Current job: CEO
Company: Calyx Peak, Foxborough, Massachusetts
Sector: Vertically integrated multistate operator
1990-91 lesson: Manage inventory and cash.
As a senior business analyst with outdoor clothing company Patagonia when the 1990 recession hit, Schmultz saw the downturn force roughly 30% of his colleagues from their jobs, including the entire executive team.
A big problem was inventory, Schmults recalled. Patagonia and other retailers were caught with inventory they couldn’t move, and more problems were on the way.
“When these things sneak up on you, it’s like, ‘Oh, my gosh, we got all this inventory in the warehouse or on an incoming boat. What are we going to do?’ So you’ve got to rationalize your inventory to turn that to cash,” he said.
In other words, you have to swiftly sell and find buyers for the inventory you have in your stores and have plans to move inventory that’s been ordered and on its way.
Another key question is how you manage your cash, Schmultz said. “Who are you going to pay? Who are you not going to pay? Who are you going to pay slowly? Who are you going to negotiate with?”
2001 lesson: Experienced employees are good for business.
Schmultz joined Freeborders, a software company for the retail and apparel industries, as president of global sales in late 2000 – just as the dot.com bust was unfolding.
Investors and executives at mainstream companies had already been burned by bad internet investments, and Schmultz’s first meeting was with a skeptical group of six executives from another company.
“They all have their arms crossed, and this guy looks at me, and says. ‘What do you know about my business, Mr. Software Sales Executive?’”
“I know a lot more about your business than I do about software,” Schmultz replied. “And it was literally like I’d slapped him. He’s like, ‘Why?’”
Schmultz explained his background working in apparel supply chains, and it turned out he and his counterparts even had products made in the same factory.
“That went well for us because the company was bringing in people who’d worked in the supply chain and could really talk about how you would use these tools to great effect rather than bringing software people who were just trying to sell software and move on to the next sales close,” Schmultz said.
“We’re not going to just bring in typical software people. We’re going to bring in people who have been in your shoes. That makes for more compelling sales.”
2007-09 lesson: Identify what suppliers offer the most value, jettison those that offer the least.
Schmultz became chief executive of FAO Schwartz in 2005 and revived the iconic toy store – and then the subprime loan crisis hit.
“Our sales just fell off a cliff. I was also on the board of REI at that time, and the same thing happened to them,” Schmults recalled. “We suspected that business was going to get tougher but not quite so abruptly and suddenly.”
Schmults had to do what his leaders at Patagonia did two decades earlier, but with a harder product to sell and in a much more difficult downturn.
“You have to get out from under your inventory burden. You have to reduce costs, which sadly involved layoffs,” he recalled.
“You also have to think about how can you improve your processes? How can you look at your supply relationships and figure out who’s adding value? Are you bidding out all of your costly contracts to make sure you’re getting good value there? When business is good, you don’t address a lot of those important, day-in, day-out business aspects.”
Schmults and his team also reassessed the technology the company was using and measured which products were generating the most revenue per square foot in the store.
Ultimately, FAO Schwartz was sold to Toys R Us.