When Brendan Hoffman left Neiman Marcus last Oct. 6 to become president and chief executive officer of Lord & Taylor, the Dow Jones Industrial Average was over 10,000. Four days later, it had fallen below 8,500 and, quite suddenly, “trading up didn’t sound very appealing,” he said.
As a result, Hoffman, who spoke on a recent panel discussing “The Perfect Storm — How to Get Through It” sponsored by Emanuel Weintraub Associates Inc. in New York, began “rethinking the merchandising strategy” of his predecessor, Jane Elfers, who had dropped brands such as Calvin Klein Jeans, Liz Claiborne, Nautica, Jockey and Gold Toe in favor of higher-priced labels.
For example, he said, the opening price for men’s suits had been raised to $600 last year, double the $300 retail price of prior years. “So we looked at the brands and said, ‘We’ve got to get them back in the store,’” Hoffman said. These “add-backs,” he said, will generate $60 million in sales this year and so far, “we’re pleased with the results.”
Although these reintroduced brands are in many cases the same as those found in traditional department stores, Hoffman believes Lord & Taylor has an advantage because of its superior customer service, edited assortment and more intimate environment. Additionally, the store “can be a soft landing spot” for the customer trading down from luxury stores, Hoffman said.
In addition to merchandising, L&T made other tough decisions to navigate through the recession. The company cut nearly $100 million out of its expense base by eliminating positions and creating a shared services organization with its parent company, Hudson’s Bay Trading Co. A rebranding campaign was eliminated in favor of more pithy, value-oriented ads designed to drive customers into the store. The tag line of “Shop Smart at Lord & Taylor” has resulted in sell-throughs “north of 20 percent,” he said.
The combination of all these things is designed to position the retailer for growth when the economy turns around. “There’s no one silver bullet,” Hoffman said, noting it requires a “combination of strategies to execute on with little room for error.”
Joining Hoffman on the panel at the Harvard Club were Joseph Gromek, president and ceo, Warnaco Inc.; Mindy Grossman, ceo, HSN Inc.; Gilbert Harrison, chairman and ceo of Financo Inc., and Adam Rifkin, senior vice president of the global retail/consumer group at Barclays Capital.
A consensus emerged that, even with stabilization in the economy expected in the second half of this year, successful companies will need to continue to streamline operations, build up their balance sheets and at the same time grab market share.
Noting that “cash is king” in the current market, Gromek commented that Warnaco plans to cut inventories 10 percent this year and another 10 percent in 2010.
“We cut to order now on new goods,” he said. “We’re not chasing every last sale.”
Gromek said that despite the downturn, his company is sticking with its plan to spend $20 million to add 100,000 square feet of retail space this year to support the global expansion of its Calvin Klein brand, which racked up $1.5 billion in sales last year, three-quarters of the company’s total.
“Our growth revolves around Calvin Klein,” he said.
Rifkin of Barclays said he expects stabilization in the back half of 2009, even in the absence of improvement in unemployment. Consumers, he noted, have adjusted to lower levels of income.
“We’re starting to see them spend again slightly,” he said. “There is no retreat to unemployment and we’ll see it rise over the next few months, but unemployment is a lagging indicator. Restaurants are saying people are starting to dine out again.”
He expects the current dearth of acquisitions to end once the economy improves and there’s money for deals. “Things will get better, and when they do, a flurry of acquisitions will erupt,” Rifkin predicted.
Before that, however, he expects more stores to fail. “Retailers can survive one or two selling seasons, but not three. If holiday is bad, we can see another wave of bankruptcies in December,” he concluded.
Referring to the last few months as the “Great Decession of 2009,” Harrison addressed the luxury market and the reaction of consumers to price points that he labeled “ridiculous.”
Citing a Bain & Co. study, Harrison, said the savings rate among consumers is expected to increase in the first half of 2009, with a corresponding 15 to 20 percent decline in luxury sales. Bain expects a stabilization in the luxury market in the second half of 2009, a sentiment shared by Financo, Harrison said.
If price points need to modified, the focus on exclusivity does not. He noted the practice of Louis Vuitton, where 20 percent of sales are from fashion merchandise. “Louis Vuitton cuts up the fashion it doesn’t sell. Chanel does it too to preserve exclusivity,” he noted.
HSN’s Grossman identified six “critical imperatives” that will drive growth at the multichannel retailer: a differentiated brand experience; growing the active customer base; leveraging content and technology; redefining value; creating a culture that embraces risks, and focusing on return on investment and operational discipline.
Although Grossman said she expects the retail environment to “remain challenging in the short term,” she foresees an uptick later in the year and is positioning her company to grab the opportunities when they arise.
Emanuel Weintraub, ceo of the company that sponsored the session, noted, “Ninety-one percent of Americans have jobs and they have income.” The old forecast model, where the past predicts the future, is gone, replaced by a new focus on value, great product, price and quality, he said.
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