Tuesday, June 05, 2018

C&A's Secret History

It started in 1906. It might seem a little strange to start a company chronicle in 1906, when C&A had been going for 65 years – officially ripe for retirement. Seen from the historical perspective of the firm, it makes a lot of sense. 1906 saw a major innovation take place in the business which has had great impact on people’s thinking within all C&A companies even to this very day. In 1906 a visionary spark of entrepreneurship occurred at C&A in Amsterdam, which is why we start this chronicle in 1906 rather than 1841, when the brothers Clemens & August founded the company.

Working together

About 40 years after the opening of the first store, around 1900, the company’s activities were focused on the northern provinces of the Netherlands, with stores in Sneek and Leeuwaarden. The customers were well-to-do farmers whom the travelling salesmen still visited at home, though this practice was dying out. The goods sold were coats and high quality fabrics, as well as a small selection of men’s clothes. As a rule, the company aimed to won the stores it traded from. At that time, shareholders’ equity was tight and most of the capital was financed by mortgage loans. Costs therefore had to kept to a minimum so that the business could expand. 
In 1878 Clemens and August retired and handed the baton to their sons Hermann, Gerard and August jr, who were already partners in the business. The three did not believe that they and their younger brothers, who were also due to join the business, let alone their children, would be able to earn a living from the two stores in Leeuwaarden and Sneek. Even so, it never crossed their minds to split up the business and carry on independently. As young children they had been taught by their fathers that their business was built on co-operation. Working together as the two founders had done reduced the risks of being dependent on a cyclical market. Being suppliers to farmers, they were ever vulnerable to the strong fluctuations in the agricultural cycle; it was a risk they exposed to more than most.
In the light of all this, the partners in business – by now seven in all – decided in 1893 to tap into a new market and open a store in Amsterdam, where the Voss and Lampe families had been operating successfully for years.

Unconventional Idea

In 1893 the company rented a property in Amsterdam at Nieuwendijk 193. As well as the usual fabrics and haberdashery, the offer also included ladies’ coats. Another new feature was that customers had to pay cash and were not allowed goods on credit. This decision was prompted by the habit that people in Amsterdam had of leaving accounts unpaid for far too long.
Three years later, in 1896, a second store was opened in Amsterdam. Joseph, Clemens’ youngest son and now also a partner, had managed to get his hands on a property on the upmarket Leidsestraat (nr. 39). As well as fabrics, this store sold high quality ladies’ suits and coats. In those days coats, bridal wear and ladies’ suits were the top quality items in the tailoring business. Joseph wanted to sell these types of clothes, so he brought in a head dressmaker from Vienna to manage the workshop. However she had problems adjusting and left again quite soon. Fortunately her successor settled in better and the clothes produced at the workshop on Leidsestraat, affordable only to the fortunate few in the upper echelons of society, sold very well. There was no ready-to-wear clothing for the masses; the entire industry catered to the top segment of the clothing market. For example, in around 1900 a coat on Leidsestraat or Nieuwendijk cost many times the weekly wages of an ordinary laborer and was entirely beyond the means of domestic servants, who often worked for just board and lodging.
Joseph 1871 – 1945

Leafing through the tax register of Amsterdam – in those days it was considered a privilege to be in it – it occurred to Joseph that every store in Amsterdam, including C&A, was targeting just 4 percent of the population. The remaining 96 percent could not afford to buy from them. If you could include those 96 percent in your target group, you could cut your profit mark-up dramatically. Even with a much lower margin, the far greater volume of sales would still boost bottom-line profit! Joseph saw unprecedented growth opportunities beckoning on the horizon. Joseph reasoned that the only way to win the custom of that part of the population, that 96 percent, was to base your prices on the average weekly wage of the man in the street, which at the time was 6 guilders (2,75 Euros). So it happened that C&A started offering coats of a reasonable quality for no more than 6 guilders.
The decision the cousins took in 1906 is a testimony to their entrepreneurial spirit, business acumen and courage. They certainly didn’t need to do it. C&A had been doing well over the past few years, in both Friesland and Amsterdam. In fact according to the chronicler Hermann Gerhard, 1898 had been the company’s best year ever. Sneek, Leeuwarden and Amsterdam (Nieuwendijk) had a turnover of around 100,000 guilders each, and the Leidsestraat store a turnover of 50,000 guilders. Especially in the slow-moving society of the time, the obvious thing to do would have been to keep steadily to the tried and tested path, like their competitors, instead of throwing caution to the wind and venturing into unchartered waters by implementing this fundamental policy change.
A factor that may have played a part in this revolutionary decision was the Boer War in South Africa. This had a severe impact on Amsterdam’s diamond industry – a major economic driver for the city – from 1899 onwards. There were many strikes, in shipbuilding too, and the standard of living declined. Most women made their own clothes and were forced to wear wraps as they could not afford coats. For delivery men, who delivered merchandise to the wealthier classes, the thought of ever buying a coat for their wives was out of the question.

The Breakthrough

Up until the First World War, virtually no clothing was manufactured in the Netherlands; any clothes that were made, were made in small workshops in people’s private homes. Berlin was the main clothing producer at the time. Joseph asked his cousin Clemens, Jr., who ran the store on the Nieuwendijk, to go and talk to some of their trusted suppliers in Berlin. It took quite a deal of effort and all of his powers of persuasion to convince them to use much cheaper fabrics and adapt the other requisites to suit. Eventually when the suppliers recognized the huge opportunities that were in it for them, Clemens, Jr. got his way and the cheap coats went on the production line. The only risks the manufacturers bore were those relating to the buying of the fabrics. The so-called Zwischenmeister, working on a cut, make, trim basis, were responsible for the actual manufacture of the coats. It was a system surprisingly similar to that in general use today.

Making the most of each other’s talents
Those who knew him described Joseph as an introverted man with an incredibly sharp mind, but little talent for communication, a fact which he too acknowledged. This makes the policy change of 1906 even more remarkable as an example of co-operation between colleagues who are willing to tap into each other’s very different strengths. Ever since its foundation, this has been one of the pillars of the company’s success.

A few weeks before the opening of the new-formula store on Nieuwendijk some trial series of coats were produced, mostly in black, like the Model-T Ford a few years later; the customers can have any color, as long as it’s black.

C&A announced its plans in large advertisements. It was a knock-out success. From day one the coats flew out of the store. Fortunately delivery times were short, just a few weeks. During the first few days there was such a surge of demand that staff at the store seemed likely to be overwhelmed. Joseph decided to take action, so he sent a telegram to his cousin Georg in Leeuwarden: “Please send sales assistants.” Georg didn’t pull any punches in his reply: “If one opens a store, one should be properly prepared.” But in the end some sales assistants were sent from Leeuwarden to help out in Amsterdam for a while. It’s easy to imagine how overwhelming it must have been for them. Sometime later, they had the opportunity to buy up a surplus stock of coats at bargain prices, and this new formula shifted up another gear. Clemens, Jr. took the train to Berlin on Sunday evening, spent the week buying batches of coats and then took the train back to Amsterdam the next Friday evening. On Saturday morning, always the biggest selling day, the coats immediately went on sale.

C&A’s competitors were stunned, and their only comeback was the smug comment that C&A sold coats for servants. Joseph’s response was typical, “Let them serve the customers who arrive by coach, and we’ll clothe the masses who come on foot or by tram.”
As a final step in this unique move Joseph closed the store on Leidsestraat in 1906, although he continued to live in the building until 1913. It was a large house, and was used to provide board and lodging for young family members in training. His wife Olga cooked for the trainees, the third generation, and made sure they felt at home, something that Joseph himself attached less importance to.

In Leeuwaarden, they continued to do business the tried and tested way. There Georg, whose family lived in Mettingen, kept a watchful eye on the younger generation, with the help of his legendary right-hand man Mr. Niehüser. Not just the family trainees but almost the entire staff were given lodgings by the company in those days. Both in the store and outside, they came under the rule of the lady managers, strict spinsters who were responsible for sales and staff. The repositioning of the C&A formula in Amsterdam was the first step towards future years of exceptional successes. That is why this chronicle of the first hundred years starts in 1906, rather than 1841. The principles upheld by Clemens and August and their eldest sons were not abandoned by this turnaround. These principles of absolute integrity and trustworthiness feature prominently in the next section (not included here) which looks at the personalities and motivations of the founders.

 Stories about Joseph
The story goes that Joseph used to ask now and then, “When was it that I came to Nieuwendijk?” He would have someone fetch this Net Profit (Winst) chart, which showed very clearly the date on which C&A first started selling cheap coats. It is also said he could barely hide his scorn when someone at meeting proposed it might be an idea to try offering ten-guilder coats too.
And talking of motivation, if anyone presented poor results Joseph would turn his back on them and start reading the paper. On the other hand, he enjoyed taking the young trainees on long mountain hikes in the summer months, when business was traditionally slow. 

Counting cash flow in 2014:

C&A’s founders, Clemens and August, like other retailers, believed that BCP% was the simplest but most important measurement of profitability. Joseph, on the other hand, ignored the first cardinal rule of traditional merchandise management: “You must manage the merchandise mix to maintain the average BCP% margin above the store’s average operating expenses %.” This can be expressed as follows:

Old % rule -> Net Profit = Sales x (BCP% - Last year’s Operating Expenses%)
Operating expenses in 1905 were 45% of sales. Joseph sold all his new coats at a BCP of 17% and his expenses went up (more sales assistants). Common sense dictated that he would now be making a loss (17% BCP%- 45% Expenses < 0). Innovation is often based on finding a mistake in common sense. Joseph realized that Operating Expenses (Rent, Overhead, Salary, etc) are not a fixed percentage of sales and he calculated in cents instead. (In Dutch “Rekenen in Centen, in Plaats van Procenten.”)

New Counting cash -> Net Profit = BCP Fund in Euros – Operating Expenses in Euros
In trials the new coats generated more cash flow, Profit per Piece = (Selling Price - Buying Price) x TOS, than the old 50% BCP coats and as a result total BCP Fund in Euros went up. The new rule of thumb at C&A became: “If you’re making more money (BCP Fund), you’re making more money regardless of BCP%”

This manual explains the system further.

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com


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