NEW YORK — May Department Stores Co. is moving into uncharted territory: product differentiation. It’s the key to reversing sagging sales, attracting younger customers and giving May what it desperately wants back — dominance of the department store sector.
This story first appeared in the June 24, 2002 issue of WWD. Subscribe Today.
May once had it all, with results that were the envy of the industry. The $14.2 billion, St. Louis-based retailer still ranks first in operating efficiency, margins and profit potential, and in orchestrating smooth consolidations. Perhaps the company’s wisest move was not jumping onto the online bandwagon.
However, on the merchandise front, May has been too formulaic with predictable brand presentations, and that’s taken a toll: Revenues have been at or near the bottom of the department store heap for about two years. Last year, comparable-store sales fell 4.6 percent, and profits fell 18.1 percent. The year before, comps were up just 0.5 percent, and profits fell 7.4 percent. Across the department store sector, sales have been weak, but least weak at Dillard’s and Saks Department Store Group for the past year.
Now, May has begun chasing trends, and to convince Wall Street and the press that it’s no longer playing it strictly by the numbers, the company staged its first-ever fashion show featuring proprietary brands on June 13 at Cipriani 42nd Street. It even used fashion show producer Kevin Krier, who does Gucci’s shows, among many others, to help stage the event. As if awakening from fashion hibernation, May spotlighted schoolgirl looks, peasant ruffles, bright colors, suedes, sweater vests and even some bare bellies. Yet, as expected from May Co., nothing was too edgy.
“This is hipper merchandise that’s distinctive from a fashion point of view and exclusive from a distribution point of view,” Gene Kahn, chairman and chief executive of May Co., told WWD. “Our goal is to be a much more intensely merchandising-driven company.” That’s been his mantra since becoming May’s ceo in 1998, succeeding David Farrell. Playing for that younger audience, Kahn introduced the company’s two new in-house brands, called i.e. and be, debuting in August at many May stores. He also introduced model Ewa Witkowska, the face of May’s first-ever national fashion campaign, to be seen wearing “be” on billboards, buses, kiosks, direct mail, print ads and on network and cable TV commencing Sept. 8 in May’s top 13 markets, with the top five being Los Angeles, Philadelphia, Boston, Washington, D.C. and Houston. Kahn also showed an updated Valerie Stevens private collection.
He said i.e. targets women ages 31 to 44, a population that feels “disenfranchised” by national brands. The brands haven’t been giving them what they want, but i.e. will fill the void by emphasizing tailored and casual related separates, day-into-evening outfits and denim, for a total look at moderate prices. Karen Scott for women’s sportswear is currently May’s largest-volume in-house label, but its scope is limited, emphasizing tailored looks at moderate prices. May declined to project volume on Karen Scott or i.e.
Be targets 19-to-30-year-olds, college graduates and young working woman or young mothers, with a wide range of dressed-up-to-dress-down apparel, priced about 20 percent above i.e., as well as Valerie Stevens.
Valerie Stevens targets women 35 to 44 years old with tailored separates, weekend wear and business casual, European fabrics and lots of detailing. May says the line is better-priced and has an appeal that’s younger than national brands such as Jones New York and Liz Claiborne, Kahn said.
With the buildup in proprietary brands, something’s got to go. “Amanda Smith [a May Co. private label for tailored sportswear] is being trended down, but the major loss of business will be of nationally distributed brands that we [stores] all carry,” Kahn said, without specifying.
The proprietary brand buildup, he said, “is a major step, but it is only one singular element” of May’s agenda for lifting sales.
Other elements involve refocusing the Lord & Taylor specialty division with tighter bridge, better assortments and its own private labels, including Kate Hill for classic sportswear and Identity for younger, modern sportswear. Both lines were launched a year ago. After being the coupon-king of the Nineties, L&T has been less promotional and has been putting up new stores with wider aisles, longer sight lines, some open-sell areas, more mannequins and special occasion clothes and, most significantly, a consistent tone and taste level. Six are operating already, in Plano and Houston, Tex.; Tampa and West Palm Beach, Fla.; Alexandria, Va., and Columbus, Ohio.
“The Lord & Taylor repositioning is going quite well,” Kahn said. “It’s midway through the repositioning. It’s hard to position upward in an economic downturn. By 2005, the new Lord & Taylor assortment will be broadly distributed to all locations.”
It’s an attempt to distinguish the 84-unit L&T from the 354 full-line May department stores, which operate under the names Hecht’s, Strawbridge’s, Foley’s, Robinsons-May, Kaufmann’s, Filene’s, Famous-Barr, and Meier & Frank. May, the second-largest department store company in the U.S. next to Federated Department Stores in terms of volume, recently announced plans to merge Kaufmann’s into Filene’s and Meier & Frank into Robinsons-May, furthering its reputation for consolidating and operating efficiency. Future consolidations, though possible, will be tougher since they would cross broad geographical bounds and would test May Co.’s ability to run super regional chains.
However, like L&T, always the most fashionable of the divisions, May’s department stores are lowering inventories to reduce clutter and markdowns and will experiment with compact formats.
Eight to 12 department store prototypes will open over the next 30 months, which Kahn said will offer “streamlined fashion assortments that play up hot casual trends” and central checkouts, making shopping easier and faster. This year, Hecht’s will open two such units — Robinsons-May and Filene’s will open one each. In 2003, Filene’s will open another small unit, Famous-Barr has two slated and some other divisions are considering locations for the new format.
While trying to make the department stores more relevant, May’s appetite for specialty retailing is back. It reentered the arena in 2000 by buying the 158-unit David’s Bridal for $436 million and has since purchased the 239-unit After Hours Formalwear and the 10-unit Priscilla of Boston chains. Years ago, May was in the off-price specialty business, once operating Loehmann’s, as well as the shoe business, with Payless.
With bridal, May sees another hook for roping in younger shoppers and hopes to retain many of them long after the honeymoon by getting them into the data banks, though the interest in specialty retailing goes beyond bridal. May was in on the bidding for Brooks Bros. last year and believed that the brand would have been an excellent addition to its growing stable of private brands, particularly for L&T and for certain top department store doors where May sells better merchandise. May dropped out of the bidding, though, and Retail Brand Alliance, owner of Casual Corner and Adrienne Vittadini, ended up purchasing Brooks Bros.
But May’s search for specialty chains continues. “We’re interested” in the sector, acknowledged Tom Fingleton, executive vice president and chief financial officer, who was among the several senior May managers talking openly at Cipriani’s. For May to make another specialty acquisition, it must meet two criteria, Fingleton explained: “It’s got to have a business core that is profitable and synergy to department stores.”
Despite its expansion into specialty stores, May’s main focus remains its core department stores and the expanding proprietary program. During his speech just prior to the fashion show, Kahn, a former general merchandise manager and a merchant at heart, stated: “We’re advancing May from the era of private label to an era of exciting, innovative proprietary product.” Kahn explained that means May will nurture labels like i.e. with marketing and better styling to give them brand images. “Previously, private label was the foundation of our promotional thrust,” he said. It was also mostly a vehicle for opening price points.
“We’re moving to offer true proprietary brands, some even supported with comprehensive marketing, national advertising and special fashion events,” he said. Over the past few seasons, May has beefed up its May Merchandising arm, establishing separate teams of product designers and product managers for each brand in New York, supported by technical staff at May Merchandising in St. Louis, Kahn said.
Other May Co. executives described the new proprietary products as being 10 to 20 percent less expensive than Federated’s comparable private brands, though Federated’s program is more advanced and has established consumer recognition with such labels as Inc. and Alfani. While May is playing catch-up to Federated, May does believe its house brands can attain high levels of volume penetration, and higher than Federated’s, which puts it private brand at under 20 percent. “May has grown proprietary products to about 21 percent in their respective merchandise categories in the past five years. We expect to exceed 25 percent in 2005 and continue to grow beyond that,” Kahn said.
Overall, private brands accounted for about 15 percent of May’s total volume last year. Apparel, jewelry and accessories account for about 75 percent of May’s business; home, 25 percent. May’s home continues to grow at a faster rate than the rest of the store, Fingleton said. “Furniture is selling quite well,” he said, while the bridal business has been “really healthy.”
The two areas that May has been lacking is in appealing to juniors and generally customers under 40. “We have really been identifying the segments that we haven’t served well,” said Judith Hofer, chief executive of May Merchandising.
“May had a void in updated moderate products. Now, we are making some noise there,” said Jeff Califano, senior vice president of sportswear product development.
“If you go back in history, to the Seventies and Eighties, May Merchandising’s development process was far ahead of everyone else’s,” said Martin Richter, vice president of the Kazu Apparel Group, a private label supplier, and formerly a Liz Claiborne division president. “Federated did not have its own internal operations until buying Macy’s. But May Co. became conservative in its approach and ultra price sensitive, as opposed to directional in their product development. The people were very talented, but always low profile. May is now looking to the next level. The May department stores need that differentiation from other department stores, and in particular from Lord & Taylor, which is growing and moving into the trading areas of its sister divisions.”””