New Coop President Struggles to Modernize Retail Hybrid

When new Harvard Cooperative Society president Jeremiah P. Murphy '73 returned to his office after lunch one afternoon last week, he found a customer looking upset and lost.

The man, wanting to know why the store did not stock a particular item, had happened upon Murphy's second-floor office. But instead of a cold corporate brush-off, Murphy beckoned the customer into the president's office for a 15-minutes private meeting.

"The changes that I'm trying to make are all about being more accessible to customers," says Murphy. "I have to be part of that myself."

The anecdote captures Murphy's personal commitment to moving the hundred-year-old store into the 21st century.

But customer friendliness, even by the Coop president itself, won't solve all the Coop's problems. It won't bring prices down or raise students rebates.

The Coop, some say, is the store that won't make up its mind; it's neither department store nor student bookstore. But Murphy says it can be both.

Murphy brings extensive experience in the management of mainstream department stores to the Coop. He says his most important task will be to strike a balance between expanding sales and keeping students happy.

Straight from Nieman Marcus in Dallas, Murphy is the retail cowboy who has already turned over a few tables in the saloon.

Since taking over this spring, Murphy has already embarked on an ambitious redesign of the store's floor plan. He's making changes that seem so simple that one wonders why they weren't done before.

Men's shoes are now in the men's clothing department. Women's intimate apparel found a new home in the women's clothing department. And he has widened aisles in the stationery area that once sent claustrophobics scurrying to the competition.

The Coop has also re-invented its advertising. Newspaper ads are being replaced by placards in the subway stops and radio spots on local stations.

"When we advertised in the newspapers with Filene's right there, no one noticed us. We were getting lost in print," says Murphy. "Our constituency is Cambridge-based. A lot of customers ride the subway and a lot listen...to music."

"There have been others who have tried to emulate what the Harvard Coop has been able to do, but they have not had great success," says Jon B. Hurst, president of the Retailers Association of Massachusetts.

"They have a unique niche," Hurst says.

But students would rather see fewer subway placards and more textbook discounts. For some, the Coop has become too much department store and not enough student co-op.

Professors also complain about the store's ordering process for textbooks, some saying they use the Coop only as a last resort.

The Coop was founded in 1882 by Harvard students wary of Square merchants who gouged prices for textbooks and firewood. Firewood is no longer sold at the Coop, but students are still complaining about the high prices of texts.

Store officials insist they keep the price of textbooks as low as possible. The cost of the labor needed to meet unusual textbook requests, though, jacks up the price.

"Textbooks are a high maintenance business,' says Murphy. "It takes a lot of people to run it."

Faculty members say the Coop does a good job handling requests for the big Core courses. But the store often fails to deliver enough books for some classes, and regularly has trouble getting books for smaller classes.

"They have not established a relationship with the professors," says Jorge I. Dominguez, professor of government. "The Coop doesn't believe our estimates of the number of books needed, and they shave [the estimates] when they order."

But Lowell House Master William H. Bossert, a Coop stockholder, defends the store's textbook department.

"I looked very closely into the textbook operation a few years ago," says Bossert, Arnold professor of science. "And I found the real problems with the textbook operation were with the Harvard faculty."

Murphy says the University could make the life easier for his busy textbook department by establishing an office to coordinate requests.

Students must understand that textbooks are only part of the business, he says. He gently reminds students that they constitute only part of the Coop's membership.

"If students don't feel like we're serving their textbooks needs, they must remember there are other members we need to service."

Murphy says the Coop needs to sell Harvard insignia items and other tourist goods to support departments like textbooks.

The Coop--which employs about 550 people--does not have a bureaucracy, he says.

"Before, when I was in a big company, I could pick up the phone an talk to the expert on an issue," says Murphy. "Now I have to become the expert in everything."

One Filene's official, who requested anonymity, says the Coop is too inefficient and too small to pose any real threat to other department stores.

"They are not our competition," she says. "Our competition is other department stores--like Jordan Marsh."

When the Harvard Cooperative Society began in 1882, it occupied only a five-foot tall bookshelf in a tobacco store.

Now the Coop operates five stores around the city--at Harvard Square, Harvard Law School, Harvard Business School, Kendall Square and the Medical school area.

Murphy runs these stores with guidance by a board of directors and 10 stockholders.

Capital stock in the Coop is held in trust by 10 stockholders--including Bossert, Dean of Students Archie C. Epps III and Vice President of Finance Robert H. Scott.

The stockholders receive no dividends, but they elect the 11 faculty members and administrators on the board of directors. Bossert is in charge of certifying the results of elections for the 11 boards seats occupied by MIT and Harvard students. The president also takes a seat on the board.

Though students rely on the Coop for much of their consumer needs, the stockholders have trouble getting the required 5 percent of students to return ballots. Only 3500 of some 50000 students voted in this spring's elections.

"There's a lot of indifference," says Bossert. "It's really a small fraction of the students who vote."

Bossert points out that although students don't participate in board elections, they annually complain about lower rebates and higher prices.

Members receive a check each year based on how much they spent at the Coop and theoverall share of business done by members.

Store officials say students benefits from therebates because most of their purchases aretextbooks, which do not earn profits.

But profits, and sales, have decreased in thepast two years. The student rebate took a hosediveas well, from 10 percent in the mid 80s to 5percent today.

Store officials give different explanations forthe drop.

When the rebate slipped from 10 to 7.8 percentin 1989, former Coop president games. A. Argerosblamed construction costs associated with theexpansion of Coop stores.

Murphy says the figure fell from 7.8 to 5percent over the past few years because of therecession and a slow in retail sales. The rebateexpected to slip another half percentage pointthis year.

Murphy argues that even Harvard Square is notrecession-proof.

"We are not immune to the retail environment,"says Murphy. "A lot of that is a reflection of thefact that retail is down."

Murphy says there is a tradeoff between rebatesand prices. If rebates rise, members complainabout the higher prices used to generate higherprofits.

If prices fall, members complain about thelower rebates.

There's also a tension between expanding salesand remaining a student cooperative, he says.

Murphy says he hopes to expand the "Coop'sbusiness" without abandoning student service. Buthe's not sure about the specifics.

Expansion probably won't come in the membershiprolls. There are 122,263 active members of theCoop, and neither Harvard nor MIT is expanding itsstudent body or faculties.

Murphy says he wants more alumni to join thesociety, and the Coop courts them during reunionswith various discount coupons.

Opening more stores would be difficult. Anysuch expansion could increase sales to non-membersand threaten the store's co-op status.

If the amount of business done by Coop membersdrops below 50 percent of all sales, the Coopwould lose that status, and a huge tax break.

The Coop spent much of the past decadestraddling that 50 percent cut-off line as itgrew. Members account for about 55 percent of allbusiness now.

"If the membership doesn't like what we'reselling, 50 percent is going to be a problem,"says Murphy. "If we want to grow the business, wehave to keep our membership up to keep thosepercentages."

The Coop has been burned at least once byopening a new outlet.

In 1980, under pressure from Harvard alumni,the Coop added a store near the Boston HarvardClub. Ten years later, facing rising rents andfalling member purchases, the Coop abandoned ship.

"It had reasonable sales, but it was a veryexpensive operation," says Bossert. "There were alot of walk-in sales from the Boston businesscommunity, but that's not the purpose of theCoop."

Expansion in the flagship stores also failed toprevent a recent decrease in sales.

Sales for fiscal year 1991 totaled $60 million,down 4 percent from the year before and almost 7percent from 1989's all-time record of $64.4million.

Despite the depressed figures, Murphy doesn'trule out the possibility of expanding the Coop inproperties it now occupies in the Harvard Squarearea.

One possible area of expansion is the Coop'sbuilding at 1 Bow St. The buildings' second floorhouses the store's data processing division, andthe first floor is rented to the Bow and ArrowClub and Baskin and Robbins Ice Cream.

"We really haven't thought about what we'regoing to do with that property," says Murphy."We've had it on the books for a long time."

The Coop also rents the space above the BorderCafe from the University for its printingdepartment.

Coop board members have had their eye on thespace, but Harvard is unwilling to sell. Thepurchase would also be complicated by the presenceof the Border Cafe in the same building, Murphysays.

But he adds, "I think it's safe to say that anyspace you're doing business in you'd rather ownthan rent."

Some might wonder why a student co-operative isthe business of renting property to an ice creamfranchise, or hawking neck massagers for thatmatter.

The answer is that it's all part of striking adelicate balance.

Murphy says managing the Coop is all aboutbalances: between big-ticket items and textbooks,between high rebates and low prices, betweendepartment store and student co-op.

So while the Coop may grow friendlier to thecustomer, it will remain an enigma in HarvardSquare and the retail industry.Crimson GraphicJames ChamA Delicate Balance The Coop's sales havefallen into a small decline, while the rebatesthat Coop members receive at year's end show asignificant decrease, exacerbating the tensioninvolved in deciding whether student service orsales should remain a priority.

Store officials say students benefits from therebates because most of their purchases aretextbooks, which do not earn profits.

But profits, and sales, have decreased in thepast two years. The student rebate took a hosediveas well, from 10 percent in the mid 80s to 5percent today.

Store officials give different explanations forthe drop.

When the rebate slipped from 10 to 7.8 percentin 1989, former Coop president games. A. Argerosblamed construction costs associated with theexpansion of Coop stores.

Murphy says the figure fell from 7.8 to 5percent over the past few years because of therecession and a slow in retail sales. The rebateexpected to slip another half percentage pointthis year.

Murphy argues that even Harvard Square is notrecession-proof.

"We are not immune to the retail environment,"says Murphy. "A lot of that is a reflection of thefact that retail is down."

Murphy says there is a tradeoff between rebatesand prices. If rebates rise, members complainabout the higher prices used to generate higherprofits.

If prices fall, members complain about thelower rebates.

There's also a tension between expanding salesand remaining a student cooperative, he says.

Murphy says he hopes to expand the "Coop'sbusiness" without abandoning student service. Buthe's not sure about the specifics.

Expansion probably won't come in the membershiprolls. There are 122,263 active members of theCoop, and neither Harvard nor MIT is expanding itsstudent body or faculties.

Murphy says he wants more alumni to join thesociety, and the Coop courts them during reunionswith various discount coupons.

Opening more stores would be difficult. Anysuch expansion could increase sales to non-membersand threaten the store's co-op status.

If the amount of business done by Coop membersdrops below 50 percent of all sales, the Coopwould lose that status, and a huge tax break.

The Coop spent much of the past decadestraddling that 50 percent cut-off line as itgrew. Members account for about 55 percent of allbusiness now.

"If the membership doesn't like what we'reselling, 50 percent is going to be a problem,"says Murphy. "If we want to grow the business, wehave to keep our membership up to keep thosepercentages."

The Coop has been burned at least once byopening a new outlet.

In 1980, under pressure from Harvard alumni,the Coop added a store near the Boston HarvardClub. Ten years later, facing rising rents andfalling member purchases, the Coop abandoned ship.

"It had reasonable sales, but it was a veryexpensive operation," says Bossert. "There were alot of walk-in sales from the Boston businesscommunity, but that's not the purpose of theCoop."

Expansion in the flagship stores also failed toprevent a recent decrease in sales.

Sales for fiscal year 1991 totaled $60 million,down 4 percent from the year before and almost 7percent from 1989's all-time record of $64.4million.

Despite the depressed figures, Murphy doesn'trule out the possibility of expanding the Coop inproperties it now occupies in the Harvard Squarearea.

One possible area of expansion is the Coop'sbuilding at 1 Bow St. The buildings' second floorhouses the store's data processing division, andthe first floor is rented to the Bow and ArrowClub and Baskin and Robbins Ice Cream.

"We really haven't thought about what we'regoing to do with that property," says Murphy."We've had it on the books for a long time."

The Coop also rents the space above the BorderCafe from the University for its printingdepartment.

Coop board members have had their eye on thespace, but Harvard is unwilling to sell. Thepurchase would also be complicated by the presenceof the Border Cafe in the same building, Murphysays.

But he adds, "I think it's safe to say that anyspace you're doing business in you'd rather ownthan rent."

Some might wonder why a student co-operative isthe business of renting property to an ice creamfranchise, or hawking neck massagers for thatmatter.

The answer is that it's all part of striking adelicate balance.

Murphy says managing the Coop is all aboutbalances: between big-ticket items and textbooks,between high rebates and low prices, betweendepartment store and student co-op.

So while the Coop may grow friendlier to thecustomer, it will remain an enigma in HarvardSquare and the retail industry.Crimson GraphicJames ChamA Delicate Balance The Coop's sales havefallen into a small decline, while the rebatesthat Coop members receive at year's end show asignificant decrease, exacerbating the tensioninvolved in deciding whether student service orsales should remain a priority.