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Climbing the Ladder at Lands’ End

How to go from accountant to CFO? Donald Hughes of Lands' End did it -- and along the way, he's helped turn the one-time catalogue specialist into ...
Jennifer CaplanFebruary 22, 2002

Donald Hughes knows a thing or two about moving up the corporate ladder.

After graduating from the University of Wisconsin in 1985, Hughes signed on at Arthur Andersen, where he worked for two years. Then, in 1987, he signed on as staff accountant at an up-and-coming clothing retailer. The company? Catalogue specialist Lands’ End.

Hughes has never looked back. Nine years after joining the Dodgeville, Wisc.-based company, he was appointed vice president of finance. In February 2001, Hughes was named chief financial officer.

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Under his financial leadership, Lands’ End has picked up some much needed momentum. In concert with CEO David Dyer (on board in 1999), Hughes has focused on slashing prices, reducing excess inventory, and getting rid of businesses that were not profitable. Indeed, Dyer’s and Hughes’ recent efforts have pushed Lands’ End revenues and operating income to record levels. In the first nine months of fiscal 2002, total revenue at the retailer increased to $973 million, up 5 percent from the same period the previous year. Net income also rose, to $21 million. That was a huge jump up from the $2.9 million in earnings the company reported in the first nine months of 2001.

Hughes recently spoke to CFO.com’s Jennifer Caplan about developing new revenue streams, using the Internet to reach customers, and how Land’s End has been able to dramatically boost earnings amid a sluggish economy.

You have been at Lands’ End for the greater part of your career. What drew you to the company and what has kept you there for the past 15 years?

Lands’ End had gone public only a year before I joined, so there was a fair amount of publicity around the company. It was seen as a fast-growing business and one that had the potential to be very successful. On a more practical level, I also grew up about 20 miles outside of Dodgeville, where Lands’ End is located in southwest Wisconsin. That stability also played a role.

What have been some of the critical experiences in your career that you feel have gotten you where you are today?

I really made an effort to get involved in fostering some of Lands’ End’s new businesses, which I think really helped bolster my career. I’ve been very much involved in our international expansion, and have helped get those businesses off the ground, basically from scratch. I helped get our U.K. business going in 1991, for example, and later our Japan and Germany businesses as well. Our international businesses have now grown to be about 10 percent of our total business.

You joined Lands’ End from Arthur Andersen. At the time you joined, was Arthur Andersen the company’s auditor?

Yes. Arthur Andersen’s small business division was auditing Lands’ End at the time. I was never on that engagement, however. Arthur Andersen continues to be our auditor today.

Often, CFOs join companies from the audit firms that oversee that company’s books. Do you think that can lead to a potentially dangerous relationship?

I honestly don’t think that is a big issue. But my experience is particular because I didn’t become CFO right out of Arthur Andersen. I left the audit firm after only two years and didn’t become CFO of Lands’ End until 14 years later. In general, though, I just don’t see it as a problem because the big five accounting firms are simply the main training ground for financial professionals. Hence, you are inevitably going to end up with professionals coming out of those firms to join either their former clients or other companies. Your main pool of trained professionals is always going to come out of those firms.

As CFO, you oversee investor relations. After Enron, investors seem to have lost faith in financial disclosure and in the independence of Wall Street research. Do you worry that this loss of confidence, might negatively impact your business?

Frankly, I’m not concerned at all. Lands’ End is a very straight-forward business with no special purpose entities, no long term debt, a healthy cash balance, and we are able to grow out of our own working capital. We are also a very simple business to understand. I really feel that Wall Street analysts play, and will continue to play an important role in helping the average investor understand what’s going on in the company. We have approximately six analysts that cover us, and I really feel that their coverage is objective. In terms of disclosure, I think some companies that have significant off-balance sheet activity should be required to disclose those activities. In general, however, most CFOs have high integrity, are very professional and well trained. I think this is being blown out of proportion to some degree.

Lands’ End has performed quite well in the past couple of quarters — despite generally weak sales in the apparel sector. What has kept your company above the fray?

We’ve made excellent strides in presenting our merchandise to customers in a creative way, and our Internet business has really helped us do that. We have made over $300 million in sales of apparel over the Web this year, which makes us the largest Internet specialty apparel retailer in the world.

Another factor contributing to our margin improvement is that we’ve had a lower level of liquidation sales. Ninety percent of our sales are done at full price without having markdowns, which is unique in our industry. We have also been able to consolidate our sourcing, and about 50 percent of it is now done electronically. That has allowed us to pass forecast information to vendors so they can adjust production accordingly. We would like to see a higher percentage of our suppliers linked up electronically as we shift over to Web-based technology.

You mentioned that the Internet has allowed Lands’ End to really boost its sales. Has the demise of many B2C companies affected the way you rely on the Internet as a sales channel?

No. In fact, at Lands’ End the Internet has been a very natural extension of our business model. Our Internet business has been profitable nearly since its inception because of its natural fit with what we do. We have traditionally let our customers drive our sales channels, and the Internet has been a profitable channel for us. It also offers us more flexibility, which we don’t necessarily have with a printed catalogue. If a product is no longer available, for example, we can pull it off the Internet immediately. It has also really given us the ability to offer enhanced customer service in a number of ways. Our Web site allows customers to build models of themselves so they can actually try clothing on, for example. We’re also just rolling out custom-fit chinos over the Internet. It’s been a real easy fit for us.

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