For Fashion’s Night Out, designer handbags from the bankrupt Lambertson Truex valued at $6 million in court were put out for sale in seven stores. This week, five Loehmann’s were heavily stocked with Barneys New York merchandise, with the Chelsea unit alone rolling out about two dozen racks in men’s and women’s, and draped in big signs steering shoppers to the sharply discounted, high-end merchandise.
Now Loehmann’s, which has been struggling in the tough economy, has to keep the goods flowing in. The 63-unit, $425 million off-pricer this week mailed a letter to vendors outlining its improved performance last spring, though the letter was triggered by negative market reports, in particular one from Standard & Poor’s questioning Loehmann’s future. S&P downgraded the retailer, citing weak liquidity, poor execution, declines in comparable-store sales and the possibility of default.
“My real issue with Standard & Poor’s is that they wrote something without discussing it with us. They’ve never met management,” Loehmann’s chief executive officer, Jerald Politzer, told WWD. “They based the report on first-quarter results, not the spring season,” extending from February to July. “I think our execution is exceptionally good as a company. Inventories are in line. Margins are running ahead. Liquidity is improving.”
Normally, Politzer keeps a low profile. But for him and his team, the S&P report was disturbing, coming after months of hard work trying to strengthen Loehmann’s. While acknowledging issues surrounding factors and the credit markets, Politzer stressed that Loehmann’s retail operations are improving. In the letter to vendors, he cited certain spring results, including earnings before interest, taxes, depreciation and amortization up almost 50 percent to $5.1 million from $3.5 million in 2008; comp-store sales at negative 6.3 percent from negative 12.1 percent in the year-ago season; gross margins at 40.4 percent from 39.6 percent, and expenses down by $6.2 million.
Loehmann’s lost money last year on a net basis, but Politzer declined to specify how much. The next few weeks are critical because the store needs to replace its $35 million revolving credit facility with CIT Group Inc., which itself is teetering on the brink of bankruptcy. The revolver expires at the end of this month. If a deal can’t be reached with another bank, Loehmann’s parent, Istithmar, will have to step in to support the retailer’s ongoing operations. That might be hard, however, because Istithmar is struggling with its own debt problems and its other retail holding, Barneys New York.
“Loehmann’s is in the midst of the syndication process to refinance our existing revolver,” Politzer said.
Meanwhile, factors have been tightening up terms and some don’t issue credit to vendors shipping Loehmann’s. Beyond the immediate concerns, Loehmann’s has $110 million in long-term debt coming due in 2011, which must be refinanced eventually. Istithmar has denied speculation Barneys is up for sale, and as far as Loehmann’s, “It is not up for sale,” Politzer said. “If it is, I would be more surprised than anyone.”
Since becoming ceo in May 2008, Politzer has been on a mission to hone Loehmann’s upscale niche in the off-price sector, strengthen its Back Room designer department and procure more trend-right merchandise. “To me, the Back Room is the cornerstone of the franchise,” said Tony D’Annibale, senior vice president and general merchandise manager over all categories and a 20-year veteran of Loehmann’s. “It’s highly penetrated in 20 doors,” though 45 of Loehmann’s locations have Back Rooms.
New signs, fixtures, carpeting and a few mannequins have filtered into the stores, though there’s still that warehouse aura, with virtually wall-to-wall four-ways. Double-length racks get rolled in for special events, like the Barneys promotion, a recent one with Theory, or a clearance when discounts go even higher than the normal 30 to 60 percent off. Currently, Loehmann’s stores appear less smothered with goods, with inventories down 20 percent from a year ago, better organized and easier to shop.
There has been a wave of new hires on the buyer and divisional levels in the last 12 months, mostly to replace departing executives. The off-pricer also hired its first-ever vice president of store design and visual presentation, former Burberry executive Glenn Trunley, and in April created a three-tiered loyalty program with benefits and incentives like free deliveries, previews and a liberal return policy.
“We trade way above the typical Marshalls and TJ’s. We’re higher end,” Politzer said. “When we think of the competition, we think about Off-5th and Rack, which has a broader range. Century 21 is a competitor. We shop the stores — Bloomingdale’s, Neiman’s and Saks — look at their brands and go after them.”
Add Barneys to the list. Loehmann’s Chelsea store, which does over $30 million in volume, ranking among the highest in the chain, resembles a Barneys warehouse sale, considering the extent of the offerings. Ironically, Loehmann’s in Chelsea was formerly a Barneys flagship. Politzer said Loehmann’s has carried Barneys goods before, but never to such a degree and would regardless of being owned by Istithmar.
The location stocks plenty of upscale goods, including designer sunglasses from Betsey Johnson priced $20.99 from $65, and Valentino ties at $69.99 from $155. In the 4,600-square-foot Back Room, there’s Cynthia Steffe, Marc Jacobs, Moschino and Dolce & Gabbana. Within the Lambertson Truex assortment in the handbag area, there’s a snakeskin bag marked down to $499.99 from $3,495, and an ostrich bag priced $1,500 from $8,900.
“There aren’t that many off-pricers than can sell a $1,000 bag,” Politzer said. “The treasure hunt is still there, but we’ve made it easier to find the treasure.”
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