Inc. : What's the downside to focusing on competitors?
Stemberg: We focus on them disproportionately. One of my great fears always is that our people will measure competitors' stores purely by how we do things and try to rationalize why we do things better, smarter, whatever, and stop the learning experience. One of the things you can do when you're focused on your competition is lose sight of the customer. I think that's a mistake, because lots of times I find retailers overly focused on one another and ignoring what the customer wants and therefore losing the market to some new entrant who truly focuses on the customer. A great example in retailing today: one would suspect that Barnes and Noble spends all its time looking at Borders and that Borders spends all its time looking at Barnes and Noble, when both of them should pay attention to Amazon.com.
Inc. : Whom do you copy outside your industry?
Stemberg: Certainly the Price Club. Costco. You can learn something new at Costco every day. They are terrific merchants. They have really pioneered taking the relationship with their basic customer and broadening it. They are now moving into insurance services and credit-card services. If you're a small business, they will provide you with a cheap credit-card clearing rate through a third party. It's really neat stuff. We learned a lot from Costco.
Inc. : What specifically have you learned from them?
Stemberg: Actually, membership. We had membership in the early days. You had a card to get value at our store. We didn't charge you for a card the way the wholesale clubs did. We gave it to you free. We gave you better prices when you used it, and the benefit of it was that we knew who the customers were. That is one thing clearly copied from Costco. The second was going to larger pack sizes. We saw the efficiency of that, and we learned that from Costco.
Inc. : What else have you learned from businesses outside your industry?
Stemberg: I always shop new kinds of retail stores just to see what the shopping experience is like. I have been impressed and amazed at some shopping experiences and blown away by how bad others are. In recent times I have gone to the new Toys "R" Us prototype store, which I like a lot. I learned a lot in terms of visual-display techniques. I like the Toys "R" Us pull-ticket system. When you buy, for example, a video game, they actually control the number of pull tickets they put out there to the number of games they have in stock. So if they run out of pull tickets, they are out of games, in theory. We have not yet made it work--and we've been trying for years.
Inc. : How do you make sure that you're learning more about the companies' strengths than what meets the eye?
Stemberg: I recently went down to visit Mobil Corp. and learned a lot from them. Mobil gas stations were the first ones to have the self-service tanks where you stick your credit card in and help yourself. And now they have come up with this thing called Mobil Speed Pass. You go up to the gas pump, you wave the pass, boom, you start pumping. It takes two minutes per fill up. I love that thing. So I wanted to understand how they came up with it, what competitive advantage they derived from it. In that case, I didn't observe what they were doing--I met with individuals in the corporation. It was a tremendous learning experience.
Inc. : You're also known for visiting your own stores. What is the value of doing that?
Stemberg: I spend at least one day a week in our stores. We've got 740 stores, and I've seen about 690 of them. I want to see what the customer sees. As you get bigger and start to feel success, you tend to get isolated from what the customer sees. Sometimes you start to rationalize customer complaints away. You don't know if they're a problem or not. And you go into the stores and talk to your associates, and you find out amazing things.
For example, we sit here in the office and we hear that we're approving more people for credit than ever before, private-label credit is growing a tremendous amount --isn't it great? Then you go down to Sumter, S.C., and talk to a store manager whose church couldn't get approved for credit and you listen to the stories of what this poor church went through trying to get credit. And your whole attitude about your credit offering changes 180 degrees. By visiting I learned that what we were doing in some cases in the credit-approval process was extremely onerous. In fact, it was driving away business. But again, you learn that only if you are out in the stores.
Inc. : How do you remain anonymous when you're visiting your own stores?
Stemberg: This week I was in Pittsburgh and Youngstown, Ohio. It was a very pleasant shopping experience. Those were pretty well-run stores, the stock was very, very good, the customer engagement was terrific. When I walked into the next store, in New Kensington, Pa., three people approached me. It was too good to be true. I said, "I've got a funny feeling you were waiting for me." The manager there said, "Well, I guess we were. We heard you were coming." I said, "I guess the guy in Youngstown must have called you." He said, "Yeah, he did, but he didn't have to--the word was out last night when you got to Uniontown."
