, policies, and procedures to ensure success in our m1ss1on.

The easiest way to defme our “Desired State” is to look at our fmancial goals, fmd a company that executes to that standard, and say “look like them.” Well, we all know that May Company has the fmancial standards that we need.            But as soon as I say it, I am immediately sickened at its implication.     It may be my own personal bias, but I believe that Meier & Frank does not match many of the standards that we hold dear, and that our customers have grown to expect from a Bon Marche store.           So, unlike our past cultural changes, simply saying we want to look like the “other” store won’t work — because we don’t want to look like Meier & Frank.  But the fact remains, we must perform to that standard.

With the challenge clearly defined, our senior management team has been spending the last few months trying to create a clear and focused vision of what our new “Desired State” must be.    This process has allowed us to reach a significant conclusion.    While

we often focus on our financial goals, the success or failure in accomplishing these goals will be driven by a different set of factors.

In three off-site meetings, facilitated by a professional expert in cultural change, an expanded executive committee went through a process to start the defming what The Bon Marche needs to become over the next two years.                   We began by identifying a list of qualities that we felt we must carry forward in order to maintain

the success that we had achieved over the last 20 years.        As a group, I ‘m sure you would all agree that all of these standards are very important to our success and we must not lose any expectation levels in any of these areas.

1. Quality locations and quality amenities.
2. Friendly, caring associates.
3. Customer sensitivity and focus at all levels.
   1. Northwest  regional distinction.
   2. Great store execution.
      1. Ability to edit issues and focus on performance.
         1. Differentiated marketing and promotion “Choices.”
         2. Strong home world as a differentiator.
         3. Strong and growing credit card base.
            1. A headquarters  downtown store.
               1. Effective use of technology.

In addition to these qualities or assets, we also identified aspects of the Bon cultural environment that we felt were critical to maintain:

1. Superior people.
2. Work ethic/expectations of individual contribution.
   1. Strategy-based decision process
   2. Willingness to change.
   3. Management  credibility.
   4. Department based service.
   5. Build on communication strength.
   6. Pride in organization.
   7. Open door policy – one-to-one
   8. “Skunk works” — “can do” — “freedom to act.”

After deciding on which standards that we felt were critical to keep, we started to focus on what the critical factors were for determining our success.                         After much conversation, we concluded there were eight factors critical to our success.    The exercise was to define the critical factors and then create a statement that explained its meaning in the present tense.

EFFECTIVE LEADERSHIP

Effective leadership is having a clear vision, pursuing that vision with passion and remaining focused and consistent.

Effective leaders are committed to honest communication, building a strong team and a caring work environment.

CLEAR FOCUS AND EXECUTION OF MISSION AND

VISION

Every employee clearly understands the vision and is accountable for their role in making it happen.

QUALITY ASSOCIATES, ALL LEVELS

Quality of people exists because we have an organization of people with the requisite skills and attitude to accomplish the

VlSlOn.

QUALITY, VALUE, FASHION-RIGHT MERCHANDISE

Quality, value, fashion right merchandise are the primary reasons that our customers shop at The Bon Marche.      Our merchandising meets customer expectations by providing full assortments of distinctive, fashionable, fresh merchandise at fair prices.

CREDIBILITY WITH ASSOCIATES

The Bon Marche maintains a consistent relationship with its employees, involving open and honest communication for creating a shared understanding of its vision.

CREDIBILITY  WITH CUSTOMERS

Credibility with customers exists because they perceive their experiences with The Bon Marche to be fair, consistent and living up to the expectations we have created.

PRIDE IN OUR ORGANIZATION

High esteem is present for each individual and The Bon Marche.

ACHIEVE FINANCIAL GOALS

While this list of critical factors may sound rather philosophical or a little like motherhood and apple pie, we have all agreed that maintaining our leadership as a regional northwest department store is totally dependent upon our ability to execute to these goals.      You will see shortly, when we get into “what” needs to be done, that the challenges begin to build.

However, before we get into that, I would like to remind you of a company that has been forced to go through this process recently.                  Alaska Airlines has always been a regional airline that differentiated itself with on-time delivery and enhanced service in the form of leg room, food, and friendly people.

Due to market conditions and profitability  challenges over the last few years, Alaska Airlines needed to undergo a massive restructuring.    The process was not pretty.    Southwest Airlines is here — and offered the consumer things likes zone boarding, no tickets, and fast baggage check-in.    Good food and nice people are no longer the standard.   You could argue that The Bon Marche is not Alaska Airlines, but are you sure?    Study the marketing information that was presented earlier.                        Look at the growth of storefront check-out retailers carrying quality products.    Look at the outlet discount malls popping up all over the place, with our major brand names plastered on their buildings.     /pause

Effective leadership is about defming a clear vision and being impassioned by getting it done.   Effective leadership is not just the executive committee, it is all of us in this room.    We are The Bon Marche leadership team, and we need to decide that we are ready to go on to the next level.

After creating these statements for each factors, we then — as a group — tried to define in 1997 “What” we would be doing to demonstrate that we had accomplished success.

EFFECTIVE  LEADERSHIP

Effective leadership is having a clear vision, pursuing that vision with passion and remaining focused and consistent.

Effective leaders are committed to honest communication, building a strong team and a caring work environment.

THE MOST IMPORTANT “WHAT’S” OF EFFECTIVE LEADERSHIPARE. . .

By 1997, are we

1. Clearly defming and communicating each individual’s role in achieving the vision?

• 2.     Directing and supporting the organization.

3.     Measuring and rewarding successful results.

A lot of what we are doing today is working hard to clearly defme and communicate each of our individual roles in achieving our vision.   The vision is not 100% fmished, and today we are all becoming involved in the process of helping to clarify our goals.

As we progress through  1995, each of us will have the job of being an effective leader.

CLEAR FOCUS AND EXECUTION OF MISSION AND

VISION

Every employee clearly understands the vision and is accountable for their role in making it happen.

CLEAR FOCUS AND EXECUTION OF MISSION AND VISION

In 1997, are our

1. Store policies in line with our direction?
2. We invest in assets to support the objectives.
3. Feedback occurs to check vision bottoms-up/top-down.
   1. Success is rewarded.

The biggest example of how this is being accomplished is the installation and investment in our new POS register system.    We need to be ready for the coming years in retail with a transaction machine that helps execute customer service.    We must make the transition of POS work.

QUALITY ASSOCIATES, ALL LEVELS

Quality of people exists because we have an organization of people with the requisite skills and attitude to accomplish the

VIS IOn.

WE WILL KNOW SUCCESS WHEN THE PEOPLE OF THE BON MARCHE . . .

1.    Include a stable core of productive players.

2.              Are informed and highly skilled.

1. Are caring, dedicated, hard working, positively competitive, and have a desire to accomplish the vision.
2. Believe in a reward for performance system.

The key to all of these issues will be our people. How do you maintain a highly informed, highly skilled, and stable core of production people?  As managers, each of us will be challenged to keep and attract quality people.  As the company changes, this will be a constant issue for each of us in this room.           Clear, open, and honest communication will be critical.   As we go forward, all of our communication skills will be challenged.                The use of the term “stable core” is significant.  We must maintain a group of people that are the main-stays of each of our areas. A highly efficient, strongly motivated, informed and skilled core work force will be our number one asset.

QUALITY, VALUE, FASHION-RIGHT MERCHANDISE

Quality, value, fashion-right merchandise are the primary reasons that our customers shop at The Bon Marche.  Our merchandise meets customer expectations by providing full assortments of distinctive, fashionable, fresh merchandise at fair prices.

QUALITY, VALUE, FASHION-RIGHT MERCHANDISE . .

How fast can we have

I .                     Dominant      assortments   of      premier,        core                  and               private          label resources of our new Federated matrix.

1. In stock on “NEVER OUT” basics.  Are we perceived as
2. Competitively priced?  And, do we continue to

4.     Present the merchandise in an exciting, friendly and convenient shopping environment.

An example of how we are going to accomplish this is the development of our planner/distributor organization.      In the future, we must place more value on being in-stock on wanted and basic items.   In the old days, we considered ourselves great item merchants.    In not focusing on assortment, we didn’t have to worry about sizes and colors.    The business has changed, and the customer has changed.    We must be able to have size and color in stock.

The customer is telling us they don’t have time to come back for wanted merchandise. They don’t have time to get a rain check on a promotional item.         They want an efficient and understandable

1            assortment with their sizes and color in stock when they want to buy.

CREDIBILITY WITH ASSOCIATES

The Bon Marche maintains a consistent relationship with its employees, involving open and honest communication for creating a shared understanding of its vision.

CREDIBILITY WITH ASSOCIATES WILL BE WHEN. . .

1. All policies and procedures are understood and explainable.
2. Our environment respects fair treatment and the dignity of the individual.   —   We still care about our people.
3. Management listens and communicates relentlessly on “what” and “why”.

As with any cultural change, our ability to communicate and be clear will be critical.    The Bon Marche is a good “telling” company.      We         focus on “how’s,” and we get things done. Each of us in this room will be challenged as never before to discuss “what” and “why,” then have the patience to listen to our co­ workers to ensure we don’t do stupid things.   We all want to be involved.   A lot of what’s going on today is about this effort.

CREDIBILITY WITH CUSTOMERS

Credibility with customers exists because they perceive their experiences with The Bon Marche to be fair, consistent and living up to the expectations we have created.

CREDIBILITY WITH CUSTOMERS HAPPENS WHEN

1            OUR . . .

1. Credible friendly associates continue to have a sensitivity to our diverse customer base.
2. Credibility in marketing will be demonstrated by our in-stock position on all advertised items, store level price accuracy, and the absence of gimmicks.   And, we will continue to be credible as our
3. Stores offer a consistent level of friendly and knowledgeable service appropriate to the merchandise category I with acts of service that often exceed expectations I in stores that remain clean, orderly, and fun to shop.

Credibility to our customers is dependent upon our ability to deliver to our customer ‘s expectations.       We will be changing some

of our own expectations.     Let’s talk about maintaining credible marketing — that we have the merchandise we advertise, that our new price look-up system delivers the right price, and that we don’t rely on gimmicks.                           Let’s look at our clearance strategy.

After five years of trying to defme how we use POS or “Just

Reduced,” I conclude that I am confused. I am sure the customer is confused. We must fmd a consistent policy or we will have no credibility with our customers or our associates.

PRIDE IN OUR ORGANIZATION

High esteem is present for each individual and The Bon Marche.

PRIDE IN OUR ORGANIZATION WILL CONTINUE WHEN . . .

1. High standards of productivity exist (relative to industry).
2. We are known for superior assortments in our markets.
3. People do great things.
4. We have among the highest profitability rates in Federated.

It is easy to recognize that we as a group have pride, and one of our greatest fears is that if we change, we will lose the pride we have worked so hard to achieve.             This is the very fear we must break through.              We must understand that pride in what we accomplished in the past, may prevent our future success.    Change requires a different sense of pride. Pride that we anticipated the issues.              Pride that we kept the best of our past performance. And,

pride that we work at The Bon Marche — the best regional department store in America.

WE ACCOMPLISH OUR FINANCIAL GOALS:

In achieving the first seven critical factors, we will accomplish our fmancial goals.  It was interesting that when we started this process,  we were confronted with our aggressive fmancial goals and the realization that our historic way of operating would not allow us to attain the superior fmancial performance we must deliver, while at the same time continue
to grow in an increasingly , competitive environment.

As Peter Drucker has said, “Every organization must be prepared to abandon everything it does to survive in the future.” Like Southwest Airlines re-defining passenger customer service, The Bon Marche must fmd the breakthroughs that take us to the next level of existence in a highly competitive and ever-changing retail world.

As I opened this presentation, we discussed the idea that the easiest way to move to a new “Desired State” was to fmd someone who is already doing it and say, “be like them.”  Well, we can’t do that.  We must fmd our own way.  It is this thought I would like to have us focus on.

We have spent a lot of time talking about the effects of this process on service.  Much of our service is linked to our associates’ attitudes and ability to negotiate for their customers, in and around The Bon Marche policies:                    How we have promotions

that overlap or goods not in stock; Clearance strategies that aren ‘t clear; Merchandise that moves around.

What if we admitted that we sometimes fail to respect our associates or customers in these areas, and that our competition has found ways to understand that people’s time is limited?    We need to have what they want, in the color and size they want -­ when they want it.

Customers today are characterized by their relentless demands for quality, service, and price, and by their willingness to act on our default of contract I by being disloyal.                          Customer loyalty is often defined as the lack of a better alternative.         And today, there are an increasing number of alternatives, we must be the best one.

So, our challenges are large, but so is our talent.    Our time is now.   The vision is being developed by establishing key values and defming ways to get the job done.           And, involving all of us in this process.   By defming “How” we become successful at our critical factors of success, we will take The Bon Marche into the third millennium.

Thank you

As an element of our new future, we need to understand how the customer views each family of business and how it might be merchandised in the future.    We have designed an exercise that we believe will create a discussion about how we do business.