By  on March 18, 2013

Thomas “Tim” Belk, the chairman and chief executive officer of Belk Inc., has peanut butter on his mind.

He’s not eating a sandwich. He’s holding one of the Jiffy peanut butter jars that Dan Cathy, the president of Chick-fil-A, distributed for dramatic effect at a presentation on innovation that he gave at Belk.

“He told everyone to open the bottle and smell it — how fresh it was,” Belk recounted. “His message was to stay fresh. He talked about if the rate of change in your industry is faster than your company is changing, that is a danger signal. It’s not just the company at risk. It’s your job.”

It’s a message the 57-year-old Tim Belk has heard before. “My Uncle John used to say, ‘Change before you need to.’”

Uncle John is the late John Belk, a larger-than-life figure who ran Belk as ceo for 50 years, simultaneously served as mayor of Charlotte from 1969 to 1977 and has a freeway named after him. Whenever he was asked how many people worked at Belk, John’s stock reply was, “About half.”

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Compared with his gregarious uncle, whom he succeeded in 2004, Tim is understated and casual — prone to fleece pullovers rather than suits — but the strategies and changes he’s brought to Belk are certainly not.

Over the past two years, Belk and his team have created a culture of innovation and calculated risk-taking. They have triggered a battery of strategies to re-brand and modernize the business and its image, and move past a reputation for being industry followers, not leaders. This sea change stems from the recession, Tim’s thirst for knowledge from a universe of sources and efforts to apply what he’s learned from the family, which has always owned and operated the business and gives no indications of letting go.

The master plan, unveiled this year in tandem with the celebration of Belk’s 125th anniversary, calls for the $3.8 billion, 301-unit Belk to attain $6 billion in sales within five years and earnings growth of 10 percent a year. To reach the goals, the company has become capital-intensive, investing $600 million over five years, from fiscal 2012 forward, in key initiatives to drive the business.

“That cap spend as a percent of sales means we are moving to the top of the industry or very near,” said Brian Marley, executive vice president and chief financial officer, who retires in May and will be succeeded by Adam Orvos, executive vice president of human resources.

“We have a strong balance sheet,” Marley said. “We built liquidity during the recession. We cut dividends and benefits but not staff or anything customer-facing. We didn’t see any big layoffs. The biggest thing we cut back was new store spending.” But right now, Marley stressed, “We have a lot of momentum.”

Belk is spending $270 million for store remodels and expansions, touching more than half the chain over three years; $263 million on new technology; $42 million on branding, and $14 million to improve service.

RELATED STORY: The Business of Belk >>

Breaking down the budget even further, $140 million over the next five years is earmarked to pump up flagships and convert up to 15 stores into flagships through enlargements, remodels or enhanced assortments of “premium” brands, or some combination thereof. Belk will open two new flagships, in Dallas and Huntsville, Ala., in 2014. The Dallas store will be the retailer’s first flagship in Texas. Belk currently has 15 flagships in its major markets, including Atlanta; Raleigh and Charlotte, N.C., and Birmingham, Ala., and in a few years could practically double the count. Stores range in size from the 330,000-square-foot SouthPark flagship in Charlotte to the 21,000-square-foot unit in Zebulon, N.C.

Belk is eyeing further expansion in Texas, where the company saw its biggest sales gains last year as well as strong Internet results and strong responses to new marketing. Belk entered Texas 20 years ago with two openings, in Paris and Greenville, but it wasn’t until 2005 that the company really set out to expand there. It still sees plenty of room in the state, where it believes it could double its volume, currently just under $100 million, in the next five years.

Expansion to markets contiguous to Belk’s current geography is under consideration. One possibility is southern Florida where Belk has no stores, though Tim characterized that part of the state as “crowded” with retail. Maryland and Kentucky, where the company has just a handful of stores, are also possibilities.

Belk intends to grow Internet revenues to at least 10 percent of total sales. Last year Internet sales were just $135 million, representing 3.3 percent of the business, though it’s the fastest-growing segment, having increased from $35 million in 2009. In the past two years, the Web site was optimized for mobile phones, an iPad app was introduced and drop shipping (direct from vendors to customers) was introduced, and a $4.5 million, 515,000-square-foot e-commerce fulfillment center began operating in Jonesville, S.C., last June.

Belk last year partnered with Deloitte to devise a road map for omnichannel capabilities, entailing replatforming e-commerce, replacing point-of-sale systems, establishing inventory availability so one channel can support the next, expanding mobile, and creating a single customer-data warehouse. According to Tim Belk, the company has data stored in eight locations and needs “one version of the truth.” About 150 employees will be added to corporate offices, where there currently are 1,000 employees, with the new jobs concentrated in IT and e-commerce. Belk is leasing about 50,000 square feet of space at the Coliseum Centre complex, adjacent to Belk’s headquarters, where it’s moving nearly 300 employees.

With merchandise, there’s an ongoing intensification of shoes, jewelry, denim, accessories, sunglasses and contemporary and Southern designers, with new merchandise, fixturing and in some cases greater square footage. At the same time, the company is reducing its dependence on traditional labels and advancing its stable of private brands. Two important launches this month are Cynthia Cynthia Rowley, Belk’s first true exclusive designer collaboration, and Made Cam Newton, a men’s private brand endorsed by Cam Newton, the stylish quarterback of the Carolina Panthers.

In addition, the company has been developing signature branding events like the Belk Bowl college football game that’s broadcast on ESPN and gives Belk national exposure, and the Southern Designer Showcase, a strategy featuring designers with ties to the South in Belk stores. The marketing mantra introduced two years ago — “Modern. Southern. Style.” — serves as the underlying guide for all initiatives.

“The wake-up call came from the recession,” said John Belk, president and chief operating officer and the brother of Tim Belk. “Every retailer was significantly challenged by the recession. Also, the customer has changed. They started demanding a lot more value than they used to. We are a business that’s based pretty much on discretionary spending. Do you really need another tie?”

High-level management changes such as the departure in 2009 of McKay Belk (also Tim’s brother), who served as president and chief merchandising officer until he decided that ministry work was more his calling, stirred the self-analysis as well.

Since 2010, Belk’s 110 officers (those at the vice president level or higher) have been taking the Dennison survey on an annual basis to determine their views of the company and its culture. John and Tim have both found the experience revealing.

“We were afraid to take risks, we were clear about short term goals, with the long term we were weak. It was very humbling, leaders have to own this,” said Tim, who tends to intellectualize the business and soak in ideas from all sorts of business and academic sources without being restricted to retailing.

“We didn’t get very high marks for encouraging people to take risks,” said John, the more formerly attired of the brothers. “We tended to follow the lead of others. We needed more clarity on how to compete. We had a tremendous amount of good will, but we didn’t embrace change as much as our customers changed. We needed to do a better job articulating our reason for being.”

Ultimately, “We embraced the fact that we are a regional in a consolidating industry,” said John. “Now we are taking more risk in technology. We don’t see an end in sight, though our cfo says there needs to be an end from a spend point of view. I would equate money with risk.

“We are also taking a lot of risks around still spending a fair amount on real estate” to help perk up locations in troubled malls. “We have a lot of stores in malls that are not healthy,” said John. “New Bern, N.C., is a great example where we partnered with the mall developer to bring it back to life. New Bern was a tired mall with a lot of vacancies. Our store was dark, the carpeting was worn, and department flows didn’t make sense because people were coming to our store from the parking lot.” When the mall was more vibrant, they mostly entered Belk from inside the mall, though in recent years, they avoided the mall and just shopped Belk. “We knew the trading area. We had been there a long time. We needed the support of the mall.” Belk sunk $3.5 million into the property to relocate departments for better flows and adjacencies, update fixtures and add 7,000 to 8,000 square feet of selling space. According to John, there are 10 malls where Belk has “invested heavily.”

The company has also been busy relocating stores, such as in Salisbury and Morgantown, N.C. “A lot of 20-year leases are coming up for renewal,” posing additional opportunities, John noted. Last year an existing store in Waynesville, N.C., was relocated to a new, larger location at the Waynesville Commons shopping center, and two stores in Pensacola, Fla., were combined into a completely renovated store at the Cordova Mall.

“In this business you either evolve or you go out of business,” said Bill Roberts, chairman of Belk’s northern division of stores, as he gave a tour of the four-level SouthPark flagship. The location is a good illustration of how stores throughout the chain are being remodeled to focus on core categories and rigged for better service. The SouthPark unit generates just under $80 million in sales, ranking second in the department-store chain in volume, next to the Crabtree store in Raleigh, N.C., which exceeds $80 million.

SouthPark is also among the stores that have benefitted from the “service excellence” program, where teams at the stores have been reorganized so selling associates do less processing of the products, like unpacking, putting on hangers or affixing sensor tags, so they can concentrate on the actual selling and get to know customers better. “There’s a consistent approach to interacting with customers,” Roberts said, from the greeting, to suggestive selling, to putting items in the shopping bags and walking around the cash wrap to extend a more personal thank you, and to following up with customers for future transactions.

“We’re not interested in a quick sale,” Roberts said. “The next iteration is to build that product knowledge. It’s still not where it needs to be.”

Roberts then takes his guest to the lingerie department. It’s been repainted in lavender, manned with associates who are certified fitters and remodeled with a more comfortable fitting room, in effect becoming “the selling room,” with furniture, chandeliers and photos. It’s all intended to embrace the “Modern. Southern. Style.” marketing message, Roberts notes. The same holds true in children’s, where there are more graphics, lifestyle images and new “six-way” fixtures and “hang-fold bunkers” to hold and display a greater density of product without sacrificing shopability or visual impact.

Shoes are a priority, with the goal being to increase square footage from 6 percent of store space to 9.5 percent. SouthPark holds 140,000 pairs. “There should be closer to 200,000,” Roberts noted.

There’s also a new 3,000-square-foot Lilly Pulitzer concept shop. It’s a key brand at Belk that at SouthPark generates about $1.5 million in sales. Associates are equipped with iPads to show shoppers products yet to arrive, do some preselling and also receive merchandising instructions from the Pulitzer home office, which can view the SouthPark shop via FaceTime. Furthering the shop environment, Pulitzer has distinct carpeting and signs and a sense of intimacy. Vineyard Vines, another key brand, has a unique shop concept too, designed with wainscotting and whimsy.

The tour extends to the 174,000-square-foot, $35 million Pineville store in Charlotte, which has been remodeled for a more contemporary ambience, with an open-sell, classification-driven cosmetics department, including a new look for Lancôme that takes a minimalist approach to merchandising here, and an open-sell jewelry area as well, with less case line. Shoes, formerly dead center in the store and split down the middle for an aisle, is now on one side of the floor and has triple the space. Such brands as Coach, Frye, Kors, BCBG, Anne Klein and Korks were added to the assortment to further the more modern appeal Belk is seeking.

The firm was founded by William Henry Belk, Tim’s grandfather, when he opened his first store in Monroe, N.C. Retailing was already in his blood. When he was only 12, William Henry Belk started working as a store clerk at B.D. Heath’s in Monroe, earning $5 a month. During his 14 years there, he sometimes managed the store when Heath went on buying trips. Developing a passion for retail and inspired by John Wanamaker, Belk opened the Monroe store in 1888, offering dirt-low prices. Everyone in town thought the store was doomed to fail, but Belk beat the odds and netted a $3,300 profit the first year. He called the store the “New York Racket,” but three years later it changed to W.H. Belk and Bro when Belk lured his brother, Dr. John Belk, away from the medical profession to partner with him in expanding the retail venture. They opened additional stores in Chester and Union, S.C., and opened a fourth store in Charlotte, where the Belks confronted their first real serious competition.

Yet Belk was keenly competitive, operating with the slogan “the cheapest store on earth” and selling one-cent items such as pencils, fish hooks and matches, as well as overalls and suits. He cleverly staged his grand opening on the same day that the circus came to town, to feed off the crowd. “A bargain is a trade that leaves both the buyer and the seller feeling good,” Belk would say.

Before turning 40, Belk had several stores operating, in growing communities surrounding textile mills, and with local partners invested in the business. He was hardworking, deeply religious, active in the community and philanthropic, all traits that served the business well and built shopper loyalty. No stores were closed during the Great Depression, and rapid expansion occurred, with 111 stores opening from 1933 to 1942. The merchant prince died in 1952.

From the 1950s to the 1980s, Belk evolved from bargain stores to upscale department stores and followed the population migration from downtowns to the suburbs by opening stores in regional and neighborhood malls. Over the decades there were more than 130 partnerships established, leading to store names like Belk-Simpson, Gallant-Belk or Belk-Matthews. Several of the partnerships lasted generations. The business model was innovative and kept the store network connected to the Southern communities and their needs.

In 1997, Thomas Belk, the brother of the late John Belk and his right-hand man in the business, as well as being the father of Tim and John Belk, died. The next year a pivotal step was taken. Belk consolidated its 112 separate corporations into a single company.

“Tim likes to say that Belk was essentially reborn in 1988. That’s really true in a lot of ways,” said Ralph Pitts, executive vice president over real estate, legal, taxes, internal audit, communications and store planning. While the old structure did keep the stores community-focused, it became cumbersome and inefficient if Belk wanted to invest in the stores. A more centralized structure was required to bring strength and consistency to the Belk brand. “We were handcuffed to move assets around when there were 112 corporations,” Pitts said.

Goldman Sachs was hired to look at each of the 112 companies and valuate them five different ways. The highest value was assigned to each corporation, and from that value each corporate owner was offered shares in the newly formed Belk Inc. “When we put all the companies together, we ended up with 700 to 800 shareholders and we became subject to SEC regulations,” Pitts explained. “We hit this tripwire of having more than 500 shareholders, so we had to file proxy documents and ask for SEC approval. It was a massive filing, 7,000 pages, because of all the companies involved. In terms of paper volume, it was one of the largest individual filings the SEC ever received.”

Belk remains about 70 percent family-owned, with the family of the late Tom Belk — which includes Tim and his brother John and two other children — owning about 25 percent. Sarah Belk Gambrell, a director of the company and daughter of the founder, owns about 20 percent, and the late John Belk’s family owns about 25 percent.

Belk Inc. today stands as a public company that’s not publicly traded, though the stock is traded over the counter, not on any public exchanges. As a public company, Belk is required to report results. “That reporting requirement has given us some discipline,” Pitts said. At the same time, not being publicly traded frees the company from Wall Street scrutiny and pressures from retail analysts and enables it to more readily invest for the long term rather than worry about the short term, which generally leads to a healthier company.

“Actually, we are run just like a public corporation,” said Kathryn Bufano, Belk’s president and chief merchandising officer. “We did focus groups that told us customers did not realize it was still family run. They didn’t realize the Belks were real people. When I joined the company, I didn’t get the feeling that I was entering a family-run business at all. I got the feeling that I was enjoying being part of an important regional department store.”

Industry sources credit Belk’s success to strong local ties, valuing customers, long-term thinking and management continuity — Tim Belk is only the third ceo. Belk remains a regional department-store chain, though it’s transcended the stigma and has had a significant hand in winnowing down the sector, acquiring Leggett, Proffitt’s, McRae’s and Parisian in an acquisition spree from 1996 to 2006. Most regional nameplates have disappeared due to competition from national chains or acquisitions, and for those still standing, such as Bon-Ton and Boscov’s, business is tough, particularly with the rise of national chains such as Macy’s, Nordstrom, Wal-Mart, Kohl’s and Target.

“The landscape is quite different now,” said Abbey Doneger, president of the Doneger Group merchandising, marketing and research firm. “The consumer has so many choices, you have to be forward thinking to address the consumer and provide quality product at great value. Belk wants the best brands, and they are definitely providing an appropriate mix to each store and each town they’re in. They believe in the direction the company is going. Tim and the team are very humble. Leadership is about listening, about motivating, working well in the environment and having the guts to make some tough decisions, which they are making in terms of investments in the business and re-branding the business. They do their research, move at a very fast pace, but are very methodical and diligent on how they rethink the business.”

“Tim is a great listener,” added Arnold Aronson, managing director of retail strategies at Kurt Salmon. “He’s very astute and attuned to innovation and leadership. He does draw [ideas] from the outside, but he’s not impulsive. He’s measured, methodical and thoughtful. For building a business in this age of innovation and omnichannel without losing sight of the customer, he’s got the prototype.”

At the Feb. 27 employee kickoff of the 125th anniversary celebration, hundreds of employees gather in the center court of the Belk headquarters and descend on the Belk cupcakes with blue and white icing, reflecting Belk’s updated logo. “Don’t you like having a party in the middle of the day?” Tim tells the crowd, then shares some details about the events, prizes and commemoratives surrounding the celebration. “We want to celebrate our heritage but don’t want to get carried away with how old we are,” he says. “Even being 125 years old, there are a lot of things going on to make our company feel like a new company.”

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