Tag Archives: Sales tax

1996-2006 TSI: AdDept Clients: May Company

Posted on by
3

As soon as the AdDept system at Macy’s in New York (described here) was running reasonably well, the May Department Stores Company became the most attractive marketing target for the system. The largest advertiser (at least in newspapers) in central … Continue reading →

The G. Fox & Co. store in downtown Hartford.

As soon as the AdDept system at Macy’s in New York (described here) was running reasonably well, the May Department Stores Company became the most attractive marketing target for the system. The largest advertiser (at least in newspapers) in central Connecticut was—by far—G. Fox, a traditional department store similar to Macy’s that was based in Hartford. They even had a store that was within walking distance of our new house in Enfield.1 I was well aware that G.Fox was part of the May Company and that the May Company was largely responsible for the development of the mall.

I had purchased a book from somewhere that contained marketing information on large retailers. In it I learned that the May Company, which had been in business since 1877, operated the following divisions in 1989:

  • G. Fox & Co. based in Hartford.
  • The Hecht Company with headquarters in Arlington, VA.
  • Filene’s, a former Federated division based in Boston.
  • Foley’s, a former Federated division based in Houston.
  • Kaufmann’s in Pittsburgh.
  • Famous-Barr in St. Louis
  • J. W. Robinson Co. in Los Angeles.
  • May California in Los Angeles.
  • May D&F in Denver.
  • May Ohio in Cleveland.
  • Lord & Taylor in New York.
  • Meier & Frank in Portland, OR.
  • Venture, a chain of discount stores based in O’Fallon, MO.
  • Payless, a chain of shoe stores based in Miami.

That’s fourteen independently run divisions that were, except for maybe the last one or two, good prospects for the AdDept system. I figured that if we could persuade the parent company to commit to using AdDept in all of its divisions, TSI would be set for life. Maybe they would even buy us! That was the way that small software companies thought (and dreamed) in the late eighties.

In fact, the May Company during that period was busy acquiring other department stores, and that attitude put a lot of stress on the advertising departments of the divisions that acquired the new stores. There is no doubt that the May Company’s acquisition of thirteen Thalhimer’s stores in 1992 was the impetus for Hecht’s to purchase the AdDept system that year.2 Hecht’s advertising department had been using a PC-based system for producing corporate reports. It was completely incapable of handling the extra load. Similarly, when May D&F was folded into Foley’s in 1993, the Houston division suddenly was facing a greatly increased workload. That caused them to call TSI for help, and we installed an AdDept system for them.3 Capacity was never an issue for AdDept; we always proposed hardware near the lowest end of the available AS/400 models. If a client outgrew its hardware, it could migrate to a more powerful model.

Filene’s store in Boston.

In 1993 G. Fox was absorbed by the Filene’s division. Having a pretty good idea of the problems that this would cause for the advertising department of Filene’s, we tried to interest them in using AdDept. However, for reasons that I have never completely understood, we were unable to get our foot in that door for many years. Filene’s advertising department never took advantage of a significant portion of the system productively enough that we were able to use them as a reference.4

Instead, our third May Company installation was at Lord & Taylor5, where I learned that L&T did not play by the same rules as the other divisions. In some ways that caused headaches; in other ways it was delightful.

Doug Pease: In 1993 Sue and I hired Doug Pease to handle our marketing. One of the primary reasons that we selected him was because he had formerly worked in G. Fox’s advertising department in Hartford. He was looking for a job because the G. Fox stores had been converted to the Filene’s logo, and the advertising for those stores was planned and purchased from the office in Boston. Doug was quite familiar with the work flow of an advertising department that was similar to the ones that TSI was targeting, and he also had some contacts in the industry. Our hope was that he could grab the brass ring of the May Company for us while I was busy trying to get the systems for the three divisions—and a few other retailers—that we had sold up and running.

This was a very important time for TSI. My image of those days resembles a hockey stick. Until that time TSI had experienced rather flat earnings. We were basically just getting by. By contrast, in the last seven years of the twentieth century we had as much work as we could handle, and our financial statements were much better.

Unfortunately, I have almost no notes for that entire period. I talked with Doug on a regular basis, but my focus was on the current installations. I depended on him to establish a relationship with prospective customers. As soon as we hired him we did a mailing to prospective customers, and Doug took to the phones. He talked with several people at the May Company.

The main liaison person between the May Company and the advertising departments of its divisions was named Fred Christen. I never heard anyone say a bad word about him. He had, of course, heard about our work at our three installations, and he seemed to be impressed.

I am pretty sure that we had another “guardian angel” at the corporate headquarters. I often seemed to be at an advertising department at a division at the same time as a corporate auditor whose first name was Linus. His job was to assess the way that divisions were reporting their advertising expenses and income from co-op programs for their vendors. He seemed to be impressed with the way that AdDept handled these things.

May D&F store in Denver.

Fred Christen left the May Company shortly after Doug arrived at TSI. I heard that Fred left to manage his family’s business. Doug established a relationship with Fred’s successor, Dennis Wallace. I am pretty sure that Doug made at least one trip to St. Louis, but I don’t remember the details. At any rate, at some point the May Company decided that AdDept should be installed in all of the department store divisions. At that point Robinsons and May California had merged, May D&F had been folded into Foley’s, Kaufmann’s had taken over the May Ohio stores6, and the May Company had divested the Venture stores. So, we learned about five new clients in one swell foop: Famous-Barr7, Filene’s, Meier & Frank, Robinsons-May, and Kaufmann’s.

In retrospect I find it rather incredible that I have so little recollection of the details of how or when this decision came about. It was definitely a momentous occasion for TSI, but I remember no fanfare or celebration at all. I don’t think that the deal was finalized until 1996 or 1997. In the interim I installed quite a few AdDept systems at other retailers.

Employees at the May Company treated us fairly from day one right up until the time that the company was purchased by Federated in 2006. Most of TSI’s dealings with the May Company were at the division level. The following is a summary of my notes of our dealings with the corporate entity after all of the systems had been installed.

Notes: The first note that I have is dated October 18, 1999. It makes reference to a “sales tax fiasco”. I think that this must be about whether it was necessary to charge sales tax on our software and services. Because all of our AdDept clients were in other states, we were generally able to avoid doing so. However, there is an Excel file with a similar date that lists three invoices for Robinsons-May, which was in California, and three for Filene’s, which was in Massachusetts. Massachusetts and Connecticut had an agreement by which each collected taxes for the other. So, we definitely needed to charge Filene’s tax.

We also had a problem with California. TSI’s second accountant, whose name I do not remember, was hired in the early days of the AdDept system. She advised us to register with every state in which we had clients. This was poor advice, and we changed accountants shortly after that. However, there is no way to take back a company’s registration.

I vaguely remember an issue from several years earlier that involved an arrangement that my partner (and later wife) Sue Comparetto had made with Gottschalks, another store in California. In this case, the invoices were probably sent to St. Louis and paid by the May Company. We had never registered in Missouri, and we never paid sales tax there.

On January 2 of 2000 I wrote the following email to my other partner, Denise Bessette:

I think that we need to get something established as soon as possible with the May Co. to get compensated for your time and mine. Do you have any suggestions? I also think that it might be time for one or both of us of us to go to St. Louis and talk turkey with them. I am serious about this. I really am tired of not knowing where we stand.

I found a six-page document dated February 7, 2001. It concerned the specs for a Planning System Interface. Evidently they had an application called WD that they wanted to feed. They provided me with a document describing the system that had at least sixty-seven pages. Evidently we had been talking about this for at least two years. The document lists my questions and their incredibly vague responses. No one could conceivably quote an interface based on the responses that we received. I only vaguely remember this whole process. “WD” sounds familiar, but I am pretty certain that we never quoted it, much less coded it.

Denise and I went to visit the May Company together, but I think that it was in 2002. I went to St. Louis in 2001 to install AdDept for use by Filene’s on an AS/400 in the Midwest Data Center. I stayed in the Adam’s Mark Hotel. I did not like where they told me to stay. This is what I wrote to Denise.

My hotel room in St. Louis is absurd. It is a huge suite. I located a microwave and refrigerator inside what looked like a chest of some kind. For some reason it is much easier to find these two features in places where it is impossible to buy food (because I am downtown). The bathroom is right by the door, about a quarter mile from the bed. There are two TV sets, but no Jacuzzi, at least not in the room. The thermostat is out of whack. You have to set it to nearly 80 to keep the room from being frigid. I fear that they may not offer free breakfast here. They did not mention anything when I checked in.

It is supposed to rain all day here. There may even be thunderstorms. I was too lazy to run on Sunday. I will probably regret it today.

I hope that the May Co. has a comfortable nap room. I have become quite accustomed to the two-hour post-breakfast naps.

I think that the guy on the phone is Dennis Wallace. I don’t recognize the other two.

I remember that room and the rain much better than I remember what I did at the May Company. On subsequent visits I stayed at a nearby Hampton Inn. Incidentally, more than two decades later I still take lots of naps.

I found an agenda for a meeting with the May Company dated August of 2002. This must be the trip that Denise and I took together. Here it is:

  1. TSI
    1. People
    2. History
      1. Founded in 1979.
      2. Advertising in 1981
      3. Retail in 1988.
      4. First May division (Hecht’s) in 1991
    3. Custom programming
      1. Good at diagnosis.
      2. Incredibly efficient system of delivering custom code using BASIC.
      3. Two principles:
        1. There should be one version of the truth;
        2. Everyone should be able to take advantage of work done by others.
      4. People capable of completing difficult projects within parameters.
  2. AdDept
    1. Intent
      1. All administrative aspects.
      2. All media.
      3. Easily customizable.
      4. Require a minimum of local support — AS/400.
    2. Retail advertising is difficult.
      1. All the difficulties of retail — stores, merchants, accounting, A/P, and co-op
      2. All the difficulties of advertising
        1. Multiple media, each with almost completely different structure
        2. Media scheduling, production scheduling, estimating, loan room, etc.
    3. System design
      1. Scheduling:
        1. Every media represented in the ad file.
        2. Open on-line database works best when each person updates the system with information as soon as it is available.
        3. One main program, many well-normalized files.
        4. History of significant changes:
          • Production.
          • Financial.
      2. Financial:
        1. One main set of files (header and detail).
        2. Many front ends with supporting detail files.
        3. Two months, three amounts.
        4. Interfaces
      3. Cost accounting (data warehouse)
        1. Detail at the department level using May Company rules.
        2. Can also be used for other purposes:
          • Planning
          • Store-level analysis
      4. Add-ons
        1. Productivity
        2. Competitors
        3. Loan room inventory and transactions
        4. Photo studio
  3. May future plans
    1. Filene’s
    2. Uniformity
    3. Best practices
  4. Technology
    1. Explain CFINT
    2. Explain performance of 5250 v. browser-based
    3. Why “web-facing” doesn’t help
    4. Explain V5
      1. BASIC compiler.
        1. Should we convert to C?
        2. Should we convert to Net.Data?
        3. Should we convert to WAS/Java?
        4. Should we look to Wintel?
      2. Can’t save back very far.
      3. InfoPrint server allows output as .pdf files.
    5. Browser-based programming requires VPN or the equivalent for support.
  5. Other things
    1. AxN.
    2. Peggy Southworth labels.
  6. What else?

Some of this has fled my memory. I do remember that CFINT was a program that regulated performance. Prior to version 5 of the operating system the users could allocate priorities for jobs between “interactive” jobs (5250 sessions on terminals or PCs) and “batch” jobs (everything else, including jobs that relied on something between themselves and the operating system, such as a Java server). IBM wanted to show that the Java jobs had good performance. To do so it slowed down all jobs that were running as interactive. Nothing that IBM had previously done was as hated as this tactic.

I also remember the Peggy Southworth labels. Every division was required to create these labels for each print media job in a precisely specified format. We wrote a program for one of the divisions to do this for them.

The notes indicate that Denise and I met with Rob Cole and Mike Henry. I only vaguely remember them. I have a more vivid memory of Lew Allder, who was a Vice President in the IT department. He showed us around the machine room and assured us that the small size of our organization was not an issue with him or anyone else at the May Company. Everyone with whom we talked was very supportive of what we had done and what we were planning for the future.

Don’t take the bridge across the river.

I also remember one incident that occurred when we were driving either from or to Lambert, the St. Louis airport. I made a wrong turn, and we found ourselves on the bridge that goes across the river to East St. Louis, IL. I had no interest in taking a tour of that town. When there was a break in the traffic I jerked the rental car’s steering wheel to the left, made a clean U-turn and headed back to St. Louis. I think that this maneuver shocked Denise, at least a little.

I tried to find information on what became of the May Company employees mentioned in this entry. However, I was not able to find any information on the Internet about most of them. After a good bit of digging I found Dennis Wallace’s LinkedIn page, which is here. In 2022 he appeared to be working for a company in Houston that provides technical assistance to the hospitality industry.

1. All right, I never actually walked to G. Fox’s store in Enfield Square mall, but I could have.

2. The Hecht’s installation is described here.

3. The account of the installation for Foley’s is provided here.

4. The troubled AdDept installation at Filene’s has been documented here.

5. The Lord & Taylor installation is described here.

6. Doug and I made a strong pitch to Debra Edwards at May Ohio, but the division was eliminated before we could close the deal. That “whiff” is described here.

7. I think that Famous-Barr may have already committed to getting AdDept before Doug arrived on the scene, but their decision was probably made because of the May Company’s commitment to the project. The installation at Famous-Barr is described here.

1988-2014 TSI: The Nature of Retail Advertising

Posted on by
1

A different world. Continue reading →

For retailers that sell a wide array of products and also have stores in a fairly large number of markets, advertising has long been both extremely valuable and very complicated. In the two and a half decades that TSI concentrated its work on the advertising departments of these retailers advertising was expensive. Newspapers in major markets charged over $100 per column-inch for ads, and the department stores and big-box retailers bought their ads1 by the page (126-132 column inches), not the column inch. Therefore, the advertising departments were charged by the management of these retailers with 1) negotiating the best rates possible, 2) using the mix of media that provided the most bang for the buck, and 3) designing and producing the ads that produced the most sales.

Most large retail advertising departments were divided into roughly the same areas with which we had become familiar at advertising agencies: media, production, and finance. The years that we had spent working with advertising agencies helped us understand some of their issues. However, the differences were many and complicated:

  • A primary difference was that retail advertising was event-based rather than campaign-based. Most retail events were the same from one one year to the next: Presidents Day, Easter, Mother’s Day, Father’s Day, etc. The dates might change a little, but the approaches were usually similar.
  • Another fundamental difference was the calendar. Most retailers organized their finances and advertising using a 4-5-4 retail calendar2. The first month of the year was usually February. Most retailers divided the year into two “seasons”, spring and fall. Fall began in August.
  • The large organizations had a separate manager for each major media: newspapers, direct mail, and broadcast. A few also had a magazine manager. Inserts (the pull-out flyers in newspapers) were usually treated like direct mail in the production area, but were ordered by the newspaper area.
  • Newspapers were much more important for retailers than for other types of businesses, especially in the nineties when potential customers still started their day by reading the local newspaper.
    • Each retailer negotiated an annual contract with each paper. The contracts often provided significant discounts for the quantity (column-inches) or nature of the advertising. For example, one retailer got some of its full-page ads in one of its major papers free if it met established criteria for other ads! On the other hand, if a retailer ran too little advertising for the contract period, the penalties could be staggering.
    • Not all newspapers were the same dimensions. There were two basic sizes, tabloid and broadsheet, but the actual dimensions varied somewhat. Sometimes ads were just photo-reduced to fit, sometimes different versions were necessary.
    • Inserts were included in the contract, but the rules as to how they were counted varied.
    • Some ads (called “spreads”) covered two full pages and the marginal area in the middle (“the gutter”).
  • Merchandise suppliers often paid for part of the cost of ads that featured their products. This was called “co-op”.
  • Most large retailers needed to know the net (of co-op) cost of ads for each merchandise area. The bonuses for the merchandise managers depended upon their sales markups less net advertising expenses.
  • Many retailers with a large number of stores needed to know the net (of co-op) cost of ads for each store. This was tricky for markets that included multiple stores.
  • Many chains had more than one logo (name on the front of the store). They required different versions for production purposes.
  • A few chains had more than one financial entity. This was challenging.
  • The financial books absolutely had to be closed within a few days of the end of the month. In some cases, especially in the May Company divisions, a set of corporate reports in specified formats were required every month.
  • No agency that TSI had dealt with had a photo studio, but many of the retailers did.
  • The production area of most of these retailers borrowed merchandise from the selling departments. The merchandise was sent to a photo studio, either in the department or outside. After the shoot the merchandise needed to be returned or at least accounted for. A special area called the “loan room” or “merch room” managed this activity.
  • Most retailers did a high percentage of their business in the second half of November and December. Many of them froze their computer systems (no purchases, no upgrades, no testing) during this period, which might extend in either direction.
  • No law specified that every retailer must follow every tenet listed above. Every AdDept installation required some custom code.

The sales pitch: After only two or three installations I had felt comfortable talking with ad agency executives. They generally knew nothing about computers. For the most part they cared little about efficiency; we could almost never point to a position that could be eliminated. It was therefore difficult to persuade them that the computer would save them money. I generally focused on three things: 1) how careful record-keeping could help them locate which clients were unprofitable; 2) how the GrandAd media system would allow improved cash flow; and 3) how a computer system could help if they got a chance to win a big client. I called the last one of these the “reaching for the brass ring” argument.

These arguments did not translate well when we tried to persuade retail advertisers. Usually the retailer had already decided whether or not to get a system for reasons that we could not control. Something had happened that made the current method of handling the work no longer feasible. Macy’s acquisition of the Gimbles stores overwhelmed the system that the advertising department had been using. Hecht’s was in a similar situation after it acquired John Wanamaker. Belk desperately needed help when they consolidated five divisions into one in Charlotte.

Although this phrase is now popular, I had never heard it before I started using it in the ’90s.

Often I would not be acquainted with the circumstances that motivated the important players. I always emphasized the value of having one central set of data to which everyone could contribute and from which everyone could draw. I called this approach “one version of the truth” by which “everyone could benefit from the work done by others.” Everyone could appreciate these notions, but placing a dollar value on the idea of shared data was difficult. Fairly often I would find something in my talks with employees that was horrendously inefficient or even dangerous or illegal, but I could not count on it.

An equally difficult problem was trying to figure out which individual(s) needed to be convinced. In some cases the IT department might not even participate in the software search, but they may have veto power over the final decision. Finding out where the sale stood often required someone from TSI who was willing and able to spend a great deal of time communicating by mail and phone. This was something that I was definitely loathe to do. Fortunately, I found someone, Doug Pease, who was quite good at it. Much more about him is posted here.

One thing that we did not need to worry about was competition. No other software company was crazy enough to attempt to address this market. A few retailers tried to develop something in-house. They all ended up spending millions of dollars or giving up or both.

Difficulties after the installation: I disliked two things about dealing with advertising agencies as clients: 1) It was sometimes difficult to get them to pay their bills; 2) they tended to go out of business or merge with competitors without warning.

We had no problems with retailers paying their bills except when they declared bankruptcy. The first time that this happened I was totally unprepared. A few smaller clients later closed down entirely, but none of these events was catastrophic to TSI.

An equally vexing problem was when one chain of stores acquired another. If the other chain had no system, this usually worked in our favor. If they both used AdDept (TSI’s administrative system for large retail advertising departments described here), we lost one client, but the remaining one usually became more dependent on our support and services. They often also asked us to help with the transition as well.

In the end, however, most of our biggest clients were acquired by Macy’s. The advertising was all managed by one department in New York. That process spelled doom for AdDept because by the time that it happened, Macy’s no longer used AdDept.

One other trend usually produced a little work on the AdDept side, the outsourcing of newspaper buying. We were usually asked to design and implement interfaces with the company that bought the ads. Unfortunately, this same process had a dire effect on AxN, TSI’s method of delivering and managing insertion orders online. When Dick’s Sporting Goods announced in 2014 that it was outsourcing its buying of newspaper space, we decided to shut down TSI.

Decision-making: The ways that decisions were made in retail advertising departments differed fundamentally differed from the way that entrepreneurs like advertising agency executives did. If I could talk to one of the principals at the agency, I could explain why the GrandAd system could produce positive results that could affect 1) the agency’s bottom line, and 2) the agency’s reputation. The situation was totally different in the advertising departments of large retailers.

The department either had a budget for a system or it did not. These were two entirely different cases. If the department had a budget, it was probably because of some huge external factor involving a merger or a takeover. In that case, the eventual purchase was almost a foregone conclusion. The challenge was to fashion a proposal that was within the budget, but not by much.

If the department was not in that position, the process was completely different. The first step was to find a person who had enough authority to requisition funds. This was usually the advertising director. However, advertising directors seldom requested information from us. Our contacts were generally much lower on the totem pole, usually the manager of the business office in the advertising department. So, we would first need to convince our contact and then convince the advertising director either directly, if possible, or indirectly.

We then depended upon the advertising director to requisition the funds. We might not have any idea who would evaluate the request. Sometimes it was someone in corporate finance, sometimes it was someone in the IT department, and in the large organizations approval might be necessary by a holding company such as the May Company, Federated, or Tandy.

At this point it was important for us to recognize which was the case. I was poor at this part of the job, but Doug Pease was much better. If he could connect me with the right person, I could usually frame the arguments for him or her. If no money was available, of course, we probably would not get the sale anyway. During some periods retailers were all tightening their belts. In tough times nobody in retail considered any capital purchase that did not generate sales.

If the final decision needed approval from the holding company, it was extremely difficult for us to influence them directly. In some cases like the May Company and Tandy, it worked out amazingly well for us. TSI’s problems with Federated are documented in detail here.

I began to appreciate the complexity of the situation when one customer told me that “Christmas only comes once.” He meant that the department had a budget at that point, but it had to spend the entire amount in that fiscal year. After that they would be strapped for cash. In general, that was how things worked.

However, some advertising departments had figured out a way around this. They charged the merchandise managers more than the ads cost. I do not know how they accounted for the difference, but they were sometimes had accumulated enough money in this fashion to circumvent the decision-makers in finance and IT. I know for a fact that the AdDept system was financed this way in a couple of cases.

The finance people generally were not upset when they found out about the unauthorized purchase. It was usually easy to determine that AdDept reducee administrative costs fairly rapidly. The IT department, however, might be more upset, especially if the AS/400 was not on their list of approved hardware systems.

Ancillary expenses: For entrepreneurs like ad agencies all expenses came out of the same checking account. The retail advertising departments had a different perspective. Sales tax and travel expenses probably did not hit the advertising department’s line on the income statement. No one ever complained about either type of billing, and they were always paid promptly.

However, the company may have had some rules about travel expenses. I was once grilled about flying first class for a training session. I had to provide proof that I purchased an economy fare and was upgraded by the airline. Some retailers insisted that I stay at a hotel at which they had a special rate. This was usually folly on their part. I liked to stay at Hampton Inns because of the free breakfast and the Hilton Honors points. Hampton’s rates were almost always lower than the “special rate” of the designated hotel.

1. Display ads in newspapers are always called ROP. It is not an acronym; the three letters, which stand for “run of press”, are always pronounced individually.

2. Every week starts with a Sunday. Every month has four or five weeks (twenty-eight or thirty-five days). The purpose of this arrangement and many examples are provided here.