Tuesday, 21 November 2006
Naomi Milgrom
Speaker: Naomi Milgrom, EXECUTIVE CHAIR & CEO, SUSSAN GROUPProudly supported by
Transcript
This is an edited transcript of the address given at AFR BOSS Club in Melbourne on November 21, 2006.
NAOMI MILGROM: Good evening, ladies and gentlemen.
I've chosen to speak to you tonight about a new style of leadership. In this 21st Century all business leaders are facing changes that transform the very way we do business and I believe if we don't adapt our style of leadership our businesses will not succeed.
I'm extremely proud to be a third generation retailer in Australia. I'm very fortunate that my grandmother had the foresight to open a store called Sussan, just around the corner here in Little Collins Street in 1939. I'm also fortunate that my father, who is here tonight, had the foresight to grow that business. But heritage doesn't ensure enduring success. It could have all stopped with the second generation, as it has done for many of the original retail families.
The Sussan Group is the only large retail family business in Australia still operating in the third generation, but over the last 17 years since I took over as managing director in 1989 and then ownership in 2003, I have had lead the group through five turnarounds, and in particular Sportsgirl, which we bought out of receivership. Today, the Sussan Group comprises three female fashion chains: Sussan, Suzanne Grae and Sportsgirl. We've got over 520 stores in Australia and New Zealand and more than 4,000 employees.
The key challenge for me as a leader has been to understand change and to adapt to it. To understand that the economy and the consumers change over the years and that my heritage brand cannot survive unless I can adapt them to contemporary consumers and a contemporary economy. Let me discuss with you what I believe the main changes we face are.
One of the more fundamental changes is the changing concept of brand differentiation, that special, special factor that gives each and every one of us our edge over the competition. Ten years ago the brand differentiation in one of my businesses, Sussan, was the fact that we were the only retailers selling sleepwear alongside fashion clothing. Our clear differentiation used to be our product mix, the retail environment and the service we provided. It was never, ever a question of something external.
About 15 years ago we decided to sponsor a run for women. Now the fun run has become part of a much larger partnership with Breast Cancer Network of Australia. In this partnership our employees volunteer time at BCNA functions, our stores distribute information and raise awareness about cancer, and we raise funds from the fun run, product sales and other events. Our involvement now is part of our brand identity, part of our differentiation, and it is a vital part of the growing expectations of both our employees and our customers.
Furthermore, we found that if we want to be the employer of choice, which we do, we have to create the sort of environment that our people want to work in. And so the new building we are presently planning will be the highest rating green building both inside and out, and this too will provide us with a strong differentiation.
It would have been absolutely inconceivable, incredible even a few years ago for a bank such as Westpac to run TV ads stating that they would not lend funds to an unethical company, and for the last five years in a row Westpac has topped its index on the Dow Jones sustainability index. Westpac is indeed ahead of the pack. It has changed its differentiation because it has understood the magnitude of the change in the climate in public opinion and in people's expectations.
People are increasingly saying to business now, profit is good, but that good needs to be spread around. Some of it needs to be ploughed back into the communities which helped to produce it. People are increasingly saying business profit is good but it cannot come with the unacceptable cost of corruption, exploitation, environmental destruction.
It does bother people to know that their sport shoes were produced by children in sweatshops, and Nike felt the consequences of that. It disturbs them that adults are forced to work virtually as slave labourers and that animals are used as guinea pigs. Companies such as The Body Shop were the first among the companies to understand the changed ethical and environmental awareness of the public.
This changed climate of public opinion reflects the fact that the economic and social foundation on which we have built our businesses is in a state of flux. If we thought we could count on traditional ways of doing business, this is no longer the case. If we thought that we could remain isolationist and mind our own business and just be concerned with satisfying our customers, that's no longer the case either. Our accountability can no longer stop at fiscal responsibility. Business is now held accountable by society.
I know that I cannot do business in the same way my family did in previous generations. I know that we've entered a new era of interconnectedness, an era in which business must be connected to the community, to the nation and to the global environment. Increasingly we are bound together by the bonds of both morality and necessity. We must form partnerships to tackle the social, environmental and humanitarian issues that ultimately threaten us all, and we must do this in a way that is transparent and can be measured. We're no longer talking of philanthropy or charity, but interconnectedness based on common interests and ongoing partnerships. We have to see ourselves not as benefactors but as partners in social and economic change.
For example, business is particularly well placed to work with not-for-profits. We can provide trained manpower, a range of resources and the influence to get things done. Unlike government bodies, we're not mired in bureaucracy, we are adept at taking risks and trying new approaches and new ventures. All this can be harnessed for the common good.
The most compelling change that we now have to face is the changing temperature of the planet. The Stern report shocked us all, even Rupert Murdoch, into understanding that in the near future global warming could potentially unleash environmental disaster and precipitate world wide recession. The Stern report took global warming firmly out of the hands of the greenies and placed it in our laps. It has made business realise that climate change is indeed a market issue.
The climate of public opinion is again way ahead of us on this issue. A recent poll showed that 91 per cent of people think that global warming is a serious problem and 62 per cent are dissatisfied with the government response to date. And while it now appears that Australia's biggest companies overwhelmingly believe that climate change can hurt business, too few Australian businesses are doing anything about it.
I would agree with those who say that even if the consequences of global warming are not as disastrous as predicted, we still have to adopt the precautionary principle. That is, we still have to treat it as we would any other potential disaster and take out insurance. And by taking out insurance, of course, I don't mean passively paying premiums and lip service. I mean taking meaningful action. All of us Australians love to talk about the weather. Now is the time when we actually have to do something about it, otherwise we will be left behind and we will literally end up paying dearly. So I would of course welcome any government business cooperation that is mandated to act and not just talk.
There are other changes taking place in the international sphere that affect our economy. There is a shift in the balance of economic power with the rise of China and India. Together with globalisation this places even more pressure on Australian exporters and economy. In order to compete we will have to benchmark ourselves by international standards. We will have to think smarter to innovate and develop our differentiation in the international market.
We have discussed key changes which once would have been considered external to our businesses which are now highly necessary to our thinking. But we do still have the job of actually running our businesses. Here too things have changed. The old authoritarian style of leadership is no longer appropriate and leaders who focus only on the bottom line are not effective, not even at achieving that bottom line. We need leaders, not managers. We need both a visionary leadership and a more collaboratively style of leadership. That is, leaders who combine strategic skills with people skills. Both sets of skills are equally important. Strategic skills, of course, because you have to know where you're going and how best to get there. And people skills because people are the implementers of your vision. As a leader I must focus on my vision, on maintaining the best positioning of the brand and on innovation. I must focus on the process and people that lead to the bottom line and not the bottom line itself.
We all know there's one overriding truth in business: Without a team of people who are creative and keep reinventing and reinvigorating our products, we won't have a business in the long run. Therefore, I not only have to inspire my employees, I also have to provide them with an arena for creativity, a work environment that allows them to be entrepreneurs, to have autonomy, to be supported and trusted.
The essence of my relationship with my employees is through what I call management by conversation. That is, going out of my way to have open communication with them, to listen to their ideas, their grievances, to respond to them and to consult with them. Productivity is definitely closely aligned to job satisfaction and fulfilment.
There were quite a few articles in the October issue of BOSS asking the question - what motivates high performance in employees? My response is that it all boils down to a style of leadership and whether it is appropriate to our times. A very recent study shows that the relationship between pay and retention was almost nonexistent. Workers who thought their pay was generous could still leave a company. We have to realise that there have been some fundamental changes in the economy and in the workplace. We are in a period of full employment, where skills and talent are in short supply. Skills are now as portable as the computers that not only influence how we work, but the location of our work. There are more women in the workforce, more mothers are returning to work and the work force is aging. In addition to this changing economy, the changing expectations of the workforce require business leaders to adapt.
Women and men are giving up financial reward in favour of a quality of life and family. There is a new emphasis on work/life balance, on job fulfilment. We now want to fit our work around our life, not our life around our work. Professor Shoshana Zuboff of the Harvard Business School recently said very few employers offer the flexibility and the control so that we can build our lives around our needs and our values. Our institutions and the leaders of these institutions are rigid to people's needs. She concludes by saying employers who do things differently will be the most successful in drawing to them people who will work.
So what is the first area in which business leaders need to do things differently? Well, the first area is definitely women in the workforce. There has been a fundamental shift in the makeup of the workforce, but business and government are slow to adapt. Stephen Bevan, a director of the British based group The Work Foundation, recently said that the lack of regulatory support for women in the workplace leaves the Australian economy uncompetitive. Bevan spoke of the need for flexibility, part time work and paid maternity leave, but instead of that we have barriers created by the law, some employers' practices and inadequate, expensive child care. Business leaders must recognise the family as a core value. Business leaders must create flexibility for that work/life balance. They must understand that there is a high correlation between a happy workplace and a happy home. They must measure performance in terms of outcomes and not in terms of 9 to 5 bum hours on an office seat.
98 per cent of my employees are women, so we have to make sure that we provide our employees with the flexibility so that when necessary they can take a child to a doctor or attend a parent/teacher meeting at school. All employees have to be able to do this openly, knowing that they have flexible working hours and are supported by a culture of trust. However, in most workplaces women and men who take time off from work to deal with family problems have to lie about it. This just breeds a culture of lying and mistrust, and that is the last thing you need in any business.
Businesses which continue to enforce inflexible practices are pushing men and women out of their employment, and often in the case of women out of the workforce altogether. I know of some legal firms and other businesses that are already reporting the loss of about half of their talent. As I mentioned earlier, without talented people who keep reinventing your product, you won't stay in business for very long.
Retail is the largest employer of young people in Australia and the largest employer in general. Ultimately I want to be the employer of choice in the retail market. I want people to stay with us and have a history with us. I want to have people heritage as well as brand heritage. In today's employment market it is considered a sign of success if employees want to be with you for the long haul. How do you ensure that you have a business to provide them with long term employment? By providing the right sort of leadership, the style of leadership that is right and appropriate for our times. Thank you.
QUESTIONS
HELEN TRINCA: AFR BOSS Editor, When did all this start to gel for you?
NAOMI MILGROM: I think there have been two aspects. Certainly in my private life, my family, my parents have been very influential in terms of the act of giving and philanthropy, and certainly showing that example which has been extremely important in terms of their partnerships with appropriate needy issues. So I certainly grew up and saw that as a very important part of life.
But I suppose in the last five years I have been mentoring several young women, and two of those women are now running my two largest businesses in their mid thirties. They are the ones who are really pushing the businesses ahead in terms of really wanting to be engaged and really pushing me to be more and more engaged with the community all the time.
HELEN TRINCA: Have you been almost surprised by the fact that Generation Y is different? Are you finding people quite insistent on having a better balance between work and life, for example?
NAOMI MILGROM: Well, really Gen Y aren't there yet so they're not ones who are pushing for the work/life balance. I am finding that it is the next generation up that are working towards that. I suppose in our business, when I talked about our building, we will have a breastfeeding room in our new building. We will be accommodating all of the sorts of needs that we can think of, in terms of having employed 98 per cent women of course, and we'll have lots of bike racks for the guys and showers and all the rest of it.
MAUREEN CLIFFORD: You mentioned the green building which is a great initiative. was just interested in any other initiatives Sussan Group was undertaking, whether it be with regard to the environment or community awareness, corporate governance.
NAOMI MILGROM: In terms of those sorts of initiatives, at the moment Sportsgirl is talking to The Butterfly Foundation, because we feel that body image is a very important part of a young woman's life and we have certainly had a lot of inquiries about that on our website. So that's an initiative we are looking there. Sussan's commitment is to the Breast Cancer Network absolutely totally, and we feel that we can give our focus both from a volunteering point of view, a financial point of view and an engagement point of view by being with one commitment over a long period of time. Most not for profits like to see partnerships that run for longer than one year. It's very important that those not for profits have a stability. So we have chosen the Breast Cancer Network for Sussan, we are working with The Butterfly Foundation. And Suzanne Grae has a recent, really interesting program, which was the first initiative ever started by a company which was a workplace giving program, where the head company matches dollar for dollar the money that they put in. They had a committee which went to their workforce, did a survey, and they decide what charities they wanted to work with and they chose five of them. So each person puts money from their pay into that workplace giving program. So they are the three programs that we're running at the moment.
From an environmental point of view we have been looking at the issue of plastic bags. We now have environmentally friendly plastic bags. We need to move on in that area. Certainly in stores we're trying to get less and less paper, which is not an easy thing to do in stores. As I said, our new headquarters will be green, hopefully five star rated which is what we're working on at the moment.
QUESTION: The question I have is how do you balance and who in your organisation balances the economic benefits of sourcing product at very low cost countries compared with survival of a business? So there are lots of Australian manufacturing, US manufacturing, European manufacturing companies that are all heading east and that is where a lot of product is now sourced. So who makes that decision?
NAOMI MILGROM: As a company each one of our businesses source separately. We don't combine our sourcing. We don't do any of that because I am a very, very firm believer that each brand should be clearly differentiated in everything it does. So in actual fact Sportsgirl currently do about 85 per cent of their product in Australia. Now, part of the issue with that is that Australian manufacturers are now going offshore. Some are still working onshore, but a lot of them are working offshore. So even when you try to support an Australian industry, they are moving offshore themselves. So we have spent a lot of time trying to encourage them it is very important for us to support Australian. At Suzanne Grae we did an Australian made promotion some years back. But now our manufacturing industry, we can't control that and our manufacturing industry is moving offshore. The other two businesses have a mix. Suzanne Grae has been a very strong importer for the last 45 years, and that's certainly been our history. I certainly can't answer for other companies. We have never imported product from the US or Europe. A lot of their product is coming out of Turkey and places like that because of their quota issues. We've certainly tried to support the local industry but now they're moving offshore.
QUESTION: I just wanted to know what sort of thing you are telling the people you are mentoring … What is your message to people who want to make that leap from employee to leader?
NAOMI MILGROM: One of my biggest issues is that you have got to focus. You absolutely have to focus on what you want to do and you can't be distracted, and you must keep on that track the whole time if you believe in it yourself. It is very hackneyed to say you have got to be passionate about something, everybody says that. I just think you have got to be very, very focused, and certainly that is my big thing, keeping people on track.
Because when you are young and you are starting a new business, if you look at all the Australian people like Collette Dinnigan or Sass & Bide, they are completely distracted by New York or Paris or all of this, but they probably sell $5 worth. They have got to get their home market right. They have got to focus on those sorts of things first. You can look through any industry and see that.
I do talk a bit about work/life balance, because when most young women are getting off on their careers they're just at the time where they're having partners, getting married, having babies. So it is a very difficult balance and it can get pretty scary. I've been there. So I do talk to them quite a lot about that too.
QUESTION: Where do you see the Sussan corporation in about 20 years time?
NAOMI MILGROM: I see a few more companies underneath that. I'm just waiting for them to drop out of private equity hands. I'm being serious though. I do see the short termism at the moment as a great problem, and I think that people like us are very, very well placed in the future to be able to take advantage of the fact that we are long term players. We want to be here for the next 20 years, we want to be here for the next 50 years. We love what we do and I do see that there is a real problem with the short termism that is occurring at the moment.
I would love to buy some more brands, I'd love to do a lot of other things. I think that I've got great people who can take the company much further than I can and they have they've all got great ideas. I've got three chains in mind at the moment, just waiting for a few more stores, but yes.
QUESTION: Tell us what you love about retailing.
NAOMI MILGROM: Well, I couldn't do it if I didn't love it. It is very difficult to get up every morning and have those figures through the phone and it says budget $10 and the actual is $3. It is not a good feeling every morning so you really have to love what you do. The customer tells you every single minute of every day what you've done wrong, so you stay humble for a very long time because you never actually ever get it right in their minds. So I suppose I love that.
Risk management is what I do every day and I really enjoy that as well. I think solving issues and working with people to solve those issues and to find the solutions is a very important part of what we do.
I love clothes, so that helps. I also really love the emotion that comes with female clothing. People often say to me why haven't you considered a menswear business, and I say because there's no emotion there …. I find men extremely difficult in terms of the emotion that they won't display towards clothing, and I love the emotion that women display towards clothing. So that is one of the other things I really enjoy.
QUESTION: I wanted to ask you whether you have got a global vision for your company, for the Sussan corporation, if that is on the agenda?
NAOMI MILGROM: No, it is not on the agenda. I know my limitations and I know that a southern hemisphere business can't work in a northern hemisphere sphere without putting enormous pressure on teams of people. I have never seen a northern hemisphere retailer come to Australia and be successful, and I don't think that there's an Australian fashion retailer who has gone to the northern hemisphere and been successful. So I know my limitations very clearly.
I mean, we went to New Zealand and we thought oh, yes, New Zealand is just another State. Absolutely not. It has been very difficult, ten years, it's hard. It's a different currency, there is a different way of working, you have got to write two orders for everything.It puts a lot of pressure on people. And you always think oh, well, Sussan, the New Zealanders come to our Sydney stores and they say wow, we love your sleepwear, we wish it was in New Zealand. So you go there. Doesn't make any difference, they'd rather shop in Australia.
HELEN TRINCA: So it is not just about the weather being different and not getting the lines right?
NAOMI MILGROM: I think if you look at Australian retailing there has really never been a successful northern hemisphere retailer in fashion here. Australia is extremely idiosyncratic. I think we have got more shopping centre square footage than any other country in the world per capita. It is a highly competitive market. It is a market where you can basically have summer seven months of the year, or not, which we are facing at the moment. It is a highly idiosyncratic Australian way of life. The successful retailers here are not the ones who take the European fashions and just say yes, we're going to do that. There are some examples of European retailers in the Australian market who are trying to sell woollen coats in January. I think it's pretty obvious when you look at them what they're doing. It's extremely idiosyncratic here, so you never say oh, we're just going to translate the trends here. Absolutely never do that. You say yes, these are the trends but what do Australian women want? What's important to them?
QUESTION: I just wondered being sort of second generation in a family business, what pressures you personally felt in the things you need to aspire to, and also do you see passing it on to your own children the things you try to impart on them now?
NAOMI MILGROM: Luckily they're a bit too young. I'm a third generation so I think it is always difficult in a family business. I think I could get my father to stand up here and say he'd agree with me. But I think if you love what you do you work through the issues just like you do with any other job, and you just take that forward and you say well, yes, I'm going to do it. As I said before, heritage does not ensure a success. I got tripped over many, many, many times just to make sure that I knew that I had to be successful or it wasn't going to be there. So I think that it doesn't ensure enduring success and you have to be very mindful of that.
QUESTION: I was wondering what your thoughts were on online retailing and how you see that impacting the marketplace.
NAOMI MILGROM: That's another reason why I like women, because they love to touch, feel, experience and walk around and ponder decisions about clothing, and they never sort of just make a quick decision. I think online retailing is very important but it's not a substitute. As you know we have a website with Sportsgirl that gets on average 9 million hits a month. It is the number one site in Australia and we do not sell anything online at the moment. So we're getting a lot of visitations, we know we have got an active customer there. We also know that we've got 104 stores, so we know we have got a store where most people can get to. We are working on a plan, as you know, to get an online representation, but we're going to take it very slowly, because again we've got to make sure that we keep focused. Our main business is keeping 104 stores full of stock and a couple of thousand people happy. So we won't be rushing anything.
QUESTION: I'm just interested to hear a bit more what you might have to say from a practical perspective of how companies can support women in the workforce through the changing stages from a practical perspective?
NAOMI MILGROM: I think the major issue is flexibility. We have a lot of women who start with us as young women, who get married or who don't, who have children. They come back to us and they want to work with us but they can't work full time. It is just not possible. There are some people who do want to come back earlier, some people who want to come back later, so we accommodate that every single time as we can. In the new building I said we'll have a breastfeeding room. There are women now who want to come back and they want to feed their babies, so we are accommodating with as many things as we possibly can.
Child care is another thing we are looking at. We are talking to two child care people at the moment. Our new building is in Richmond and we are in an area where Country Road, the Just Group; there is a lot of retailers around us. So we are now talking to two people who are looking at putting a child care centre in the environment there and we will be able to send obviously our babies and our children there.
So we are trying to do everything we possibly can to accommodate with flexibility. I've found that flexibility is the most important thing. We have got some people who have every third Friday off, we have got some people who have every second Friday off. It all depends on what their needs are, and we are trying as hard as we can to accommodate everybody. I could give you many examples of people who have come to us and have said look, we need to take 5 weeks and not 4 weeks, so we're trying everything that we can possibly do.
JAMES STEWART: Naomi, James Stewart is my name. I was one of the administrators of Sportsgirl in 1999….I have admired greatly what you done with the brand since you bought it from us and I just wondered if you'd spend a minute talking about the greatest challenge of turning Sportsgirl around once you got it.
NAOMI MILGROM: To be honest landlords. Landlords were our greatest challenge, because as you know when we bought the business the rent-to-sales per cent was obviously unlivable. That was our biggest challenge. I went to every single landlord and I said this is a company we're buying out of administration, I want one year, and they all said no. Not one. So I'm not very inclined to help them out now. I think landlords were the biggest challenge.
The other really important challenge was getting everybody on board. Because there were a group of people at Sportsgirl, about 64 of them, who we took with us when we bought the business, as you probably recall. I think 99 per cent of those people, except for a couple, had been at Sportsgirl for a very long time. So they had been there through very good times with the Bardas family, and then they'd been there through very bad times with the Truworth Group, which was the group that bought from the Bardas family in '95.
It was a group of people who believed in that brand more than anything else. They believed that it could be the best brand in the country and they didn't know what to do. So the thing that I had to do, the very first thing that I had to do was make them believe that that brand could live again. So that was my really biggest challenge, saying to them this is what we're going to do, this is how it's going to work. And all of those people who thought that they were losers in 1999, because they had spent 5 years losing money, were winners in 2000. And that was an extraordinary thing for them and that was really my biggest challenge, to get them on board and to make that happen.
ENDS