[IMASA]

Last month this popped up in one of the bestof subs on reddit. Guy breaks down the fall of NCIX. I have no idea if any of this is true. I ordered a few things from NCIX in the past 2 years and just about every time something was on back order.

Spoiler!

There are multiple factors at play that you have to look at. This is going to be long winded, but I'll try to cover the bases and summarize much of what I have been discussing with former coworkers from all levels of the company.

Before you even talk about a decline you have to consider why a customer would or wouldn't buy from NCIX, price considerations aside. Everyone knows there are policies, practices, and procedures at NCIX that come from a different era of retailing. Some call it cultural, which it partly is, but it also comes from an older mentality of small business retailing as well. That influence comes directly from one person, the owner. With the recent crisis, this is now all out in the open for all to see, no longer the domain of the odd customer here and there that has a bad experience. These are not new issues. In years past this was papered over by the public facing staff pulling off one heck of a PR campaign and by the company being highly in tune with the product mix as well as understanding the deal seeking nature of the customer base. NCIX’S USP was having the right product at the right price, and being able to deliver it quickly. Things might have gone awry, but there was always someone on the other end of the line or message to get your issue taken care of, even if it should never have happened in the first place.

The root of the current problem lies with the big expansion push into Ontario as well as the US. Much has been talked about with respect to Ontario, but the US was a money pit as well and people should not discount how much of an unmitigated disaster that has been. Consider that the company threw a grand total of 1 head office senior staff at that project and you’ll understand how badly it has gone. You’ll have to understand that before this push, the company was already maxed out on vendor credit lines and loans. The expansion push came about for a few reasons: jealously of what Canada computers was accomplishing, the impact that HST had on online sales to the company's largest market, and the misguided notion that opening a few stores would suddenly cause the largely Ontario based vendor/distributor community to embrace the owner.

The tax advantage that NCIX enjoyed was a substantial factor in winning online business over competitors, when that evaporated the owner grew nervous about the prospects of online and decided retail was the way forward. It is also important to note the size of the investment here, given there were multiple store leases and two warehouses mortgaged (BC warehouse was a $5.9 million purchase and the Ontario one is for sale at $16 million to give an idea) along with a huge increase in the number of staff. The US operation was also completely funded by the Canadian side. Instead of listening to staff and doubling down on the online side of the business (which was profitable), everything went full boar into retail brick and mortar at a time when most retailers were eyeing an exit from that space.
It is important to understand that NCIX spent years trying to skirt around Canadian distributors by purchasing directly with vendors, so their relationships with Canadian distributors were already strained. When you cut the distributors out of the equation they don’t forget such things. Competitors have asked why NCIX spent so much trying to buy direct, and aside from the potential inventory/pricing advantages it comes down to credit lines. It is no secret margins are tight in the computer business, and money has always been very tight at NCIX. The more vendor lines you have, the more you can fuel your growth with other people’s money, they become your operating capital. They have stretching (maximizing the period of time before they repay vendors) those credit lines to the breaking point for a number of years. In that respect, they have always been living beyond their means, leaving them vulnerable in the event of a downturn.
Once all that extra overhead was added the owner panicked. Having already decided online was dying he decided the company needed a big push into other categories like consumer electronics, health goods, clothing, and whatever other oddball items you find on the site. More importantly he decided that the trouble with cash flow meant the company needed to raise margins, which meant higher prices, and needed to cut back on inventory. The entire pay structure of key staff changed, which resulted in them now having the incentive to game their metrics than focusing on growing the business. People got gun shy in terms of bringing in product, out of fear of not wanting to take a hit to the tune of thousands of dollars a month to their take home pay. All of this had a big impact on the competitiveness of the company.

It was also around this time the owner became obsessed with reading business books and decided he was the second coming of Steve Jobs. In order to fulfill his mission, he decided he need to randomly implement shiny new management practices, use all kinds of clever buzzwords and phrases, and make the company more business-like. Bear in mind cronyism and nepotism were a problem in the company vis a vis his hiring of family of his own and other friends despite an abject lack of suitability to the positions and that he was largely considered an absentee landlord by key staff, as he liked to micromanage people, but not the business. Now you throw into the mix whatever yes men were smart enough to figure out the owner was so stupid that all you had to do was tell him what he wanted to hear and you would be rewarded with a six figure salary. Now throw in metrics and other forms of gamification and you have an environment where people are more concerned with looking good than doing the tough things you have to in retail.

This understandably upset a lot of long serving staff responsible for the success of the company and only alienated vendors and distributors more as there all sorts of promises made that were never backed up with action. Newer people came in, but lacked the experience to fully understand the product mix and more importantly what made the company tick. Everything became a game to see who could maximize their bonus the most by manipulating metrics and the promotional focus of the company disappeared since bonuses were a huge component of everyone’s pay. It became an open joke among senior staff that nobody knew how the numbers were working given what they could see of the company finances. More importantly, the people who performed the real PR functions at the company in terms of vendor relationships and maintaining the commercial relationship with the customer base left.

With NCIX dropping the ball on the product mix and pricing, that left the door open for other competitors to grow their online business. Canada Computers ate NCIX’s lunch on the retail side in Ontario and continued to grow online, and Memex, Newegg, Amazon, and many other accounts ate considerably into the online share. Newegg in particular had a large impact once they had warehouses on both sides of the country. When NCIX had solid inventory and aggressive prices it was easy to win business and ship out quickly. When that dropped it gave an advantage to nimbler smaller competitors who could get your order shipped out same day. When they cut inventory and increased competition it reduced revenues, which meant vendor credit lines got stretched more and more. Once you get in that cycle of late payments you start losing the special favors from vendors and all the other little perks that give you an advantage. No sales rep wants to give you the best inventory/promo deal if they aren't going to see their commission for 90-120 days. The end result of all these things is you end up in a spiral where revenues are dropping, repayments get stretched, and you can’t get the level of inventory you need to sustain the operating costs of the business. That isn't something you can fix with margins as the more you raise prices the less you sell, so really you are only trading one problem for another. Crucially, with all the staff gone who looked after the real PR side of the company, you saw a return of all the crappy practices that NCIX’s competitors for the most part don’t engage in. Everything became about getting the order, doing everything to avoid refunding orders, and not pro-actively solving customer problems. That left the company with uncompetitive prices, average at best inventory, subpar service, and slower turnaround times.

As to why all of this occurred it is down to having an owner that doesn't listen to people and who alienates or burns out all his senior staff. Go read the Glassdoor reviews. Everything you read there and far, far worse, is accurate. Huge company altering decisions are made without consulting senior staff or limiting discussion to yes men who are clueless. The difference makers eventually exit stage left, and with that goes the experience as well as the people who are pushing for the right things to be done internally and externally. Without someone to push back against the owner’s bad practices and ineptitude it leaves the remaining employees stuck in a rut, with no support and no professional development. This can’t be stressed enough, the folks on the retail/sales side and service side are setup for failure and are left without the empowerment to do their jobs properly. The replacement/remaining senior staff get their positions via nepotism and cronyism and are really only out after their own interests and just end up creating roadblocks everywhere. There is a toxic culture there now where many staff who only look out for their own interests, which is a shame as there are still many loyal hardworking people there who sacrifice a lot to work there.