Meanwhile, Glazer kept imploring Nourse to worry less about making people millionaires and more about paying his field people a living wage. Before a recent salary increase ranging from 10% to 30%, Bombay's district managers, who typically oversee about 10 stores grossing about $8 million a year in the aggregate, averaged $32,000 in base salary. In an exemplary year, they might earn another $9,000 as a bonus. In a down year, as each of the past two years has been, they earn little or no bonus. Bombay district managers often work six days a week. Store managers fare no better. Until recently, they had an average base salary of $22,000 and could optimally earn another $7,000 as a bonus. "We had some store managers we were paying $16,000 and $17,000," says human-resources director Goodlatte.
Just as Glazer made little headway persuading Nourse to revamp compensation in time to keep employees from scattering, he had no luck selling him on a plan to salvage Alex & Ivy, Bombay's ambitious foray into selling European country-style furnishings.
Alex & Ivy had a curious inception and a fitful evolution. Named after Aagje Nourse's two cats, it was largely seen within Bombay as her fiefdom. Accordingly, it evolved slowly, perhaps reflecting Aagje's known penchant for tinkering with product, design, and concept. Bob Nourse and Aagje, now the number two executive at Bombay, started the division in 1990 on a prototype basis. By July 1993 they had opened just 9 stores. Then they began rolling the concept out. By July 1994 there were 38 stores and counting. Nourse assured his audience at Inc.'s annual Entrepreneur of the Year conference in November of that year that the division was headed toward having "several hundred stores." Yet, six weeks later, in January 1995, Nourse shut down the division, taking a $41-million write-down.
Alex & Ivy "wasn't working out," he now says. As evidence, he points to the fact that there was creeping cannibalization of Bombay sales -- even though prior market research had concluded there would be very little cannibalization, and at the Inc. conference, Nourse had said there was "very little crossover, only 5%" between the two divisions.
"Maybe I shouldn't say this, but we ramped it up too fast. That was a bad decision," says chief financial officer Jim Herlihy. "We should have sat tight in the 20-store range for a while. It would have worked at that level."
The bungling of Alex & Ivy created further tension between Nourse and Glazer. According to Welliver, Glazer presented a plan to salvage Alex & Ivy. The division was losing about $2 million on an annualized basis -- or about 6¢ per share. That was hardly an onerous sum for Bombay, with its balance sheet boasting $30.6 million in cash in January 1995. Welliver says that Glazer proposed consolidating the management of Alex & Ivy stores with Bombay stores'. That would reduce overhead and get Alex & Ivy to break even. He further proposed changing the division's name to relate more to Bombay, in order to leverage the franchise's popularity.
Glazer's proposal fell on deaf ears. "It wasn't moving in the direction I wanted it to go," Nourse now says of Alex & Ivy. It was, in his words, "a drain." Besides, Nourse had now focused his energies on a much bigger building -- or rebuilding -- project: Bombay.
After Bombay announced the closing of Alex & Ivy, more than a dozen venture capitalists contacted the company, inquiring whether the division was for sale.
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While the closing of Alex & Ivy took its toll on earnings, angered Wall Street, and triggered a shareholder lawsuit, employee morale may have taken the biggest hit. In January 1995 Nourse restructured Bombay. Glazer "resigned," with scant public explanation. (Insiders say he was fired.) Nourse assumed Glazer's duties. A number of vice-presidents were demoted.
As 1995 unfolded an exodus of key people ensued. The company lost two of its four regional managers. It lost both its vice-president and director of store operations, and its director of loss prevention. It lost its chief merchandising officer, whose departure was not publicly acknowledged by Bombay until three weeks after he left. It lost one-third of its 36 district managers.
Bob Nourse began traveling in the field, looking for answers. He went into stores, talking to employees and customers. His findings? Customers were looking for new products -- and waiting for merchandise to go on sale, he reports.
In May 1995 Bombay scheduled its Customer Appreciation Day sale to be open only to its "preferred customers." It hoped to generate about $10 million in sales, according to one manager who worked on the event. When presale indicators suggested tepid interest, the sale was thrown open to the public. The event generated just $4 million in sales, versus $13 million a year earlier.
The company subsequently brought in a consultant to, as Nourse puts it, "help us refocus." He quickly adds that the move did not signal "weakness in management."
Ted Damon, a board member since 1984, says, "I have a lot of confidence in Bob and Aagje. They are very talented and competent people. The situation that has developed at Bombay is that it was growing too fast. Things were going too well."
Meanwhile, Nourse's strategy of slowing sales and improving margins did not pay off in the first half of 1995. In the first six months, the period ending July 29, Bombay's same-store sales declined 12%, while its gross margin fell from 35.2% to 29.6%. During that period Bombay had an operating loss of $3.1 million on sales of $147.6 million, versus an operating profit of $7.25 million on sales of $142.5 million for the same period in the previous year.
