Department store that sticks to the knitting

"We're still a private family," says Andrew Caughey, latest in a long line of Caugheys to run the family-owned department store on Queen Street. And they run the business in their own very special, private way.

Call it enlightened family-style management that treats the store more as an heirloom deserving special and constant consideration than as a mere commercial enterprise providing filthy lucre. This is less of a store, more of a jewel in the family crown.

"The store has had a lot of nurturing over the years," explains Caughey. Even by the understated standards of the Caugheys, that is quite an understatement.

The ramrod-backed Andrew Caughey is another beautifully-mannered, modest and likeable scion of the retailing Caugheys. And there has been an awful lot of them since the store was established in 1880. Indeed, the roll call reads almost like the Book of Genesis.

The fourth generation of the family to run the firm, Andrew succeeded his cousin, Sir Harcourt Caughey, who in turn succeeded his dad, Marsden Caughey. And before that, the Caughey in the nurturing seat was the present Andrew's great grandfather, also christened Andrew.

Before that again, the firm was launched nearly 120 years ago by the first Andrew Caughey's sister, the redoubtable Irish immigrant Mary-Ann Caughey, wife of the William Smith who provided the other half of the store's name.

Given this lineage, you could hardly expect anything other than family-style management. But the main point is less family-style management, more that Smith and Caughey is a remarkable story of longevity. When companies endure, they are taken for granted. But at just about any point in a company's life, its managers can all too easily sow the seeds of its destruction. That never happened at Smith and Caughey, as it did for so many other big stores.

It is fashionable to deride Smith & Caughey as incurably conservative - a store without much ambition beyond that of survival. But when you look at what has happened to the opposition, family-style management looks pretty good.

Auckland is littered with dead department stores including, in order of their demise, John Courts, Milne and Choyce and George Courts. Of them all, Smith & Caughey is the only one to survive and prosper. What's its secret?

In summary, it seems all too simple. The Caugheys didn't try and do too much by launching a chain of boutique stores or other distractions, so they were never managerially stretched. "We have always stuck to our knitting," explains Andrew Caughey in his oak-lined office with a small tree stuck rather funkily in a pot in the corner.

Additionally, the Caugheys always worked in offices over the shop, so to speak. Thus at various times in the day, Caugheys are always wandering around the floors, observing, listening, chatting, taking notes.

Chairman Simon Caughey, a cousin of Andrew, usually comes in on a Saturday morning. Andrew's father, Denis, is the merchandising manager and often stalks the counters.

The customers, of course, some of whose parents and grandparents shopped there, love to see the owners wandering around. It's almost part of the marketing.

There is nothing conservative about the family's retailing skills. They are relentlessly self-critical merchandisers who routinely benchmark themselves against the very best department stores in the world, and particularly against the family-dominated North American chain, Nordstrom. This is the chain which invented the oft-quoted rules for service companies: Rule number one - the customer comes first. Rule number two: refer to rule number one. Twice a year, Andrew Caughey calls in at Nordstrom among other chains.

And contrary to popular opinion, Smith and Caughey's managers are not averse to adopting modern methods. For example, Deloitte Touche Tohmatsu helped last year install a performance management appraisal system.

Stick to the knitting, stay close to the business, benchmark conscientiously, performance management: They are all important principles of survival. But they are also unremarkable - a lot of companies have done all four and still gone under.

Smith & Caughey's longevity is more subtle than this. Perhaps it is explicable in terms of less easily quantifiable reasons, one of which has to be the store's general sense of involvement, its probably unique way of engaging its staff. Smith & Caughey operates the flattest of flat management structures with just three layers - counter staff, buyers, managers, all of them in pretty much constant communication.

As Nola Skinner, for 12 years the chief buyer for cosmetics, puts it: "Shopfloor staff report directly to buyers, we report to the directors. It's very hands-on. Also, the directors are on the floor several times a day. They know who we are and what we're doing. We're people, not numbers. That's the key to our success." The sense of involvement might also be the reason why some of the staff stay so long. Some of these people live the store.

One staff member, the late Joe Setters, joined at 14 and didn't retire until he was nearly 80 after a marathon 66-year stint behind the counter. It is considered quite normal for staff members to stay for 25 years or more. "I'm just a junior", a telephone operator remarks. "I've only been here for 14 years." And, of course, the Caugheys stay longer than most. Andrew's father, Denis, has been with the store for half a century.

Finally, there is the Caughey's unapologetic, unshakeable financial conservatism. To them, debt is a pariah. Thus the company, which is essentially a family trust with some 60 members, is unashamedly proud of its absolutely zero gearing. The entire business is conducted with its own cash.

This isn't just an irrational aversion to borrowing; it makes a lot of sense. As each member of the family passed on the mantle of management, they also bequeathed a long perspective of risk. That is the main reason why Smith & Caughey owns the entire block on which it stands.

"Owning our own land and buildings helps us get by in the ups and downs of the business cycle," explains Andrew Caughey. Once, in the 1960s, the company borrowed a relatively small sum of money to purchase the last bit of land it didn't own - the Civic Tavern corner - but, needless to say, the loan was repaid with indecent haste.

It is no secret that Auckland's banks have given up trying to lend money to the store. "They have told us that they are there if we need them," remarks Andrew with a dry smile. The banks will be waiting for ever.

Founded on Methodist principles, the business is still run on a righteous frugality, quite apart from its aversion to debt. The directors, who have historically taken relatively little out of the store, usually fly economy class because, as Andrew explains: "I'm always at people about costs so it is appropriate for me to put my money where my mouth is." What they save on costs, the Caugheys plough back into the store, which has had two major refurbishments in the last 10 years.

But the end of an era might be nigh. Smith & Caughey is running out of retailing Caugheys. These days, only two members of the family are still in harness as executive directors - Andrew and his father.

This might not be a bad thing, suggests Andrew. "It's possible to have a glut of family in top management. It can be quite stifling. I want to give middle management more scope with a looser cover." He admits this might involve a balancing act if the store is to retain its unique family feeling.

But Smith & Caughey without a Caughey! The prospect is almost too enormous for long-servers like Nola Skinner to contemplate. "I think it's important that a Caughey is at the head of the store," she declares. But if there isn't, you can be sure any non-Caughey will be given very clear instruction in the arts of survival.