As Seen in CFO Studio Magazine Q4 2016 Issue
LAND MINES AND REWARDS WHEN CORPORATIONS OPERATE INTERNATIONALLY
Moderator David Jansen, Partner at PricewaterhouseCoopers, promised that attendees would get great insights from “the top of the finance pyramid among global companies today” —and they did.
Discussing Tumi Luggage’s 184 wholly owned retail stores, Michael Mardy, CFO, said the decision to become a retailer and the model Tumi used in developing its retail presence in 75 countries might well be the reason why Samsonite offered to pay $1.8 billion to buy Tumi. Retail does not reliably make money for the company. But it generates a lot of cash, allowing Tumi to pay down debt. Furthermore, it’s been “a great way to build our brand.”
He said that “on average, the retail stores earn about $1,200 per square foot. Our wholesale business operates at about a 39 percent EBITDA margin, our retail business operates at about a 25 percent EBITDA margin.”
Mardy told audience members during the CFO Innovation Conference session, “I have basically replicated the McDonald’s operating model to expand Tumi overseas.”
Describing this operating model as a way to manage risk, Mardy, formerly CFO for a McDonald’s supplier, said, “We pick a local businessperson who really knows the market and we make them a distributor, make a sweetheart deal with them. Over time as we learn the market, we kind of flex our muscles and get a little bit more involved, making sure we’re giving the distributor his or her share of the profits.”
Bill Flynn, CFO for Sharp Americas, said his company’s practice of hiring distributors for the Latin American market is similar. (Like Tumi, Sharp Electronics is in the process of being acquired, in a deal with Foxconn.) “The key for us is protecting our brand,” said Flynn. “We’re careful in how we vet those distributors and then take them through extensive training. We set pricing standards for them, and we make sure that as they go to market, they are meeting those standards.” Sharp looks for distributors with good financial standing and presence in the region, and who have good knowledge of the market.
With its warehouse space, Sharp has followed a plan to keep the footprint small. “Since , we’ve reduced our fixed warehouse square footage by 90 percent,” said Flynn.
To a question on how the panelists manage international risks and political uncertainties, Claude Draillard, CFO of Dassault Falcon Jet, said business jets attract a unique type of customer, 95 percent of whom are corporations, and some of whom don’t register the aircraft in the country where they are living. Not wanting to be ensnared in an illegal transaction, Draillard says, “We vet our customers before vetting our distributors.”
There are in fact no distributors, he added. “We want to control what’s being told to the customer before the sale and after the sale. We want to control the entire chain of value for the brand.”
The company’s training program, focusing on KYC (know your customer) “is absolutely necessary,” he said. Beyond that, “educating the sales force, educating those who are dealing with the customer, is a very important part of the CFO job, because [as CFOs] we are the backbone of compliance.”
With perceptions as pointed and candid as these, panelists gave the audience evidence that the CFO’s role in a global company requires, in Flynn’s words, “people skills, project management skills, and strong process knowledge.”
— Julie Barker