By  on October 14, 2010

Regional department stores are fighting back.

While Macy’s continues to flex its muscle as a national department store chain with high-profile exclusives and proprietary brands, local retailers aren’t prepared to roll over and play dead just yet. Those that remain are reaching into their arsenal for ammunition of their own, whether it’s designer associations or aggressive marketing plans designed to appeal to customers seeking that hometown department store experience.

In the past few weeks, The Bon-Ton Stores Inc., which operates 277 stores in the Northeast and Midwest, revealed it had signed a license and design agreement with Tharanco Lifestyles LLC and John Bartlett for Bartlett to take over the design of its Consensus private label men’s apparel and accessories collection. The line, which will include a full assortment of tailored clothing, sportswear and furnishings, will debut for fall and be called John Bartlett for Consensus. This followed on the heels of a deal a few days before, when Bon-Ton contracted with Casual Male Retail Group Inc. to supply big and tall men’s apparel through the store’s e-commerce site and, beginning in the spring, a limited number of its stores.

Bud Bergren, chairman and chief executive officer of Bon-Ton, said these deals were designed to fill holes in the company’s assortment.

“We look to fill gaps,” he said. “With Casual Male, their stores are mainly in strip centers, and around 80 percent of their customers are male. At our department stores, 75 to 80 percent of our customers are female, so this gives them a chance to reach a female customer, and that’s a plus for them. And for us, it gets us into a business that we weren’t in with somebody who knows that business.”

The Bartlett product, which Bergren expects to hit stores in June of next year, is also expected to bolster sales of the company’s existing private label. Although the initial push will be in men’s apparel, the plan is to expand into boys’, home and luggage down the line. “John is a Midwest guy, so he understands our customer,” he said.

Bergren said understanding the customer is key to the survival of the regional specialists. “Our relationship is with the customer,” he said. “They don’t look at a store and say, ‘This is a regional department store.’ Instead, they ask if we have the right product at the right price.”

In addition to these two deals, Bergren said Bon-Ton has exclusives with Ruff Hewn, a men’s outdoors-inspired brand, as well as Laura Ashley in home and Evan Picone in women’s. These exclusives are top performers, he said. “That’s the direction going forward,” he noted, adding that today, 85 percent of the mix at the Bon-Ton stable of stores — Bon-Ton, Bergner’s, Boston Store, Carson Pirie Scott, Elder-Beerman, Herberger’s, Younkers and Parisian — is different from that found at Kohl’s or J.C. Penney, and 40 percent is different from that at Macy’s.

Since 2006, he said, the percentage of private brands at Bon-Ton has risen from 14.5 percent to 21 percent, and sales have stabilized. In September, Bon-Ton posted a 5.9 percent increase in same-store sales, which was above plan. Best-performing categories included better missy sportswear, cosmetics, juniors and accessories; jewelry was also strong.

“We feel good about the fourth quarter,” said Bergren. “We have things that are working,” including furniture. Although that represents only 3 percent of the company’s sales, the willingness to spend on big-ticket items indicates improving consumer confidence, he said.

Bergren said the other significant regional players — namely Dillard’s and Belk — are also holding their own, which bodes well for the future.

“The business has been consolidated, and that was necessary, since there were too many stores carrying the same thing. But now that’s working itself out of the system and things look bright,” he said.

In September, Dillard’s reported same-store sales rose 3 percent. In the second quarter, the retailer posted net income of $6.8 million, or 10 cents a diluted share, against a year-ago loss of $26.7 million, or 36 cents. Total sales for the quarter ended July 31 fell 2.7 percent to $1.39 billion from $1.43 billion. Comps were flat for the three months.

For years, Dillard’s has used its exclusive Daniel Cremieux men’s collection as a point of differentiation. The line includes a complete assortment of products, everything from furnishings and tailored clothing to sportswear and young men’s.

Houston-based Stage Stores, which operates 780 units under the Bealls, Goody’s, Palais Royal, Peebles and Stage names, posted a comp-store increase of 1.8 percent in September, which marked the fifth consecutive month of improving same-store sales. This fall, the retailer unveiled a self-serve concept called Beauty Bar in 100 locations, which includes the addition of seven organic brands, including Burt’s Bees and Crabtree & Evelyn. The goal, according to the company, is “to increase cosmetics sales during every visit.”

Although the retail slugfest continues, the regionals are taking the offensive. Belk Inc., the country’s largest private department store group, recently revealed that it will invest tens of millions of dollars over the next two to three years to update its stores and revamp its image. Part of that initiative includes a new, more sophisticated logo for store signs, shopping bags and credit cards. The new tag line is “Modern. Southern. Style.” Chairman and ceo Tim Belk said the retailer intends to “exploit” its Southern heritage and woo new customers with a more modern, trendy assortment.

Belk has also committed to spending around $70 million on branding over the next 18 months.

“It’s more than just a logo change,” Belk said. “It’s really how we do business, how we connect with our customer and…differentiate with the national competitors on our horizon and in our backyard.”

Part of that includes differentiated merchandise. Belk’s private label percentage has been inching up over the years and now accounts for around 30 percent of its $3.3 billion in volume, up from less than 10 percent nine years ago.

New York-based Lord & Taylor has also found a way to compete against Macy’s, one that involves a hefty investment in remodelings, as well as a differentiated assortment and an ambitious new marketing program. NRDC Equity Partners has committed to spending $250 million to renovate Lord & Taylor’s 46 stores, with $150 million earmarked for its New York City flagship. Next week, the company will unveil the results of that renovation at a party at the store Wednesday night. At the same time, L&T is planning a new ad campaign around the project, entitled “The ultimate face lift.”

But L&T’s strategy does not just involve spiffing up the stores. Over the past two years, management has worked to reposition the business and bring back moderate brands that had been dropped but still connected with customers. As a result, Gold Toe, Jockey, Calvin Klein and Levi’s, among others, were reinstated.

Additionally, the retailer hired Joseph Abboud to create a new men’s private label for the store, called Black Brown 1826. The line has been a perennial strong performer since its introduction, and the goal is for it to eventually account for 20 percent of men’s sales, according to Jonathan Greller, senior vice president and general merchandise manager of men’s for the store.

“If the playing field is equal on national brands, then the effort is for regionals to differentiate by having their own proprietary brands,” said Michael Setola, president and ceo of Tharanco Lifestyles, which negotiated the deal with Bon-Ton and John Bartlett. “It’s their way to compete and create separation from Macy’s. It’s definitely a winning formula and a way to build brand loyalty.”

The mission of Macy’s, Setola said, has been to create a national department store, a strategy that is working for the company. “They have massive buying power, and they’ve built excitement around the brands they have.”

For regionals to survive against a behemoth like that requires some creativity. Setola said he worked with Bon-Ton’s vice chairman and chief merchant, Tony Buccina, who had been “out there shaking trees to find ways to elevate his brand during this head-to-head battle” to connect the store with John Bartlett.

Setola said that with any private brand, however, the key is that it is “recognized and accepted as desirable and fashion-right.” He pointed to Dillard’s Daniel Cremieux label as an example. “They stuck with it and built a following. The product looks goods, it works for them and the margins are built in,” he said.

As a result, Setola said, “We will see more of these on a regional department store level.”

Allen Ellinger, senior managing partner of MMG, an investment banking firm, agreed. “Conceptually, this is a great idea because it creates individuality at a regional level where they don’t have the scale of a Macy’s,” he said. “But the success of any program like this is based on product and presentation.”

If the regional department stores can “create the ambiance and exciting product” that today’s customer is seeking, “then there’s a real future here,” he said. “And regionals know their customers the best.”

Ellinger expects to see regionals make more deals in the future, and there are some dormant brands or designer names in the market that can be reignited for this purpose. “This is not the whole future, but it’s part of it,” he said. “National brands are still very important, but [proprietary labels] will help individualize stores. It’s indicative of where the industry is moving.”

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