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In Tough Times, Bergdorf’s Restores

NEW YORK — Frayed, and even dank in some corners of its stately structure, Bergdorf Goodman has embarked on a renovation affecting most of its women’s store over the next four years, which industry sources estimate will cost $60 million to...

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NEW YORK — Frayed, and even dank in some corners of its stately structure, Bergdorf Goodman has embarked on a renovation affecting most of its women’s store over the next four years, which industry sources estimate will cost $60 million to $70 million.

“We’re calling this a restoration, as much as a renovation,” said Ron Frasch, chairman and chief executive officer of Bergdorf Goodman. It’s not to sound grand, he explained, but to convey the objectives: restoring the original French-classical, turn-of-the-century town house character, and the merchandising control for which Bergdorf’s used to be known before the big brands took over. “It’s really driven by our merchandising strategy that we have been developing here for a couple of years and modified and modified and clarified,” Frasch said.

BG also is seeking to restore vitality to its business. Because of its high percentage of out-of-town customers, the store’s sales were particularly hit hard by the Sept. 11 attacks, falling to $280 million for the year ended Aug. 3, 2002, from over $300 million the year before. The store has a goal of attaining $400 million in sales, but doesn’t give a time frame for that.

BG executives have in the past talked about renovating the store, but the dreams were never fully realized due to changes in management and until uncertainties about merchandising direction were worked out. Observers believe Bergdorf’s now has little choice but to invest in improving its aging infrastructure. “It’s quite unlikely that you would get a positive return on investment with a renovation on this scale, but the thinking could be if you do not renovate, you further erode your competitive position because Barneys, Bloomingale’s and Saks have done quite a bit of spiffing up,” observed Isaac Lagnado, president of market research and consulting firm Tactical.org. “Retailers prefer to have very expensive and infrequent renovations. From an investment standpoint, the best is to do frequent and small renovations, but very few retailers have the strategic acumen or the stomach to do it that way. It’s like going back to the dentist every two weeks.”

Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates, said Bergdorf’s business has slipped in the past year or two, but there have been improvements recently. “It’s become much more focused and sharper with the assortments, taste level and competitiveness,” observed Aronson. “They’re doing a credible job in the context of huge competition from all the freestanding designer stores cannibalizing their sales, the rich not traveling so much and other external factors. I give Bergdorf’s high marks for deciding to aggressively improve its physical structure. They are indicating faith in the long-run viability of the luxury business.”

Operating on Fifth Avenue between 57th and 58th Streets since 1928, BG says it experienced good sales gains in the first two quarters of its current fiscal year that started Aug. 1 — 12 and 7.1 percent, respectively. However, there’s a sense throughout the luxury retail sector that it will be a long time, if ever, before things get back to the way they were before 9/11. BG’s operating profits, as a percentage of sales, are said to be in line with those of the Neiman Marcus specialty stores, which have slipped to 7 percent in the last fiscal year from 10 percent in the late Nineties. BG, a division of The Neiman Marcus Group, may have gotten a profit lift since merging its back-office operations into the Dallas-based Neiman Marcus chain, pushing to cut certain expenses.

The store also has been pushing hard to add more designer labels. For fall, Versace, Gianfranco Ferré and Gucci ready-to-wear, and Prada shoes, are coming back after being absent for several years, while rtw from Bottega Veneta, Paco Rabanne and Henry Beguelin as well as Azzedine Alaïa shoes, will be offered for the first time. Other efforts to get customers through the doors have been intensified, whether it’s trunk shows, designer appearances or book signings. BG also has been recasting its selling floors so each projects a distinct merchandising message. For example, the third floor now has a “modernist” bent with Jil Sander, Moschino, Marc Jacobs and Roberto Cavalli, among others, while advanced denims such as Seven are on the fifth floor and a classic bent, with Agnona and Akris, is on the fourth floor for luxury sportswear.

Of course, the biggest push is the renovation, which is taking BG in some bold, yet risky directions. Among the most experimental: lifting designer accessories off the main floor and housing them in second-floor designer rtw shops, at 1,200 to 1,400 square feet each, for Chanel, Giorgio Armani, Gucci and Yves Saint Laurent. Frasch said the shops will look “unique” and bear as much of the BG signature as those of the designer brands. All open today, except for Gucci’s, which opens in August. New shops for Tod’s and Alexander McQueen are expected to be in place on the second floor by August and, by early 2004. D&G will be on two as well. “The concept is to have a second floor featuring the ‘worlds’ of these designers,” said Robert Burke, vice president and senior fashion director. “You won’t have the same shops in Saks or Bloomingdale’s. We’re using materials you don’t see in other shop-in-shops. These will be one-of-a-kind.”

Bringing designer accessories up to two means there will be more room on the main floor for less widely distributed “artisan” accessory and jewelry vendors, and a break away from the “hard” shop format for designer accessories seen at Saks Fifth Avenue and Neiman Marcus. “There will be no ‘icon-ed’ boutiques on our main floor,” Frasch said.

Essentially, the main floor will be composed of:

A “luxury room” for fine jewelry and designer accessories including Verdura, and handbags from Lambertson Truex, Josie Natori, Valentino, which opens today on the Fifth Avenue and 57th Street side.

An arcade for soft accessories, such as scarves and shawls from Etro, seen opening May 15.

An area for exclusive or limited-edition handbags, opening by August.

As Lagnado pointed out, the renovation will enhance BG’s role as “a laboratory” for Neiman Marcus,where they can try a lot of new designers and presentation techniques.”

The renovation is also bringing new dimensions to the selling culture. “Brand managers,” another level of management just formed at BG, will run the Chanel, Armani, Gucci and YSL shops. They will have broad responsibilities, similar to those that a manager of a designer shop on Madison Avenue would have, such as working with buyers, supervising sales staff, developing clientele and managing the inventory and the marketing. Essentially, they’re the point persons between the vendor and BG.

In another step to strengthen service, the store recently created “The 100 Club” for the top 100 of its 450 sales associates. To be eligible, associates have to exceed $1 million in sales in a year. They are then entitled to a marketing budget to reward their best customers with gifts, such as flowers or theater tickets, or they could be entitled to an assistant. At BG, said Frasch, “There are two big differentiators — our environment and the quality of service that we provide. Every business tries to find a point of differentiation. Ours is very clear.”

What has never been very clear is the main-floor layout, with its disconnected feeling. However, the space is being opened up to ease the traffic flow. There will be less casework, more wall displays, particularly on the dim 58th Street side, which will get a taller, brighter entrance with more glass and a new archway into the rotunda where evening accessories will be housed. There also is a new “eyeball” lighting system cleverly patterned into the ceiling as if part of the architectural detail. Merchandise will be more accessible, though, of course, fine jewelry will be still encased. Much of the infrastructure, including ventilation and heating systems, is being overhauled, all the windows are being replaced, and parquet wood floors and architectural plaster ceiling moldings will help bring continuity across the main floor. The once wiggly second floor has been straightened out, for better vistas and easier flow.

Bergdorf’s says it’s all being done mindful of not losing the sense of intimacy and exploration as customers move from chamber to chamber, category to category. While it may provide coziness and comfort, the space has been challenging to merchandise and navigate, due to all the columns and other structural components that come with being an assemblage of five town houses that BG expanded into over the years.

In addition, the renovation project is geared to sharpen the fashion messages on a floor-by-floor basis, which reflects BG’s editing toward riskier, higher-priced fashion. From the more formal main floor, moving up the building it becomes more intimate and less formal, with the designer shops taking the unusual step of selling their rtw and accessories together. Re-creating the designer floor took some politicking. “For us, it works fine,” said Domenico De Sole, chairman of Gucci. “We will try to create a whole environment for the brand — ready-to-wear and accessories. We are very positive about this.” Asked if the timing is right for experimentation, given the poor economy for luxury sales, De Sole said: “Things like this are planned way in advance. You must have a long-term strategy.”

A luxury store like Bergdorf’s spends $150 to $200 a foot on renovations, and in the 150,000-square-foot women’s store (on which the company pays rent to the Goodman family), the floors average 19,000 square feet. The main and second floors should be completed by June 2004, though three-quarters of the main floor is expected to be done by Labor Day this year.

About 60 percent of the third floor will be renovated for stronger presentations, sight line improvements and an open-sell feeling. A personal shopping area is being added [others already operate on floors four, five, and seven] and a Marni shop for belts and handbags will be installed.

On the fourth floor, BG is creating a Mendel fur salon, a boutique for Versace and about 50 percent of the floor will be overhauled, beginning in the fall. Around June 2004, the fifth and sixth floors are scheduled for renovation, where a main objective is to create an environment that encourages greater item selling. Plans are being worked out.

For a clue to what lies ahead, observers simply have to visit BG’s second-floor shoe salon, where decorative paneling, upholstered chaises, veneered tables, shelves in asymmetric grids, armoire units, glass vitrines and freestanding mirrors convey a residential look the store considers its own. BG says the shoe salon, comprised of four spaces linked by fine furnishings, has been drawing good crowds, though the seating seems limited.

The latest construction work comes after years of neglect and only piecemeal renovations in the past. Aside from the shoe salon, the only other major work in the past two decades was creating the beauty floor in the basement two years ago and escalators in the Eighties. Frasch said the beauty space more than doubled to 15,000 square feet, and the average transaction rose to $100. Other industry sources said beauty transactions in department or high-end specialty stores are typically around $35 to $40.

After the beauty floor, the main floor was supposed to be redone right away, but was stalled, even though the parent Neiman Marcus Group gave the green light on the restoration two years ago. Given its luxury clientele, updating the interiors is necessary for BG, and in 1975, $15 million was spent on renovations, but this is the first time renovations have been so comprehensive. Also, since BG has no branch stores, growth can only come from within the existing walls. That will be challenging since productivity is already very high, at $1,500 a square foot, and there’s little opportunity to capture more selling space. BG recently took 26,000 square feet for offices at 625 Madison Avenue, to provide more space for sales support at the store, such as stocking shoes, though officials point out that there isn’t much opportunity to capture more selling space at the women’s store. The merchants, marketing staff, human resources and finance all moved.

In addition to renovating its women’s store, the 45,000-square-foot BG men’s store on the opposite side of Fifth Avenue will be updated with some small changes and some reorganization of products starting this summer, but no major renovations are planned, Frasch said. He also said he’s negotiating for new men’s labels, and a “world of Loro Piana” shop, with sportswear, made-to-measure and home items will be added to the store.

At the women’s store, the restored classic traditionalist architecture, with architectural plaster moldings and parquet wood, will be balanced by mid-20th-century fixturing and furniture in a creamy warm palette, using luxurious finishes, such as mother-of-pearl and shagreen.

“There will be contemporary decoration against a very classical background, mixing in vintage pieces, antique vitrines and cases, and contemporary light fixturing,” observed Randall A. Ridless, interior designer and creative consultant on the renovation. Daniel Bartluce is the architect on the project.

Also, “we are really opening up vistas through the whole store,” through raising the height of entrances and ceilings, he added. “By creating vistas and raising door heights, the spaces become much more interconnected the full way around the main floor,” Ridless said. “You will no longer go into all these dead ends. You will be able to come into 57th Street, walk straight through to the arcade, and keep going to enter the Pavilion room, which connects to jewelry and back around to the luxury room. The whole mood will be of rooms with unique personalities unified through flooring and architecture, with very luxurious finishes in each room. Our goal was how to unify the main floor with one vision and capture that historical classical French feeling of Bergdorf Goodman, which was concealed by various shop-fits.”

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