Editor’s note: This article is part of a continuing series, “The Supply Side,” which is focused on the Wal-Mart supplier community. The series is part of an expanded partnership between Talk Business and The City Wire. Copyright TCW Media (www.thecitywire.com).
Once retail gets in the blood, it’s hard to shake, according to Tom Coughlin, former Wal-Mart board vice chairman and a longtime student of legendary merchant Sam Walton.
In his first media interview since his sudden departure from Wal-Mart, Coughlin recently talked with The City Wire about his consultant firm, the evolutionary business of retail he says is customer-centric regardless of the shopping channel, and what he is doing now more than seven years after retiring as one of the top officers of the world’s largest retailer.
Coughlin’s retirement from Wal-Mart in 2005 was followed by a grand jury investigation into fraudulent activity which occurred on the corporate clock. To avoid a lengthy trial, he pled guilty, made full restitution to the court, and served a 27-month sentence of home confinement. In August 2008, Wal-Mart settled with Coughlin over his retirement benefits for his 28 years of service during a time of exceptional company growth.
WAL-MART BEST DAYS AHEAD
At 63, Coughlin appears comfortable in his own skin and he’s passionate about the ongoing and often rapid changes within the retail sector. Coughlin says emphatically he remains a loyal shopper and “Wal-Mart’s best days are still ahead.”
“I buy just about everything at the Walmart Store in Jane, (Mo.) and the ‘big man’s shop’ at Dillard’s,” Coughlin said candidly.
He’s also a fan of Sam’s Club and it’s major competitor Costco. He has a profound respect for Jim Sinegal, founder of Costco.
“I truly believe Jim Sinegal is the second greatest retailer of all time. He never let his ego get in his way,” Coughlin said. “He stuck to what made sense.”
Nearly eight years removed from his last days as the No. 2 executive of Wal-Mart Stores, Coughlin is sought out regularly by suppliers and other retail enthusiasts for his “insight and expertise.”
His firm, Tom Coughlin & Associates, offers a range of services that include everything from being a sounding board to providing in-depth scrutiny over products, brand expansion and operational efficiencies.
During his tenure at Wal-Mart, Coughlin worked closely with suppliers and said the relationship is about give and take – in the yin and yang concept – where both sides need each other for mutual success.
He said finding a balance requires open conversation and mutual understanding that the customer must come first.
“I often advise suppliers to keep their Wal-Mart business at a 25% maximum of the total gross revenues. It’s a major temptation for suppliers to want more given Wal-Mart’s size, but discipline is critical,” Coughlin said.
He said that is a lesson learned “many moons ago from Sam himself.”
Coughlin said he was a young man, new to Bentonville at a time when there was one stop light in town, and he had a lot to learn about the retail business.
“Jack Shewmaker and Sam took me to lunch one day and asked me how I planned to save the company money. As the head of security I had been researching the cost of a security system in a new store planned for Little Rock, a large market for us at that time. I discovered the cost of a security system in a large city would be an expensive thing and I knew we had several other larger city stores planned,” Coughlin said.
The total security outlay of the one store was going to be something like 8% of the entire company costs, he added. Coughlin said he tossed out an idea that they might purchase a security alarm vendor outright, set up a wholesale division for ordering parts and then buy the services from themselves.
“We were using just one company primarily for those services at that time. Sam asked how much it would cost, and we told him the security company owner wanted about $98,000 for his business. I was shocked when Sam said, ‘Let’s do it,’ because I had never bought a business of any kind at that point in my career,” Coughlin recalled.
‘GOOD DEAL FOR BOTH PARTIES’
Over the next few days Coughlin said he studied the business, looked for ways to depreciate assets and finally got the sales prices down to $45,000.
“I was excited to tell Sam how much money this would save our company. I couldn’t believe his response when I told him about the $45,000 deal. He looked at me and said that I had done a good job, and he wanted to buy the company, but he would pay the firm $100,000 for their business. I couldn’t understand why he would want to do that after I had negotiated a lower price,” Coughlin said.
Sam’s decision to go with the $100,000 price bothered Coughlin all weekend.
“On our way home from church on Sunday, I saw Sam’s truck at the office, so I asked my wife, then pregnant with our first child, to let me out so I could speak to Sam about this matter. I told Cynthia I would walk home as we lived in town at that time,” he said.
When Coughlin approached Sam about the sales price that Sunday afternoon, he was amazed at the answer.
“Sam told me that Lewis (the security firm) had been with him since his first store. He said there were times early on when sales were down and he had to ask for a month’s extension and Lewis always gave it. Sam said when we asked for six months dating on new stores to allow time for them to get up and running before paying, Lewis was there. Sam told me offering a lower price at that time wouldn’t be a good deal for Lewis. And I will never forget what he said next,” Coughlin continued.
“If it’s not a good deal for both parties, then it’s not a good deal.”
Coughlin said the story illustrates the trusted relationship between supplier and retailer.
“This had a profound impact on me as I continued to work directly with suppliers throughout my career in retail and now as an advisor,” Coughlin said.
When Coughlin retired from Wal-Mart in early 2005, he came home to a 2,100-acre ranch near Centerton and a large herd of registered Angus cattle he amassed over several years.
“Cynthia had become so adept at managing the cattle business she didn’t need or necessarily want my help,” Coughlin joked. “We call her the cattle baroness around here.”
He said the consultant business is a natural extension for him because of the relationships he has maintained inside retail circles and the outlying vendor community.
“I was fortunate to run the largest business in the world. I got tremendous satisfaction from my relationships both at Wal-Mart and the vendor community and though I have had opportunities to run other organizations since then, that’s not for me.” Coughlin said.
But he does serve as a board member for New York City-based Ken’s Krew, a nonprofit corporation that provides vocational training and job placement services to individuals with intellectual and developmental disabilities. This organization was founded by Ken Langone, co-founder of Home Depot and a close friend to Coughlin.
Coughlin also serves on the board of directors for Geeknet.com, a web-based retail site catering to the tech-savvy demographic. This venture is also run by Langone. Fairfax, Va.-based Geeknet was acquired by Dice Holdings on Sept. 18. The company reported third-quarter revenue of $17.3 million, up from $14.7 million in the 2011 period. The company posted a $2 million loss from continuing operations in the quarter, but posted an $8.4 million accounting gain based on the $14 million sale of its media business.
When asked if he is comfortable at this place and time in his life, Coughlin, smiled and said: “Retail provided me wonderful opportunities over the years and sharing that expertise today feels right.”