FINANCE

Quiznos files Chapter 11

BY Marianne Wilson

Denver — Quiznos on Friday filed for Chapter 11 bankruptcy protection to reduce its debt. The sandwich chain said it filed after reaching a deal to cut its debt by more than $400 million, or about two-thirds.

Quiznos said it would continue operating while it works to implement a debt-restructuring plan and make operational improvements.

“The actions we are taking are intended to enable Quiznos to reduce our debt, execute a comprehensive plan to further enhance the customer experience, elevate the profile of the brand and help increase sales and profits for our franchise owners,” stated Stuart K. Mathis, CEO, Quiznos.

Quiznos said it does not expect any changes in operations at its 2,100 restaurants during the reorganization.

Court papers show that under the restructuring plan, Quiznos’ senior lenders would trade more than $444 million in debt for all of the equity in the restaurant chain, subject to dilution.

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Target offers breach blueprint for other retailers

BY CSA STAFF

In the competitive world of low-cost retailers, Target has led the pack. The leak of millions of customers’ personal data with implications of identity theft and fraud called into question their status as one of the top-retailers and has had their executives reeling. Although it’s been months since the initial data breach, the crisis still isn’t over. Target just reported less-than-stellar fourth quarter earnings, which were at least partly impacted by the breach, and the company still faces costs estimated at up to $1 billion as fallout from the data breach. The retail world has seen crises like these handled well, and handled poorly. While the dust hasn’t yet fully settled, Target has the potential to be one of the success stories. Their handling of the crisis to this point could very well create an opportunity for the company from this disaster. Clearly, there are lessons to be learned from Target’s conduct that apply to every retail leader facing a tumultuous period. In any crisis, when a company leverages strong leadership rather than distracting from or ignoring the problem, they can turn a negative into a positive, emerging even stronger than before. Target CEO Gregg Steinhafel has made many smart moves throughout this situation, and is showing some powerful leadership. To yield a positive result from a potentially disastrous situation, a crisis must be approached as an opportunity to improve the way your organization operates. When an event like this exposes policies and procedures that weren’t working, management typically focuses on who to blame. A crisis provides a chance to exercise true leadership by establishing a clean break from the past and communicating a clear message that the focus of the organization is now on leading the industry with the best solution to the greater problem. In the case of Target, going beyond the requisite reform of internal data protection policies, Steinhafel took the data breach as an opportunity to drive forward the chip-and-PIN debit and credit payment systems. The company had previously attempted to work with VISA to roll out a similar system in 2004, but the effort was derailed by cost concerns and a lack of perceived need from customers. Ironically, the data breach provided the push necessary to overcome internal resistance and develop this new technology to increase security for their customers. Before moving forward, Target had to regain consumer trust. In situations like this, a new vision needs to be clearly and consistently communicated by the organization and be understood and believed by everyone involved – employees of all levels, as well as partners and customers. Though initially somewhat slow to respond, Steinhafel and other senior leaders at Target eventually prioritized communications to customers and employees alike. Internally, announcements about the crisis were exhaustively rewritten to cut down on legalese and make them clear and direct. Steinhafel tripled the staff in call centers and provided clear scripts for customer service to ensure customers could reach the company and get answers with minimal delay. Externally, Target held daily news conferences during the holiday season to update consumers on the steps the company was taking to address the data breach. Ad spots scheduled to coincide with Olympic television coverage were canceled to avoid appearing as if the company were doing “business as usual” — which would appear false and disingenuous to consumers. One of the best steps Target has taken in handling the current crisis is to not shy away from culpability — they quickly took ownership of the problem. Steinhafel even went against the recommendations of his team to take responsibility for all compromised customer data, rather than only the portion for which there was a known identity theft or fraud risk. He followed up words with strong actions by offering to provide free credit monitoring and identity theft protection for all Target customers. By championing the chip-and-PIN payment system, Target is leading the way toward a solution for their customers’ future safety as well. Despite an estimated cost of upward of $100 million to outfit stores with the necessary technology to handle the new system, Steinhafel is positioning Target at the front of the retail pack in adopting stricter standards for customer data security. In the retail world, rebuilding consumer trust often takes a significant investment. The best leaders understand the opportunity cost — that loyalty isn’t cheap and that big, costly moves often do more to re-establish trust than press conferences filled with apologies and explanations. Successfully weathering a crisis may take months, but there are indications that Target is already on the right track. The company’s stock price has not been hit as hard as many analysts predicted, and though the end of last year saw a decline in transactions, all indications are that sales are on track this year to match the first quarter of 2013. The biggest challenge on the horizon for Steinhafel and the Target leadership team will be to sustain momentum. The importance of not letting up, and continuing to build on the impact generated by this crisis, is what will empower the organization to continue to lead the industry in other areas as well. Kathy Gersch is an EVP with Kotter International, a leadership company focused on helping organizations manage change effectively and efficiently. Prior to Kotter, Gersch held senior roles with Drugstore.com, GiftCertificates.com, Nordstrom and Milliken and Company.

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Expert: Nordstrom poised for success in Canada

BY Marianne Wilson

New York — Nordstrom is going to be a big success in Canada, according to Antony Karabus, president, Hilco Retail Consulting. (Nordstrom has plans for six stores in Canada, with the possibility of adding a few more over time.)

“Every one of the six stores they (Nordstrom) picked in Canada is a home run in terms of the location. It’s the perfect time, perfect sector and the perfect time in the sector,” Karabus said during a recent presentation on “The State of the Canadian Retail Market.”

As more and more U.S.-based retailers look north to expand, they should consider that some parts of the Canadian retail market are not as ripe for expansion as others.

“It comes down to a matter of sectors,” Karabus said. “Where there is a weak sector, there is opportunity. Childrenswear, for example, is a weak sector in Canada so it’s really wide open. Justice has done very, very well. There is also room in the ladies wear space, particularly in the higher end.”

A lack of choices in the luxury apparel market has resulted in many Canadians traveling outside the country particularly to the United States, to shop. Indeed, the country has an appetite for aspirational shopping, Karabus said, one that Nordstrom and Saks, which will enter Canada in fall 2015, will feed into.

“When Nordstrom and Saks come to Saks, a lot of the wealth spent outside the Canada will stay there,” Karbus said.

Discounters, however, should think twice before entering Canada.

“I don’t think there is room for any new entrants in the discount sector,” Karbus said, “and that includes the dollar chains. “

Similarly, Karbus does not see any room for U.S. expansion in the supermarket and drug store sectors.

As for Target’s missteps in Canada, Karabus pointed out several blunders made by the chain, which he said included opening too many stores in a year or less and the less-than-great real estate it took on from Zeller’s. The chain also underestimated the competition.

“Everyone in Canada knew they were coming and had over a year to get better themselves,” explained Karabus, who added that Walmart has done a very good job in Canada.

Supply chain issues resulted in empty shelves, which turned off shoppers. So did the prices, which were slightly higher than those in Target’s U.S. stores. Some of the brands were different also.

“We know Target will fix the operational issues,” Karabus said. “The question is whether shoppers will come back. Target has to give them a really compelling reason to return.”

Ultimately, success in Canada is based on the same foundation as success anywhere.

“You need a defining proposition to be in business,” Karabus said, “and there has to be space.”

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