By  on March 29, 1994

NEW YORK -- After 10 years of sagging earnings and a prolonged identity crisis, U.S. Shoe Corp. has put its foot down.

With a new management team at the company's Women's Specialty Retailing Group, led by Michael Searles, president and chief executive officer, the company has started to turn its apparel stores into better focused, more efficient operations that are expected to be profitable in 1994.

As reported, 1993 was a dreadful year for the apparel segment. Profits plummeted 53.9 percent to $11.7 million in the fourth quarter. Sales were off 5.4 percent, to $364 million from $385 million, although same-store sales inched up 1.3 percent. For the year, the group lost $41.7 million, against an operating profit of $12.1 million the preceding year, and sales dipped 3.6 percent, to $1.2 billion from $1.3 billion.

"The apparel group at U.S. Shoe had been in a period of declining earnings over the past 10 years," said Searles, the former chief executive of Kids "R" Us, who signed on last June. WSRG is based in Enfield, Conn., and operates 2,237 stores. Casual Corner, its biggest chain with 701 stores, generates about half the WSRG's volume and serves young working women with moderate-price suits and career separates. Petite Sophisticates, the biggest profit earner, has 360 stores and caters to petite-size women with career wear.

Its other chains include Pappagallo, a chain of 16 upper-moderate to better apparel and footwear stores; Career Image, a 29-store outlet division; Capezio, a footwear and bodywear chain of 70 stores, and August Max Woman, 106 shops for large sizes.

Its parent, U.S. Shoe, is in Cincinnati.

Casual Corner has suffered most from a lack of focus and is subject to the greatest change. The turnaround couldn't be coming at a more crucial time.

One analyst, Jeffrey S. Stein of McDonald & Co. Securities in Cleveland, said, "The apparel division switched between casual and career wear and confused the customer in the process. It lost market share to department stores." "They've figured out where they want to be -- in moderate career wear. The question now is, can they execute it?"What the new team has already done is influence the cost side dramatically, cutting $30 million in costs from apparel operations."

Searles pointed to several giant steps the company has made to get back on track:

  • Slashing the vendor base.
  • Sharpening price points.
  • Refocusing merchandise.
  • Refurbishing stores.
  • Restructuring management.
  • Implementing a mall manager strategy.
"We were not fashion merchants," he said. "We were coming out with versions of last year's fashions. And prices were based on markup, not value. We were cost-based, not market-driven."

Searles added, "We were also extremely overassorted, and the customer couldn't tell what was important. We weren't taking advantage of the power of synergy. We bought less than $1 million a year from 93 percent of our resources."

To remedy this, WSRG reduced its vendor structure by 50 percent overall, slightly more at Casual Corner. Buying narrower and deeper has resulted in better prices.

Mark Lowenberg, a former Macy's East executive who joined as president of Casual Corner in September, said, "A majority of our competitors -- specialty stores in the malls -- are in the casual and contemporary business. Stores like Ann Taylor and Talbots, which cater to the career customer, are higher priced. There was really nothing for the moderate working customer. That was the area dominated by the anchor department stores, which are our main competition."

Among the key items for spring are a linen/viscose jacket for $99 and a jacket-vest at $79. No separate item is higher than $100, he said. Previously, separates had run as high as $120. Lowenberg said there are several elements Casual Corner might incorporate from the strategies of department stores, like improving store fronts, windows and display.

"Store fronts must be strong because we're not offering the weekly [promotional sales] booklets, nor the frequent one-day sales," he said. "We're also telling our stores where things should go, for a more consistent look."

The company wants to capitalize on its position as the one of the country's largest retailers of suits, said Searles.One of the new programs for spring is a women's suit club, which started in mid-February. After a customer buys three suits, she gets $100 off on a fourth. The purchases must be made within one year.

The WSRG has instituted lower retails across all its key brands on basic items, said Searles. It is particularly apparent in Casual Corner.

"We needed feature items at lower price points," added Lowenberg, "so we started a 'Best Buys' program for spring."

For example, a silk shell with a three-button placket back and removable shoulder pads, at $19.50, sold 51,000 pieces in February. They were $29.50 last year. The company sold 100,000 all spring last year, said Lowenberg.

Another hot item has been a fine-gauge sweater in 55 percent cotton/45 percent acrylic. It is also $19.50, down from a range of $29 to $36 last year. In February, the firm sold 89,000 units.

Searles pointed out, "We're not reducing our margin plans at the same time we're increasing turnover. The ticketed price is about 15 to 20 percent lower, although the actual selling price [accounting for markdowns] is probably about the same."

He said lower prices move merchandise faster, creating better flow.

Lowenberg added, "The inventory philosophy is now 'flow, not front-load.' We project a 10 percent increase in our stock flow per year. After this year, we expect to be at four times to four-and-a-half times per year."

Planning further ahead gives manufacturers more time, said Lowenberg, and allows greater availability of product in an ample range of sizes and colors. According to focus groups, the top customer complaint was a lack of assortment.

Overall sales per square foot are about $240 to $250; Casual Corner is about that, Petite Sophisticates is a little higher. The first goal is to reach $300, with a long-term target of about $350, Searles said.

The average Casual Corner store is 4,500 square feet. The company had tested a larger format, but decided the smaller size better suited display and inventory requirements.

At Casual Corner, fashion was the first area to be overhauled.Lowenberg said the chain previously concentrated on "knocking off mainstream lines, not even bridge and designer lines, a year later."

He said the company implemented a nine-person fashion office -- there used to be one person -- and staff that goes to major fabric fairs and shows around the world. Previously, there was little or no traveling. The company also buys fashion services, and offers its stores this information.

The executives noted there is no cross-buying of apparel or blending of merchandise among the store divisions, however. They have separate buying staffs, and strive for separate identities.

Among the new styles and fabrics Casual Corner is rolling out over the next two months are:
  • Italian linen and viscose.
  • High three-button jackets and unconstructed Nehru-style jackets.
  • Narrower-leg pants.
  • Vested looks and sweater vests.
  • Longer printed floral skirts.
Private label merchandise is sourced from the company's Hong Kong office. In 1993, private label was about 25 percent of all inventory in the total WSRG, said Searles. This year, it will approach 40 percent. Private brands bear the store names.

The company has implemented changes in the corporate culture as well. "One of the more important changes is in communications -- making sure everyone in the company understands our mission," said Arlene Stern, executive vice president and chief operating officer, who joined U.S. Shoe in July after eight years with P.A. Bergner in Milwaukee and 10 years with Supermarkets General, the parent of Pathmark. "We went from being independent operators to building a team."

Stern said the elimination of some layers of middle management has made for faster decision-making. For example, there are now nine executives reporting directly to the ceo, down from 16.

One of the most interesting corporate innovations has been a mall-manager system. Instead of individual store managers for WSRG's various units in a mall, there is one manager for all its stores in the mall. The move should save $10 million yearly.

A primary advantage is that a mall manager has an overview of all the operations, and can market the various store brands together. Even though the system began only in January, it has started to reap results."In Minneapolis, for example, the mall manager brought some shoes from the Capezio store to a Casual Corner suit sale, to show how they went well with the suits," said Stern. "We sold out of those shoes.

"The mall manager concept also builds a career path for our associates," she added. "We can develop people for management who can learn about the different businesses, so we cultivate and keep good people."

Another area in which the company needed improvement was customer service.

"One of the signatures of the past has been spending too much time on pushing our people to accompany the customer from the minute she comes in, to push product, get that multiple sale," said Stern. Research, however, showed customers didn't like to be followed around, that 70 percent preferred to browse but wanted knowledgeable people available.

Shoppers also wanted strong fitting-room services, like salespeople who can run out to the floor for a new size, or to help accessorize an outfit.

"That's critical, because that's where the sale is made or lost," she said. "We're not servicing our customer less, we're servicing her better."

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