Twenty years ago, Talbots Inc. found the perfect fit, or as good as it gets in fashion retailing.
The company hired Arnold B. Zetcher as president, a man as understated as the brand and from the Midwest, where Talbots often sells best.
Zetcher was running the John Breuner furniture store in San Francisco, where practically no one had heard of Talbots, then just a 108-unit chain. But the fit was snug. Zetcher became Talbots' chief executive officer a year later, and added the chairman's title in 2000.
"I remember the first two stores I opened were in St. Louis, my hometown," Zetcher said, during a wide-ranging interview at the Hingham, Mass. headquarters. "One is in Plaza Frontenac. It's been number-one in the whole company almost every year. That's neat.
"It has every one of our concepts in that store," including misses' and petites, which were part of the original assortment that subsequently expanded with accessories, shoes, kids', plus-sizes and men's wear. "Even today, people that I went to high school with stop by the store and say, 'tell Arnie hello.' I haven't been called Arnie since high school. I even have a card from Bubbles — we knew her as Bubbles. She stopped by the store last month and left her card. That's kind of funny."
There's another hint of irony and sentiment in Zetcher's voice, as he discusses Washington University in St. Louis, his alma mater, where he's on the board of trustees. "I actually spoke at one of the commencements for their business school a couple of years ago. It was one of these amazing things because after doing all these pranks and stuff in school, you think they'll never want you back," he said. He has recently addressed the students at Harvard Business School and other institutions as well. "They always want to know how you got to where you are, and they want to hear something complicated. But my answer is so simple. I say hard work."
The 66-year-old Zetcher plans to retire in 2008 after leading Talbots for 20 years, ending one of the most enduring and impressive runs in retailing, particularly considering the turbulent nature of the industry and its high rate of executive turnover. He'll continue as ceo and president until Feb. 2, and chairman through March, but he's already said he could vacate the ceo slot sooner, depending on when a successor is found.Zetcher's stewardship was eventful. The chain grew to nearly 1,400 units, with locations chosen based on where the company found its catalogue sales to be the strongest. Rooted in New England tradition and founded in Hingham, Talbots is naturally concentrated in the Northeast, though California boasts the most locations, with 82. Other states with large store counts are Texas, Florida, Massachusetts, New York and Pennsylvania. Catalogues are considered Talbots' number-one advertising vehicle, aside from the company's knack for placing new locations in fertile areas.
When Zetcher joined Talbots, it was primarily a misses' business, with a petite business that was winding down. One of his first strategic moves was to put petites back on a growth track to the point where the category became a core business. Currently, the misses'-petites component accounts for 79 percent of Talbots' total volume. During the Zetcher regime, accessories, shoes, kids, plus-sizes and men's wear were introduced. Accessories and shoes represent 8 percent of total volume; large sizes 4.5 percent, and men's wear 1 percent.
Zetcher did much more. He took Talbots public; expanded the chain internationally; enabled it to become truly multichannel with the addition of Internet selling in 1999, and last year led the purchase of J. Jill Group Inc., the company's first and only brand acquisition. The move gives Talbots a vehicle for further growth and establishes a precedent for possibly buying more brands in the future, though the company has its hands full with assimilating and turning around J. Jill.
Through steady growth, Zetcher methodically and cautiously built Talbots into an all-American brand with a solid infrastructure to accommodate Talbots subbrands and non-Talbots brands. Yet Talbots by itself, Zetcher believes, still has growth opportunities. He said 40 stores are opening this year, along with 30 J. Jill units. "I don't think Talbots will ever be tapped out," Zetcher said. "There are always fill-in opportunities."
Large sizes, he said, represent the fastest growth vehicle currently, in part because it's been an under-served segment. He also sees potential for Talbots to develop additional product lines not sold in the stores, such as home goods, which could be merchandised in existing stores or via separate home units. In addition, there's still tinkering to be done with the men's business, which only has 12 stores. There's also men's wear interspersed in certain misses' stores.A man of modest stature with a ready smile, Zetcher's public persona seems low-key. But on the job, he's said to be demanding and determined, and fits the profile of a strong operator more so than a merchant prince. He acknowledges being very hands-on. "That's the way I always felt I wanted to be, and everybody here has known through the years what's expected of them."
He's prone to sticking his head in meetings and making secret store visits on the first day of each big semiannual sales event around the country, telling no one his destination, except for whoever books his flight. Visitations, either announced or unannounced, must be part of the routine.
"Some [retailers] visit stores when they find time to do it. I don't do it that way. It's part of the role. You should dedicate time to it."
When the company launched e-commerce, Zetcher had to be the first to click on. "I got up at 5 a.m., put on my robe and bought a couple of items for my wife." He considers the Internet to be a major opportunity for growth.
For good luck, he's made the first purchase at every concept launch, whether it was for kids, accessories, or men's wear, as well as the first Talbots store in the U.K.
Zetcher oversees all aspects of the company's operations, but isn't too high in the hierarchy to make sure that at Christmastime, small gifts like key chains or scarves are sent to the best customers. Between 50,000 and 100,000 gifts go out each year. The company also sends out birthday cards to top customers, with 10 percent discounts.
"As I was growing up in this business, I always had access to watching other ceo's operate their companies," Zetcher said. "I saw all different kinds of approaches. I've seen the hard-fisted ones who managed through fear and wanted people to know that they were clearly the boss, and I've observed others, and that's the path I've wanted to take. I wanted people to be happy where they were working. And that is kind of the culture I believe we've created here. Almost everybody is on a first-name basis. I walk down the hall and say 'hi' to our custodian, Steve, and he'll say 'Hi Arnold, how are you doing?' I just wanted everybody in the company to feel as if it's their company, and this stretches beyond headquarters. When I'm in stores or our officers are out visiting stores, we're not there to tell the store manager what to do or how they should be running it. We're there to ask us what we can do to help. And when I go to a store, I learn every time."With the stores, Zetcher and his team have created "full-service environments," which is not the norm for big specialty chains, as Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates, pointed out.
"Talbots has done a terrific job preserving the consistency of who they are and understanding the customer, even though there might be some flattening in the last couple of years," Aronson said. "The company has been going up against increasing competition that's trying to emulate what they have been doing for a long time. But for its customers, Talbots delivers a bang for their buck. It's for a lot of people who don't want to stand out, want to feel what they're wearing fits in. It's a good, solid, acceptable middle-American look. There's also a good selling staff in the stores, and a red phone that you can call and get merchandise that isn't in stock and they'll fulfill it for you. You can also look at the catalogue, which has more styles than the store. Talbots delivers on its fashion promise, and it doesn't over deliver on the promise," he said.
"The big question at Talbots is succession planning," said Dana Telsey, ceo and chief research officer for Telsey Advisory Group. "Who is the next Arnold? It's got to be someone who can integrate what's new, modern and current, while enabling the brand to stay true to its roots."
Telsey said one of Talbots hallmarks is its pricing. "Talbots wins big by selling full-price," with a 65-35 ratio to full-price versus markdown selling. More typically, retailers sell close to 50 percent of their goods at markdown.
She noted that Talbots has confronted intensified competition in the last few years, from department stores such as J.C. Penney and Macy's with its private label INC, as well as brands such as Jones Apparel Group and Liz Claiborne. "More retailers have seen opportunities for the 35-year-old plus customer. She's very loyal [to a store she likes] has money to spend, seeks value, fit and quality in the product offering, and is not as trendy," Telsey said.
Talbots does have many loyal customers, she added, noting that more than 45 percent of the company's sales are from its own credit card. She also cited a recent customer survey indicating that 90 percent of Talbots customers will return to the store even though they've not been satisfied this year with some of the offerings.Early on, Zetcher saw the potential in the 35-and-older customer and for building a brand that capitalized on the demographic. "Twenty years ago, I couldn't [name] another company that was servicing the customer, which through the years has been one of the fastest-growing demographics," Zetcher said. "There might have been some brands out there, but nothing like a specialist or a Talbots for servicing the customer."
The sector has been struggling for several seasons, with Talbots, Ann Taylor and Chico's all experiencing ups and downs, while Gap shut down its fledgling Forth & Towne division this spring.
Zetcher makes no excuses and refuses to blame a bad performance on the weather, though it's a factor at times, he said.
Last year, Talbots' earnings fell to $31.6 million from $93.2 million the year before, while sales rose 23.4 percent to $2.23 billion from $1.81 billion, largely due to the acquisition of J. Jill. The J. Jill brand represented approximately 20 percent of the total volume in 2006, which came to $2.3 billion.
It was an up-and-down year, with the first six months marked by positive comps and a particularly strong September for the Talbots brand. Anticipating a continuing trend, the company increased inventory, but the trend was not sustained, leading to higher-than-normal markdowns. Difficulties continued in the last quarter, with profits down to $5.2 million, from $27.4 million.
"My feeling is that even though the whole sector has struggled, individual situations are taking place in individual companies," Zetcher said. "Chico's issue is different from Talbots which is different from Ann Taylor. If you put it all together, it comes across as if the sector has problems.
"I think this customer is the most coveted, best customer you could have," Zetcher said. "Think about it. When you have a customer who is 35 to 55, she pretty much already knows what she wants and how she wants to be. She's not as trendy. She has the money to buy whatever she wants. So there are really a lot of positives.…We've got to make sure we never forget her."
"If Talbots does it right, we should do it better than anybody else. We really should. At a time when most specialty stores in our sector are struggling, we should be doing it better. We haven't done it quite to the level we should."Zetcher has stuck with his customer and the brand probably longer than any of his peers would have. "I never felt there was a reason to leave. I liked what I was doing. The compensation was reasonable, and yes, I could have gone other places and gotten more, but I was enjoying my work. And I had a group of people that I enjoyed working with every day.
There was another reason. "We've had pretty consistent performance all the way."
One exception was 1997, which Zetcher remembers vividly. "What happened was we had stayed on a steady course and then all of a sudden we were way too young. I remember being in Kansas City in a store during the summer of '97 when a customer came up to me, saying, "How could you do this to me? How could you jilt me? And I said, 'Please. I know we made a big mistake. We're correcting it. Next year is going to be great.' And sure enough, we came right back with the classic styling," and Talbots enjoyed three of its most robust years.
During his pre-Talbots years, Zetcher was ceo of Kohl's Food Stores in Wisconsin and Illinois, and chairman and ceo of Bonwit Teller. He also put in 10 years at Federated Department Stores, now called Macy's Inc., in various financial, administrative and real estate positions, for awhile helping to find new locations for Bloomingdale's. Zetcher served as chairman of the board for the National Retail Federation from 2004 to 2006 and serves on its board of directors. He sits on other boards as well, including Talbots Japan Co. Ltd. and the Boston Downtown Crossing Association.
He was named the NRF's 2002 Gold Medal Winner, the industry's highest honor, and resides in Boston, with his wife, Ellen.
Aside from work, his favorite pastime is horse racing. He owns 40 thoroughbreds, and experiences a similar thrill and sense of anticipation and challenge he finds in retailing. "With both, you start over every season with new hopes and a plan. In retailing, you start each season with new products you hope your customers will love and, as the season ends, you evaluate markdowns to clear your inventories. In horse racing, you bring in new talent, the one- and two-year olds, and hope they develop into winners. And when they reach four, five or six years of age, you may look to sell them." The association extends to the clever way he names his horses. For example, one is called Booming Comps, and another, Classic Attire.He still owns his first winner — Gabriellina Giof and has bred her three times, and his horse trainer is racing hall of famer Ron McAnnally.
When he's not in Hingham or at the track, Zetcher is on what he calls his "Madonna Farewell Tour." It entails visiting every region and as many stores as possible to say goodbye to as many associates as possible.
"Only she did it six times and I'm doing it once," Zetcher said. "It is a long goodbye."
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