By  on February 11, 2008

CHARLOTTE, N.C. — Belk Inc. is playing with the big boys now. 

Since acquiring the Parisian, McRae’s and Proffitt’s stores from Saks Inc. in 2005 and 2006, the privately held, family-operated department store chain is quietly vying for that number-one or -two spot in retail markets across the South. 

Belk, known for years as a moderate retailer primarily in small to medium markets, has been working to win over upscale customers without alienating its lower price–oriented base. And the successes it has achieved didn’t happen overnight. The 116-year-old retailer, which had operated for years under an awkward system of 112 separate corporations, was reorganized in 1998 and centralized into Belk Inc. It consolidated and streamlined its structure in a move to position itself for long-term success and growth. As part of this shift, a new merchandising and marketing organization, including a new merchandise planning and allocation function, was created in 2002. 

Over the years, Belk systematically opened new stores, but the real growth spurt came when it bought the Saks Inc. chains. That also put Belk in new markets in the South, and strengthened its position in the important Atlanta and Birmingham, Ala., markets. 

In a rare interview, H.W. McKay Belk, co-president and chief merchandising officer; Kathy Bufano, Belk’s new president of merchandising and marketing; and Steve Pernotto, executive vice-president, met with DNR last week in the company’s conference room to discuss its next moves. For the time being, McKay said, Belk is focused on the integration of Parisian, Proffitt’s and McRae’s into one entity, and on winning over those customers who are still getting used to the changeover to the Belk nameplate. 

“The next thing for us is to complete the integration of the stores,” said McKay. “It’s easy to buy something or change the name or do the advertising. It takes more time and more interaction or frequency of exchanges to build a relationship, and for us every customer is a relationship. How we treat them and service them over time is the critical determinant. Our task for the future is to complete that integration, and that takes two to three years.” 

Belk acquired the mid-tier Proffitt’s and McRae’s department store chains in July 2005 for $622 million and the more upscale specialty chain Parisian in October 2006 for $285 million. Before buying Proffitt’s and McRae’s, Belk had 228 stores. Now, Belk, which reported fiscal 2006 sales of $3.68 billion last year (up from $2.97 billion in fiscal 2005), has 306. 

While sales have been tough the past couple of quarters (comp-store sales were down 4.4 percent in the third quarter and fourth-quarter figures haven’t been released yet), McKay is optimistic about the future. “We have a very strong balance sheet and [the weakness in the market] won’t be an issue for us,” he said. “We plan to open nine stores this year. That’s how we plan to grow the company—by opening stores and filling in existing markets.” 

Belk has worked especially hard to win over Parisian customers, who were used to the higher-end apparel and accessories the Birmingham-based retailer offered and were distrustful of Belk, known more for mid-tier merchandise. The Parisian nameplate didn’t change until October 2007, a year after the transaction was finalized. “In the customers’ minds,” McKay said, “the change started this past fall, so it’s only five months with them as Belk customers. It takes more time to prove yourself and earn that relationship.” 
So how are former Parisian customers adapting? McKay said, “In some locations, it’s going great. In other locations, where there are more [retail] choices, it’s not going as well. We have had a lot of favorable comments, but there are still folks that we have to earn to be the store of their choice.” 

However, there was no turnover of sales associates at the stores. “We didn’t lose anyone, and the customer still has that [personal] relationship and is finding the apparel [he] wants,” McKay said. 

Since buying the business, Belk added some brands and also increased the depth of merchandise in key labels already in Parisian stores. For example, Belk added Lacoste, Nike Golf, Perry Ellis and Chip & Pepper to the Phipps Plaza mix in Atlanta. 

But Belk also picked up some ideas from Parisian and, in fact, brought about 50 of Parisian’s merchants to Charlotte after the acquisition, including Arlene Goldstein, the fashion director at Parisian and vice-president of trend merchandising for Saks Inc., who is now vice-president of trend merchandising and fashion direction at Belk. The retailer also added a third tier of credit, after Parisian’s example, and picked up some ideas from Parisian’s compensation plans for its sales associates. Belk also adopted Parisian’s habit of having sales associates send personal notes to customers. 

“They were a great organization, so we took the best of both Parisian and Belk practices and combined them operationally,” McKay said. 

Bufano joined Belk on Jan. 17 and, only three weeks into the job, she speaks confidently about merchandising initiatives. Her extensive retail background includes experience with both men’s and women’s apparel (though mostly women’s) and private brands, For example, she was behind the Covington sportswear private brand initiative at Sears during her time there. Belk is hoping her expertise will help it win over new customers. 

The men’s area, which currently represents 16 percent of total sales, stands to be a big winner with her on board. “A lot of new initiatives have been put in place,” she said. For example, Belk, which has had great success with modern fashion in women’s, is now translating that success to the men’s area. “We’ve identified modern as an opportunity in men’s,” Bufano said. “Modern fashion is what’s new and that’s what’s trending.” 

Belk is launching its successful Madison women’s private brand, epitomizing the modern lifestyle look (think Perry Ellis or Claiborne) in men’s and home this spring. Red Camel is a successful young and fast-fashion private brand that she believes has an opportunity for growth in young men’s. Belk had a small offering of Pro Tour in the fourth quarter, but is doing a full launch of the golf apparel this spring. Belk recently reengineered W.H. Belk, a luxury private brand of furnishings and separates. 

“Those four brands will help differentiate our men’s assortment, along with the brands, including Polo Ralph Lauren, 7 For All Mankind, Nautica and Lacoste, that you would expect to find [in our stores],” McKay said. 
The other men’s private brand is Meeting Street, a line of moderately priced apparel. The current mix of branded and private label apparel is eight to one, according to Pernotto. Belk also plans to pursue exclusive brands. 

Belk’s top men’s brands include Polo, Tommy Bahama, Izod, Columbia Sportswear and Nautica, but McKay said they differ by store. For instance, only 40 percent of the top doors carry Tommy Bahama. 

Golf is a strong area for Belk, which offers customers Callaway Golf, Ashworth, Greg Norman Collection, Cutter & Buck and, in a few stores, Nike Golf’s Tiger Woods product, Bobby Jones, Polo Golf and Lacoste. Said Bufano, “I think we have one of the biggest golf assortments among department stores, and we have golf specialists.” She added that men are looking for innovative fabrics, which they’re finding in golf apparel that can also be worn for other casual end uses. 

Columbia Sportswear is their only outdoors brand, but Belk is talking to Phillips-Van Heusen about adding its new Timberland collection. 

In the luxury category, Belk has Tommy Bahama, Polo, Lacoste, Hickey Freeman, Kenneth Cole, Joseph Abboud, Burberry, Corneliani, Hart Schaffner Marx and others, and has added 7 For All mankind, Joe’s Jeans and Lucky Jeans to help round out its casual offering. 

“We always want to grow in men’s,” said McKay. “It’s been a strong business.” 

As McKay stressed, the higher-end brands are carried in the flagship stores, which include its SouthPark store in Charlotte and the Summit and Phipps Plaza stores (both formerly Parisian) in Birmingham, Ala., and Atlanta, respectively. At 70,000 square feet, the Crabtree Mall store in Raleigh, N.C., is the largest men’s store and has the greatest breadth of men’s assortment, he said. 

The stores differ in assortment according to store volume, square footage and demographics—or household income and population. Belk’s target customer is a woman in her late twenties to early fifties with a family income of $45,000 to $100,000. 

“It’s very critical to our merchandising team to work with the allocation and planning team,” McKay said. “We have to appropriately assort the amount of knits, wovens, short sleeves, long sleeves, coats and sweaters [etc.], and the transition timing is important for flow of goods at different times of the year. At the end of the day, it all comes down to the customers and their needs.”

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