By and  on February 19, 2002

NEW YORK -- Forget ROI. The retail acronym for 2002 is destined to be ROE.

Expansion still has its place, but it's ROE -- return on expansion -- that the financial community wants from retailers in 2002.

Stores have primed the expansion pump as a means to drive top-line growth and market share and combat the demons of deflation in the recent past. Now, with consumer demand for fashion faltering, margins dwindling amid an epidemic of discounting, and specialty store market leader Gap fighting an uphill battle to get its comparable-store sales and bottom line back into positive territory, Wall Street and other industry observers are looking to see stores boost their sales per square foot, realize a profit on their expansion to date and even reduce square footage when ROE isn't possible.

Participants in a recent WWD Financial Forum also emphasized the need for greater responsiveness to consumer needs and the importance of better recruiting and training if stores are to become more in tune with their customers' fashion and lifestyle requirements. Those attending were: Elizabeth M. Eveillard, senior managing director in the investment banking group of Bear Stearns; Dana L. Telsey, retail analyst at Bear Stearns; Gilbert W. Harrison, chairman of investment bank Financo Inc.; Abbey Doneger, president of retail buying office The Doneger Group., and Anne Maxfield, president of staffing resource firm Project Solvers.

The need to focus on store productivity was established early in the session by Telsey. "We have a rule of thumb that there are 400 good malls and 800 good strip centers," she said. "We've seen that retailers' same-store sales can decelerate after you've hit 400 malls. It's our sense that basically the income level goes down as you go beyond 400.

"For 2002, the question will be how profitable are the stores that the retailers have. The key questions we keep asking retailers are: How are the stores that you're opening this year doing versus last year? What are they generating in terms of year one? Are they doing better or worse? What do you see from these stores?"

The need for productivity was driven home yet again last Friday when Bear Stearns downgraded Gap's stock to "attractive" from "buy" after Moody's Investors Services and Standard & Poor's, as reported, downgraded the retailer's debt to junk status late Thursday.

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