What problems have you run into at Five Star?
Ways to track performance just weren’t there. For one,
they didn’t do comp-store sales, a basic way to look at
performance. [Comp-store sales, or same-store sales,
are sales dollars generated by those stores that have
been open more than a year and have historical data to
compare this year's sales to the same time frame in the
previous year.] What we found is that there’s a mentality
in China in which management pays all its attention
to opening new stores, but tends to lose interest in the
performance of stores that are already opened.
In the short time we’ve owned Five Star, we’ve introduced
comp-store sales as an internal discipline. There’s
been an improvement already: throughout Five Star,
comp-store sales was minus 10 when we made the
acquisition, versus plus 18 today. It’s becoming part of
management thinking. At a recent meeting, a store
manager rose and apologized to his peers because his
comp-store sales were underperforming. We anticipate
that the comp-store sales approach will help overcome
this mentality of opening up a store for the sake of opening
up a store. There may be some critical mass issues
in the more remote cities that Five Star has been operating
in. We’ve been challenging the managers directly
about long-term viability of a store’s location. We actually
exited a province because of this.
You’re a CFO, and yet it seems you’re spending
most of your time on expansion strategy.
I would classify what I’m doing as operationalizing our
businesses, support functions, and finance. We face a
challenge doing this as we grow internationally, and what
I bring to the table is a different perspective due to my
background. I spent a lot of time in my early career seeking
as much experience as possible in line businesses
rather than at the corporate level. Later, when I got to
corporate, I sensed the greatest contribution I could
make was to bring working knowledge of business planning,
manufacturing, capital resources, and all types of
analysis to the staff level. I also don’t have a background
in accounting, so that makes me different.
Has your lack of accounting been good or bad
for your career?
I actually think it’s helped me. I’ve had enough accounting
assignments that I know my way around. What I
bring to the accounting is common sense. I understand
enough to ask the right questions. I also challenge the
accountants, asking: does the accounting treatment
make sense? Sometimes I’ll see something and it intuitively
doesn’t make sense. I often push our accounting
folks. Accounting people want to think there’s a black
and white, but there’s a lot of gray. And sometimes the
accounting rules don’t make sense to me, even when I
know what they’re trying to do.