By  on November 16, 2005

The Bebe appeal is sexy, edgy and not at all mainstream America. Yet the specialty chain believes it's got $1 billion potential.

"I am convinced, more than ever, the connection customers have with our brand and our people will ensure that we get there," said Gregory J. Scott, chief executive officer of Bebe Stores Inc.

Bebe (pronounced bee-bee, not bay-bay) has a long way to go before it becomes a billion-dollar baby, considering sales last year, with 220 stores, came to $509 million. It's been in business for 30 years, prides itself on perpetually taking fashion risks, and even with pressure to grow after going public in 1998, the edge hasn't dulled. Instead, the company has revved itself up with new concepts and categories; accelerated advertising, which this year represents 4.2 percent of sales versus 3.8 percent in 2004; raised catalogue circulation, and boosted sales productivity to more than $700 per square foot, with 26 percent comp-store increases in 2004.

Then there are those continued TV tie-ins that started with product placements on "Melrose Place" and "Ally McBeal" in the Nineties. "Heather Locklear wore a Bebe micro-mini suit in her office, there was a scene on her desk, and you know the rest. That scene propelled our business and propelled our suit category," Scott recalled. "And Ally McBeal continued the favor by wearing the micro-mini suit into the courtroom."

Micro-mini suits are hardly the rage anymore, and suitings are no longer the backbone of the Bebe business. But Scott said that, as in the past, "Hollywood will define Bebe and help us get to $1 billion." Eva Longoria, one of the stars of "Desperate Housewives," wears Bebe on the show, and "really personifies our customer in such a big way," Scott said. (Although Longoria is in holiday ads for New York & Co., another specialty chain.)

The force behind the hip, Hollywood sex appeal is Bebe's in-house design team. "They're the kings" in the Bebe business, Scott said. "We believe we have evolved into a design-led and merchant-executed company. This is very different from eight years ago when merchants were king. Now, designers are kings for our company. Designers set the trends. Designers tell us what we are going to do. Designers tell us what we are going to buy." Bebe has a 50,000-square-foot building in Century City, Calif., with more than 120 employees, including 30 people in design and 50 in production, while the corporate offices are in San Francisco. Independent designers are also utilized to create exclusives, though more than 90 percent of Bebe merchandise is designed in-house."At Bebe, exclusive product with a distinct point of view is critical to our growth and our success," Scott said. "Our design team is our greatest asset and I will protect that asset vigorously."

He also emphasized the company's drive for greater domestic production, contrary to the industry's growing reliance on offshore manufacturing. Producing domestically is critical, Scott said, for faster deliveries and higher quality, which lately has been of some concern to customers. "We used to have a two-month turnaround from design to store. It's changed. We've grown. We know we need to be faster," Scott said.

Bebe wants to maintain an even balance of domestic versus imported merchandise. "Our goal is to continue to grow and support a U.S. factory base. While Wall Street believes we should move more production offshore, and in every conference call they ask me that question, we believe that domestic manufacturing capability is critical."

Scott's prescription for growth also calls for:

  • Refiguring international opportunities. A licensing deal with a partner in Singapore is being restructured. Also, with a "great partner," Bebe stores could open in Mexico, Scott said.

  • Perpetual risk-taking. "You have to change. You have to take risks," Scott said. "We are a company that takes risks. Wall Street hates it. That's what we think is going to propel our business. If we do things that we think are safe, we are going to get left in the dust."

  • Store openings, primarily through new concepts, such as the three-year-old Bebe Sport and the Neda by Bebe accessories chain announced this month, as opposed to the core Bebe chain, which will max out at around 250 units. However, a Rodeo Drive store is being built to create an upscale "crown jewel" for the chain.
According to Scott, the 35-unit Bebe Sport could grow to more than 300 stores in the U.S. alone. "Our sport concept grew out of [the questions]: What does our customer wear for the weekend, what does she wear casually? We know what she wears to work ... It's a smaller box, but the same productivity."He identified accessories as "a major growth strategy." Neda by Bebe is named after the company's vice chairman.

Bebe, he said, has four guiding principles: breaking convention and being contrarian, staying highly entrepreneurial, staying very lean (only Scott and Bebe founder and chairman Manny Mashouf have assistants) and staying humble and self-critical.

"For our customer, it's OK to wear sleeveless in the winter," Scott said. "I don't know why, but maybe she is going out. She likes to wear white all year long except in the Northeast, open-toe shoes never go out of season, and more is more. The more designed the better, and they wouldn't dream of wearing last year's fashion item this year."

Scott started his career at Macy's West, but found his niche in the specialty arena when he joined Henri Bendel and later, Ann Taylor. He felt he could make a difference in the business on an everyday basis and change things instantly. He also worked as president of Laundry by Shelli Segal.

He joined Bebe in 1996 as vice president of merchandising, left in 2000 to start Arden B., a competitor, and returned to Bebe as ceo in 2004. He considers Sally Frame Kasaks, a former Ann Taylor ceo, and Mashouf, his mentors.

"To tell you the truth, I never wanted to be a ceo. It kind of just happened," Scott revealed. "I work probably really hard and I love the Bebe brand. If I had known, I wouldn't have majored in political science at UCLA. I would have majored in business. I would have gone to every accounting class. Every ethics class. And maybe written my senior thesis on the pros and cons of black shawls."

In 1998, when the company went public, "many people still didn't know who we were." Scott called the Wall Street road shows "grueling" partly because meetings began at 6, but also because of the reaction to the advertising slides, one of which showed Rose McGowen (of the TV show "Charmed") looking a bit like Monica Lewinsky. "Some fund manager said, 'Who wants to look like that?' and I thought, 'Oh my gosh. Our stock is going to go out in a dollar.' I can still remember overhearing the naysayers who said, 'How can a company that sells sexy clothing be successful?' Well that was then, and this is now."We really believe that we are a brand first and a retailer second," continued Scott, who characterized the Bebe core customer as "contemporary, sexy, sophisticated modern, who above all else loves fashion. Internally, we always say she personifies someone who works for the day but lives for the night. She is a really fun customer."

While the contemporary look is everywhere today, "We have a 30-year legacy, which [other] companies don't have. We really also understand our customer. We never waiver from her. We know who she is. We believe that while she is sexy, we will not go trashy. That is very subtle ... Our goal is not to shock but to surprise. Pushing the fashion envelope will separate us from the others. When we are early, and the customer is not really there yet, it's OK. We like that. We like the competition to say, what the heck are we doing."

On Tuesday mornings, Scott organizes the new floor set in the store in the San Francisco Center, where, aside from Bebe, there is Express, Arden B., Guess, BCBG and other competitors, all lined up in a row.

"I walk everyone's windows," Scott said. "If anyone even looks particularly like ours at all, we change ours instantly. We want it to look completely different from the competition."

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