DeVore is getting more than meets the eye. Not only will he have had easy access to working capital for five years at cheap rates, but assists from CML's wide-ranging operating, marketing, and financial experience, gratis. If things work out, in the end he'll be offered a job -- with continuing incentives -- to stay on. If they don't, CML likely will be out its advances, but DeVore will be debt free: CML not only guarantees the bank borrowing of its subsidiaries, but releases the founders from personal business indebtedness as well, converting it to an obligation of the business.
That kind of posture was what appealed to Britches of Georgetowne's Pensky, who had never heard of CML until CML launched an aggressive 18-month campaign to win the hand of the fast-growing clothier. "I was tired of having my own money on the line while the business decisions were getting bigger," explains Pensky. "We were becoming a management-size company without management in place. We needed something other than entrepreneurial spirit. [Leighton and Tod] are interested in finance, and I'm basically a retailer who loves retailing. What [the acquisition] has done is enhanced our decision making because we're free from capital worries. You have a tendency not to do so much when it's your own money on every decision. It has enabled me to grow the company and take risks that as we got bigger I had become reluctant to take." No longer personally liable, Pensky fuels the company's internally funded growth with borrowing from Britches's own local bank, where funds are separately maintained (unlike other portfolio companies to which corporate CML itself loans short-term money taken from cashflow sweeps).Thus Pensky can well conclude: "We are very much still owners of the company. There's hardly a change."
Fine for them. But, persuasive as it is to selling founders, CML's decentralization doctrine can lead to trouble in operations that aren't running quite so smoothly. Indeed, what with one recalcitrant unit or another, CML has been struggling to increase consolidated profitability ever since it started. "If you make good acquisitions, letting management have its way works," agrees Fred Wintzer, retail analyst at Alex. Brown & Sons and an attentive student of CML's public performance. "You cannot buy into a business you don't understand unless you buy management. But if you buy a bad property, you've got a problem. It's difficult to turn around a division that's gone sour, because top management never completely understands the business they bought." True enough: in 1985 alone, two subsidiaries were divested, two mail-order catalogs discontinued, and one factory closed; in '86, CML already has disposed of two more acquirees.
And recently a sales downturn set in at the catalog operation of New England clothing-retailer Carroll Reed, whose namesake founder had retired. The crowded mail-order scene was under rapid flux, but, left to his own decisions, Reed's CEO stuck to its heretofore winning catalog of dowdy clothing, with its hayseed copy and pastoral settings. Since CML isn't about to rescind decentralization policies that allow subsidiaries to follow their own plans until the figures prove them wrong -- essentially making sure they are hanging themselves before it attempts to loosen the noose -- it suffers delays between a bad decision and the reporting that discloses it. Reacting laggardly, corporate CML now is hiring professional models for the catalog, banishing cows from the cover, and upgrading the color printing. "It was a different ball game, and we didn't keep up with it," admits Tod, who has yet to be advised that the days of pleated plaids are gone as well.
Indeed, CML holds to decentralization so stubbornly that it won't even exert collective clout on behalf of an individual company. "Company A ought to be able to crack its own deal and not have to bring the other guy with it," insists Leighton, nonetheless quickly adding that some synergism can be effected. For instance, a developer might be advised, "Look, if you want Britches in your mall, how about giving us a good location for Carroll Reed?" But that's about the extent of collective action. And decentralization will pay off should something go awry in one sector -- a computer breakdown at a mailing facility, for example, which would tie up a centralized setup. At CML, the rest of the individual companies could keep operating without a hitch.
Again, by maintaining separate operations, CML is in a position to enhance its treasury by spinning off such cynosures as Britches of Georgetowne or Boston Whaler, and bringing them public, as many a lesser holding company has done before it. Even though stockholders would stand to gain by such tactics, it's hardly likely under Leighton and Tod's empathetic administration. For one thing, says Leighton, "if you go public, life becomes different. Operating people may not want to spend the time on Wall Street answering bloody questions -- what's your return on investment, or samestore sales growth, or all the things they look for that we don't use in our own management system."
There's an even more compelling reason they won't be setting up their acquisitions for public spin-off. If they did even one, Leighton realizes, "that would be the last time we'd get a well-thought-of company to join us on our terms. Every time we sought a new company, we'd have to pay a premium price." And that's not their style.
