March 2010 – Cover Story: ShopNBC Revisited

CEO Keith Stewart Breathes New Life Into What He Calls An “18-Year-Old Startup.” The Industry Veteran Talks About Changing The Company Culture And Restoring Customer Confidence In The Brand.

By Vitisia Paynich

For years, ShopNBC had been struggling to capture market share, while its rivals vied for the No. 1 and 2 spots. To differentiate itself from the competition, this $517-million multichannel retailer, headquartered in Eden Prairie, Minn., focused its energy on more high-end product categories with a high pricepoint to match. The average selling price was around $200. However, this business model proved too challenging, leaving the company with mounting debt and growing customer dissatisfaction. And in the past 18 months, the company has had three CEOs.

ShopNBC, owned and operated by ValueVision Media, was determined to shift the tide and transform itself into a formidable adversary in the electronic retailing space. In 2008, the company coaxed Keith Stewart out of retirement and convinced him to take on the role of COO.

Stewart joined the company with impressive credentials. He spent 20 years in retail, 15 of which were with QVC in merchandising and operations. In 1998, he relocated to Germany where he successfully launched QVC Düsseldorf. Prior to his retirement, Stewart had created the largest international televised retailer outside of the U.S.

Why did this industry veteran come out of retirement? “Because I’m a lousy golfer,” quips ShopNBC’s CEO. Although Stewart was self-effacing when first asked this very pointed question, he insists that he was up for the challenge. In fact, he believes in the company so much that he elected to forego his first year’s salary to prove it.

In addition to jewelry, ShopNBC now concentrates on other product categories like apparel and home goods.

Stewart was named president and CEO one year after coming on board. And in the time he has taken the reins, ShopNBC has turned the corner by not only broadening its customer base to 1 million but also increasing its online business by 38 percent–a number that continues to climb. In addition, he’s aligned himself with other seasoned home shopping experts including fellow QVC alums Randy Ronning, who serves as ShopNBC’s chairman, and Bob Ayd, who was promoted in January to president.

Electronic Retailer caught up with Stewart to learn more about how he’s been able to put ShopNBC on the right path.

Electronic Retailer: When ShopNBC approached you to come on board nearly 18 months ago, how would you describe the company’s financial state at the time?

Stewart: It was tenuous at best. You have to be candid with yourself if you’re going to take a big step like that and you have to take a very objective look. At that point in time when I was interviewing, the balance sheet was OK. They had a very long list of strong assets, but the company had been losing thousands of customers every month. And for almost 18 years, the company did not deliver a profit. So, that’s an immense change to have to make, not only in business results but also in the overall culture of the organization. But there was just an awful lot of opportunity in front of us.

ER: Did this cause you to reconsider joining the company?

Stewart: No. I’ve spent considerable time at a startup in Germany and I viewed this as an 18-year-old startup. They have plenty of opportunity and with the right business decisions, the right direction, and the right team, success is imminent.

ER: During that time, about two-thirds of ShopNBC’s distribution agreements were due to lapse at the end of 2008. How did you turn that around?

ShopNBC crew members prepare the set for the next show.

Stewart: I wish it were just the distribution agreements; it would have really simplified everything. Looking at it from an employee’s perspective and vendor’s perspective, there were three CEOs in 18 months. The morale was very low among the organization. As I mentioned, the company was losing thousands of customers every month for quite some time. The business operations itself really drove high return rates and low customer service ratings. We were focused primarily as a jewelry retailer, and we had looming debt of $44 million coming due very soon. On top of that, we had distribution contracts that were set to expire. So, there was an awful lot going on all at once.

Carving out the distribution footprint, what we did was put together an affiliate relations department. Secondly, we knew we had complete control of the negotiations with the MSOs and satellite companies and we approached this very much as a win-win situation. They knew from our requests that we had to lower our costs. They also knew it was important that we continue to provide content for them and for their customers. Fortunately, we did renew 100 percent of those contracts. And not only were we successful in re-upping the distribution, but we also dropped $24 million out of the expense line. In many of the larger markets, we improved our channel positioning.

ER: Part of your new business model includes recruiting what you’ve described as the “Gold Standard” of executives. How does their experience factor into the restructuring process?

Stewart: Their experience complements the larger group of employees at ShopNBC. And that mix is a very powerful one. Many of these people you are referring to have seen the movie. It’s a very competent group of people who are focused on business results and on customer centricity.

ER: When Electronic Retailer interviewed ShopNBC in May 2007, the company was on the path toward becoming more multichannel-oriented. Does this remain part of your current marketing strategy?

Stewart: It’s central to our marketing strategy. We’re going to serve the customer any way he or she wants to be served. So, those portals–as technology grows–go beyond the platform of merely television. It is a dot-com platform. It is a mobile platform. And we were the very first electronic retailer to launch on a mobile platform with the iPhone. While we continue to improve that technology, one needs to bear in mind that the customer is everywhere. If it’s on Facebook, MySpace or Twitter, we need to continue to service them in the many ways that they want to be serviced. So, we’ll continue to broaden the ShopNBC strategy as part of our multichannel distribution efforts.

ER: What is ShopNBC’s unique value proposition?

Stewart: The unique value proposition starts with our positioning in the market as the premium lifestyle brand. At the end of 2008, our average selling price was over $200. And we knew we had to lower that average selling price to open up access to more and more customers. Our stated goal by the end of 2009 was right under $100 and we did hit that goal. However, that is not about lowering quality–it’s about opening pricepoints and broadening our appeal to our customers. We continue to offer big brands like Movado, Sony and Samsung. And we will continue to build new product categories with notable brands and intellectual properties. Recently, we launched Ted Gibson hair care, Vapour color cosmetics and Via Spiga handbags. Ed Hardy is very timely and profitable and we’ve been very successful with that brand. It’s about offering different products that are meaningful and relevant to the customer.

ER: So, with a lowered average pricepoint of $98, you’re not going after a completely different customer but broadening your customer base?

Beauty is just one of the product categories that ShopNBC intends to expand by offering top name brands.

Stewart: That’s exactly the point. We’re broadening our customer base and in fact, our customer base in 2009 grew 36 percent amid some very difficult economic times for retail. Our new customers grew over 520,000–that’s 60-percent growth in 2009. When we hit the milestone of 1 million customers at the end of December, it was an immense change in the overall structure of this organization. So, we’ll continue that torrent customer growth as we continue to successfully turn this company.

ER: The jewelry category was once a mainstay of the company’s overall product mix. Going forward, will this still be the case?

Stewart: Jewelry is still an important part of our business and will continue to be, but it won’t be the only business in which we operate. We’ll be a general merchandise retailer offering many different product categories to our customers. As I mentioned, we’ve gotten very serious in the beauty category with hair care and color cosmetics. We’ll continue to grow our apparel business. We’ll continue to expand our home business with our domestics and textiles. We’ve been very successful in launching gourmet foods. As we continue to launch different product categories and expand our existing ones, it’ll be a complement to jewelry. But we certainly aren’t planning at all on doing anything but growing that business and making it productive.

ER: Prior to you joining the company, ShopNBC was plagued by high return rates on merchandise. What changes have you made to reverse those numbers?

In 2009, Suzanne Somers joined ShopNBC with her full product line and loyal legion of fans.

Stewart: The first thing we had to do was change the culture. We had to say our high return rates were bad because the customer didn’t want to keep the product, and thus, returned the product. Now that may sound over-simplified but it’s something you really have to look at as a culture of an organization. We started with customer centricity. What does he or she want from ShopNBC as it relates to product and services? Second, once we changed and accepted that, we had to install systems that allowed us to measure the business results specific to cancellation and return rates, productivity and the like. We did install those systems and put in place benchmarks for each product category. We also installed rigorous QA and QC standards and systems in our business process. Now we have total transparency as it relates to our overall goals and targets. Again, these goals and targets are not merely financial. This is all to benefit the customer and it’s not only about creating customer centricity, but connectivity to the customer. So, our goal is to offer that customer a meaningful and relevant product that she likes. If she opens the box and we exceed her expectations when the product arrives at her home, then we’ve done our job.

ER: Given your vast experience in the international marketplace, are there plans for global expansion?

Stewart: This is in our future without question. However, we have much to do domestically before we start to lay the plans for global expansion. We are focused on driving shareholder value, growing our customer accounts, improving our customer service metrics, leading connectivity with our customer, and delivering consistent results each quarter. And as this business continues to be more consistent and predictable, we will start to lay the foundation for additional, organic growth opportunities.

ER: What is your personal stake in ShopNBC?

Stewart: I think the more important question is: What is the insiders’ stake? And, that means the management, the employees and the board. Of the total economy, insiders are 12 percent. So, certainly you can see this organization is very much aligned with the shareholders and the stakeholders like our vendors. As it relates to my personal stake, it’s a little less than half of that.

ER: You’ve set a goal of three to five years in which ShopNBC will double its sales. Given that the economy is still struggling to recover, is this a realistic timeframe?

Stewart: The economy does not control our future. This is an 18-year-old startup. If you look at the productivity, we are about $7 in sales per home. That contrasts with others that are $58 in sales per home. So, there is a lot of opportunity with our existing distribution to become more productive. I would say certainly, a three- to five-year time period is more than reasonable.