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An Rx for Bergdorf Goodman: Wider Reach and Leaner Inventory

NEW YORK — The guardians of the palace that is Bergdorf Goodman have become increasingly vigilant.<br><br>As the world’s only premier luxury department store situated solely in New York, Bergdorf Goodman has felt the impact of 9/11 and the...

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NEW YORK — The guardians of the palace that is Bergdorf Goodman have become increasingly vigilant.

This story first appeared in the August 7, 2002 issue of WWD.  Subscribe Today.

As the world’s only premier luxury department store situated solely in New York, Bergdorf Goodman has felt the impact of 9/11 and the shrinking wealth of the rich perhaps more than any other retailer. On Sept. 18, BG notified vendors it was canceling remaining fall orders, with the exception of special orders, and scaling back on resort and spring. Though stores nationwide canceled goods in the wake of the World Trade Center and Pentagon tragedies, BG’s letter came to symbolize an industry in turmoil and one that was desperate to dispose of merchandise.

What has emerged from the calamity is a more cautious and leaner Bergdorf Goodman as it heads into the heart of the fall 2002 selling period. The retailer is determined to find a stronger voice with a younger and hipper crowd without becoming another Barneys New York and at the same time grow its classic businesses to keep its older clientele. It also must reverse revenue declines seen in the last three quarters.

According to BG chairman and chief executive Ron Frasch and president Peter Rizzo, the fall strategy entails increased regular-priced selling off of reduced levels of inventories, intensified marketing of the store’s top-50 vendors that it identified last year, and a resumption of renovations.

“We feel we have reorganized how we are buying product,” Frasch said, in an exclusive interview Monday. “There is a lot more focus on in-depth buying in key items,” such as Brunello Cucinelli chunky sweaters, Dolce & Gabbana short day dresses and Alexander McQueen suede tops with ruffles. “Planning for fall was challenging. Last year can’t be utilized very well for planning. You have to go back to the prior fall, and plan out the business week by week.”

Frasch explained that BG completed the fall 2002 plan about five or six months ago, when business was better. Nevertheless, “Base inventories are down, but we’ve got an aggressive receipt flow,” he said. “We are much cleaner. Our goal is clearly to grow the topline, but most importantly, we expect healthy growth,” meaning meatier margins.

Cutbacks have been made across the board, but mainly centered on merging back office operations into those of the parent Neiman Marcus Group, based in Dallas, and reducing inventory. And Bergdorf has decided to operate without a women’s general merchandise manager, giving Rizzo that role. “When you start eroding or not growing the topline, you’ve got to make a lot of tough choices in running this business,” Frasch said. “Of course, there have been some tough cuts — challenges behind the scenes. The choices have been made and investments have been redirected.”

Frasch stressed BG still spends where it counts, saying, “It cost a lot of money to have amazing assortments, and to invest in the physical plant. It costs a lot of money to put out a beautiful magazine,” the BG magazine, introduced in 2000. “That being said, the store has become a whole lot more efficient on where we direct our investments. We feel good about the choices we’ve made.”

“I don’t think we did anything to impede our ability to grow,” Rizzo added. “It’s about gaining market share rather than trying to get huge increments in volume.”

The next magazine drops after the Labor Day weekend, and was shot extensively in Brittany, France. “We’ve put more effort into this book than any other book,” Rizzo said. “We used photographers and models that we never used before…It galvanizes the store’s point of view. It’s a differentiator from the competition and it drives traffic.” The magazine has four editions a year, and represents a shift away from BG’s traditional catalog business, which never blossomed.

Essentially a one-unit operation, with its women’s store and men’s store on opposite sides of Fifth Avenue between 57th and 58th Streets, the key to growth at Bergdorf’s lies in raising already high productivity levels, said to be around $1,500 in sales per square foot. Total selling space is 193,000 square feet, and total annual volume at both stores for the fiscal year ended last July is estimated around $280 million, down from over $300 million the year before. At BG, fall is a long season, starting in mid-June with “fall I” shipments and followed by another major round of shipments in late August for merchandise that’s been shown on the runways, and another major round in October-November for holiday-cruise collections.

Making the most of existing space through renovations and inspired merchandising is required for growth, since there is little opportunity left to expand in the two facilities and no plans to build satellite stores. Currently, sales are difficult, after some robust fall trunk shows last spring. That’s turned up the pressure to perform in upcoming months without extensive markdowns. Having 26 selling days between Thanksgiving and Christmas Day, versus 32 last year, won’t help.

“Our goal is to increase full price selling,” Rizzo said. “We see a huge opportunity for that in November and December. Even with the six less days between Thanksgiving and Christmas, there is still an opportunity to increase our business, with better receipt flow.” With the business planned conservatively, “there’s a lot of flexibility to chase the business,” Rizzo said.

Considering how steep revenue declines were a year ago — down 16.3 percent for the quarter ended Oct. 27 and 60 percent in September alone — comparisons should be quite favorable in the months ahead. Last October’s huge, four-day sale, offering 30 percent off the entire stock, excluding cosmetics and leased businesses, was an anomaly. There will be markdowns for sure, but BG said the promotional calendar has reverted back to designer appearances and trunk shows rather than hyping price cuts, barring another catastrophic event that would keep shoppers away.

Compared to Saks Fifth Avenue or Bloomingdale’s, BG is not as dependent on tourism, though Frasch said: “We do have a dedicated base of repeat tourists from the U.S. and Europe. For sure, there are a lot less tourists in the store now” than before 9/11, but as time passes that becomes less the case, he noted.

Meanwhile, BG’s parent corporation, the Neiman Marcus Group, has given the store the green light for renovations. “The Tuesday after Labor Day, we will open a very large shoe department, doubling the size of our existing department to over 4,000 square feet,” Frasch said. Shoes have been under renovation since June. “The most important growth area is going to be shoes,” Frasch said. There are also main floor improvements for easier traffic flow, on top of recent fitting room and bathroom upgrades.

“Beginning in January and through August, we will renovate the balance of the second floor and we will have a partial renovation on the main floor to open up some traffic patterns. That’s also very significant,” Frasch added. “We are gutting the handbag room, gutting the Fifth Avenue entrance, changing the 57th street room [a department that sells lifestyle accessories], changing the flooring, doing a lot of ceiling work, and changing the colors in our jewelry area. The renovations will touch every inch of the main floor. Over the next five or six years, we will be working on the balance” of the floors.

On the merchandise front, according to Rizzo, the store has been building up a broader range of women’s, from “extreme modernists to fine classics” for the past two years, while this fall, BG “honed in on strong-producing vendors in either of the two extremes.” He singled out Oscar de la Renta, Akris, Agnona and Chanel on the classic side, and Dolce & Gabbana and Roberto Cavalli, on the modernist side, among other labels.

BG also strengthened luxury sportswear, offered on the fourth floor, banking on such labels as Akris, Loro Piana and Agnona. On the third floor, Stella McCartney, Alexander McQueen and Istuan Francer were added, and on the fifth floor there’s a buildup of advanced denim and jeans lines including Seven, Catherine Malandrino, and related items, such as peasant blouses and pea coats.

Younger looks, without lower price points, are important for fall, including Romeo Gigli, Marc Jacobs, Pucci, Chloé, Costume National, Etro and Roberto Cavalli. Just a couple of seasons ago, many of these advanced lines weren’t offered at Bergdorf. Furthering the youth appeal are weekend ski influences, such as J. Mendel mink tops for $3,500, matched with an Earl Jean and a Barry Kielselstein-Cord bag, or a Courrèges ski sweater for $900.

Reworked vintage is another theme for the season, including Hudson Bay vintage wool coats, lined with Russian sable. The highest priced label is Maggie Norris, with a split cap sleeve Lasage-beaded gown, priced at $40,000.

“We’ve been very strategic in planning the fashion,” said Robert Burke Jr., senior vice president and fashion director. “There’s a natural reaction to pull back in tough times, but we’re taking chances. I hate to use the word ‘trendy’, but we believe in going after some really directional merchandise. Last fall, we didn’t have such a sophisticated variety. In certain areas, we are definitely buying more. Customers want more one-of-a-kind items and glamour.”

“Beginning in January and through August, we will renovate the balance of the second floor and we will have a partial renovation on the main floor to open up some traffic patterns. That’s also very significant,” Frasch added. “We are gutting the handbag room, gutting the Fifth Avenue entrance, changing the 57th street room [a department that sells lifestyle accessories], changing the flooring, doing a lot of ceiling work, and changing the colors in our jewelry area. The renovations will touch every inch of the main floor. Over the next five or six years, we will be working on the balance” of the floors.

On the merchandise front, according to Rizzo, the store has been building up a broader range of women’s, from “extreme modernists to fine classics” for the past two years, while this fall, BG “honed in on strong-producing vendors in either of the two extremes.” He singled out Oscar de la Renta, Akris, Agnona and Chanel on the classic side, and Dolce & Gabbana and Roberto Cavalli, on the modernist side, among other labels.

BG also strengthened luxury sportswear, offered on the fourth floor, banking on such labels as Akris, Loro Piana and Agnona. On the third floor, Stella McCartney, Alexander McQueen and Istuan Francer were added, and on the fifth floor there’s a buildup of advanced denim and jeans lines including Seven, Catherine Malandrino, and related items, such as peasant blouses and pea coats.

Younger looks, without lower price points, are important for fall, including Romeo Gigli, Marc Jacobs, Pucci, Chloé, Costume National, Etro and Roberto Cavalli. Just a couple of seasons ago, many of these advanced lines weren’t offered at Bergdorf. Furthering the youth appeal are weekend ski influences, such as J. Mendel mink tops for $3,500, matched with an Earl Jean and a Barry Kielselstein-Cord bag, or a Courrèges ski sweater for $900.

Reworked vintage is another theme for the season, including Hudson Bay vintage wool coats, lined with Russian sable. The highest priced label is Maggie Norris, with a split cap sleeve Lasage-beaded gown, priced at $40,000.

“We’ve been very strategic in planning the fashion,” said Robert Burke Jr., senior vice president and fashion director. “There’s a natural reaction to pull back in tough times, but we’re taking chances. I hate to use the word ‘trendy’, but we believe in going after some really directional merchandise. Last fall, we didn’t have such a sophisticated variety. In certain areas, we are definitely buying more. Customers want more one-of-a-kind items and glamour.”

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