By  on June 18, 2007

When Talbots Inc. bought J. Jill Group Inc. in February 2006 for $517 million, it was more than just one big acquisition.

"It was a strategic choice to structure a business to have multiple brands under a corporate umbrella," said Philip H. Kowalczyk, president of J. Jill Group.

He's looking at the big picture, and discussing a corporation that for 59 years operated a single brand, Talbots, and has now changed its business model in a quest for continued growth.

Thanks to a sophisticated infrastructure developed to support Talbots' misses' business and network of subbrands, like Kids and Petites, the company is capable of expanding to incorporate additional independent brands as well.

"We can take some of that core strength and use it as a backbone to support more than one brand," Kowalczyk said. "There's no reason the Talbots platform can't support a third or fourth brand."

Any acquisition, though, must be consistent with Talbots' mission to be the dominant specialty retailer for women 35 and older. "There are certain places where Talbots can't go in terms of a style and aesthetic," Kowalczyk said, pointing out that J. Jill is "a very logical fit with Talbots."

While Talbots emphasizes tailored and structured casual and career clothes with clean silhouettes for women 35 and up, J. Jill caters to a similar demographic seeking a different style aesthetic. The J. Jill customer has a relaxed lifestyle and opts for comfortable clothes with "an easy sophistication and fluidity," Kowalczyk said. J. Jill's upper moderate to better pricing averages 10 to 15 percent below that of Talbots.

The collection competes most directly with Coldwater Creek and Chico's, and targets well-educated women 35 and older with a household income over $100,000. The sweet spot is women 44 to 48 years old, who have an "ageless appeal," Kowalczyk said. "J. Jill has always had a really good place in the market."

However, J. Jill's recent performance has not been good. "It is absolutely a turnaround," Kowalczyk said. "The sequence is getting J. Jill turned around and on a healthy profitable growth path and then looking for future opportunities. The happy news is that many of the hard assets, including the distribution center [in New Hampshire], the headquarters in Quincy, Mass., and the stores are all very solid. It's not a rebuild from that point of view."It has, however, been a rebuilding of the product and the staff — Kowalczyk took the helm from Gordon Cooke in May 2006 — and costs related to the acquisition have brought down corporate profits.

"In terms of the merchandise, our emphasis has been on correcting the color palette and flow of color, as well as injecting a clearer sense of newness in each delivery," Kowalczyk said. "But that's not all. We are also focused on delivering more distinct options and are working to eliminate style duplication. Our goal is to make it as easy as possible for our guest to create multiple outfits that are versatile, sophisticated and completely in sync with her creative approach to life and style.

"We started seeing movement [in improved selling] in the third and fourth quarter of last year. The trend line continued in the first quarter and is moving into the second quarter," he said.

The company is utilizing the best pieces of its own practices while combining them with Talbots' know-how in other areas.

At J. Jill, "anything that touches the customer — the merchandising, product development and marketing — we are choosing to keep separate" from the Talbots division, Kowalczyk said. "In other areas, we should be able to take advantage of corporate strengths in finance, sourcing, information systems and distribution, where there are major opportunities to achieve cost savings." Further savings are attained by virtue of J. Jill no longer being a public company, eliminating the need to maintain a separate board or produce an annual report. All told, the corporation is eyeing $36 million in savings annually through synergies.

Kowalczyk envisions J. Jill surpassing the billion-dollar volume mark within five years and doubling or tripling its store count, though there's a long way to go. It's currently a 250-unit chain with $450 million in sales.

There is also a view to eventually rolling out petite stores. "When the petite departments [inside J. Jill locations] achieve a certain volume, it's license to open a store," Kowalczyk said.

J. Jill is seeking to raise the productivity and capacity of its stores by developing fixtures and presentations that increase the number of items and outfits displayed, while maintaining the 3,000- to 3,500-square-foot layout currently operated. J. Jill may also one day open stores in Canada, where Talbots already operates, but Kowalczyk said that won't happen for a while. There are more immediate concerns.Since the acquisition, Talbots has been striving to inject a sharper identity to the product and clear definition of the brand. "Last year was about stopping the decline. This year is about stabilizing and beginning growth. Next year is about growth," Kowalczyk said. "We feel good about the progress. It could always be better and faster, but we are pleased with the major economic indicators we see in the business, and the top-line growth, year-over-year.

"The combination has been really good because J. Jill is a relatively young brand with a lot of growth in front of it. It didn't have a lot of discipline and infrastructure behind it. Talbots is really able to bring a lot of operational strength and capability that will allow growth to take off."

Obtaining demographic information and market intelligence — hallmarks of Talbots — should enable J. Jill to make informed real estate decisions.

Before the acquisition, J. Jill's expansion was generally driven by where retail centers were being developed. The mind-set was, "If some of the competition was investing, then it probably made sense for J. Jill to be there as well," Kowalczyk said. "But when you start expanding beyond 300 stores, you really need to add stores with care and creativity. It's really become more about where we will find our target customer." Lifestyle and regional malls have proven to be J. Jill's best locations, and the company is looking into Main Streets and village locations as well.

The store base is spread out, with a high concentration in the Northeast and New England, between Chicago and Minneapolis and in California.

"We are actually planning for growth in all three channels — catalogue, Web and stores," said Kowalczyk.

Before coming to J. Jill, Kowalczyk was executive vice president and chief administrative officer at Talbots. He played a key role in advocating the acquisition and now oversees all aspects of J. Jill's operations.

Running a retail brand is new to him. He spent 18 years of his career in consulting at Kurt Salmon Associates, where he focused on retail growth strategies, global supply chain management and merchandising issues, and rose to managing director. At KSA, he worked closely with Talbots, a client, for nearly a decade. Prior to KSA, Kowalczyk held positions at Federated Department Stores Inc., now called Macy's Inc.He acknowledges it's unusual for a consultant to become a retailer. "There are probably more retailers that become consultants than the reverse. But the transition for me was a return to retailing," he said citing his experience at Federated.

"One of the things that made [my] transition more likely to succeed was that at the time I left KSA, I was managing 70 percent of the company, in essence operating the business. I had a lot of experience managing a group." Since Talbots was a KSA client, "I had a lot of familiarity and affection for Talbots," Kowalczyk said.

He said it's stimulating for him, as the head of a brand, to not only lay out a strategy, as he did in his consulting days, but to actually be the one that implements the strategy and to be accountable. "At the end of the day, I'm heading up an apparel specialty brand. You definitely have a strong responsibility for the merchandise. I am very involved with our merchandising team, but equally involved driving a direct marketing business and operating a store chain."

He reports to president and chief executive officer Arnold Zetcher. "I've always respected Arnold," Kowalczyk said. "He spends an enormous amount of time in stores talking to customers and associates. I have learned a tremendous amount from Arnold. In certain key ways, I've been taking lessons from his book. He and I have had some very specific trips to stores for very specific reasons," including working on a store prototype that could be unveiled this fall.

"I wanted Arnold to be a big part of that," Kowalczyk said.

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