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Off-Pricer K&G Redefines Its Strate

Mary Beth Blake is making a big impact at The Men’s Wearhouse Inc.

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There’s a woman making a big impact at The Men’s Wearhouse Inc.

Her name is Mary Beth Blake and she’s president of K&G Fashion Superstore, the off-price division of the men’s $1.9 billion, 1,294-unit retail powerhouse.

Since joining the company less than two years ago, the former Macy’s Inc. and May Department Stores Co. executive has revamped the merchandise mix, increased the percentage of women’s wear, launched a designer showcase, upgraded the presentation and adjacencies in the stores, and launched a new image-centered advertising campaign.

Although sales are still running in negative territory — in the fourth quarter ended Jan. 30, revenues fell 6 percent to $92.7 million, comp-store sales were down 5 percent and projections for the first quarter were for low-single-digit comp declines — the 106-unit chain is gaining traction in some key areas and the overall response to Blake’s strategies is positive.

“I like her a lot,” said Janet Kloppenburg, president of JJK Research, an analyst who has followed Men’s Wearhouse for years. “The read I’m getting is that she’s done a great job on the women’s side and has sharpened the men’s mix. What had happened was that the Men’s Wearhouse guys were running it and the assortment inadvertently started to swing to tailored clothing. It got off track and wasn’t catering to the less affluent customer that K&G talks to.”

Blake said when she joined K&G in spring 2008, the first thing she noticed was that the merchandise wasn’t up to par. “When I got into the company, I was most surprised by the lack of current fashion,” she said. “There was a significant amount of aged inventory in the stores. The assortments were five years behind. So my first objective was to cleanse the inventory of the aged goods, bring in new receipts and offer more modern and updated styling.”

Blake said it’s “bad” when men’s merchandise is old, “but in the ladies business, it’s a killer.”

That aged inventory also led the company to attract “an older consumer than what we wanted long-term,” she said.

And so Blake got to work, bringing in current merchandise for men and women that was trend-right. “We’re still not there, and we want to continue to evolve,” she admitted, “but we’re light years ahead of where we were two years ago.”

Today, K&G uses a “similar aging proposition as the department store industry. We’ve tried to have a very low percentage of our merchandise be a year or more old,” she said. “We’re focusing on six months or younger. We don’t buy as much older merchandise as our competitors.”

Another initiative was to bring in more popular branded merchandise while pulling back on private label and nonbranded goods. She said products from Tommy Hilfiger, Calvin Klein and Perry Ellis could be sold at the same price as unknown private labels, making it a no-brainer to shift. It also helped K&G move closer to its off-price competitors — TJ Maxx and Marshalls, Ross Stores and others — who had built their reputations on selling brand names at discount prices.

That initiative was given a jolt last month when Blake unveiled the Designer Spotlight, offering European designer brands for at least 50 percent below regular price and often as high as 60 to 70 percent off. Thirty-one of the company’s locations installed a 700-square-foot section devoted to the merchandise, which included women’s sportswear, dresses, shoes and handbags from Missoni, Moschino, Dolce & Gabbana, Chloé, Emilio Pucci, Valentino, Alexander McQueen, Anna Molinari, Prada, Fendi, Gucci, Armani, Burberry, Christian Dior, Balenciaga, Yves Saint Laurent, Escada, Versace, Salvatore Ferragamo, Stella McCartney and Marc Jacobs. Women’s represents two-thirds of the designer mix.

In men’s, designer suits, dress shirts and sportswear are carried from designers including Moschino, Armani, Alexander McQueen, Zegna, Burberry, Prada, Dsquared, Dolce & Gabbana and Hickey Freeman.

“It’s been really exciting,” she said. “We are really fortunate to secure these goods.” And although K&G is limited in its ability to nationally advertise these names, opting for the off-price mantra of “coveted European designer brands” instead, it hasn’t taken long for word to get out.

So far, Blake said, Prada women’s shoes and Burberry handbags, priced at $600, are the top sellers, along with men’s suits sporting Zegna cloth for $499 and Valentino neckwear.

Blake acknowledged it was probably easier to get these brands given the lingering recession, but she’s confident the flow will remain constant even when the U.S. economy rebounds.

Interestingly, the prices of these designer goods are “significantly higher” than K&G’s average sales, she said, which average around $90 for a men’s suit.

“It’s interesting to see the consumer reach upward,” she said, noting that although the designer category represents “a small piece of the business, its intent is to create a halo effect” on the rest of the assortment. “Prada shoes make Anne Klein or Guess shoes look that much better,” she said.

Blake said there are no immediate plans to roll the Designer Spotlight out to other stores, but K&G will “track the results and make a determination.” She pointed out that TJ Maxx has its Runway offering in 48 stores, “but for us, this is a pretty aggressive beginning.”

And a bit of an eye-opener for the company, which built its reputation on offering two men’s suits for $150. “Our regular price points in suits are $79.99 to $199,” she said.

Although tailored clothing remains the backbone of the business, expanding the women’s assortment has been key to K&G’s reinvention. Blake said when she joined, women’s represented about 17 percent of the company’s sales in terms of dollars, and about 20 percent of the units sold. Today, women’s wear accounts for 30 percent of sales. “And we’re marching toward 40 percent in the near future,” she said.

Although she has no set number on how large she’d like the women’s business to be, Blake said she’s ready to “see how far we can push it and still keep the male consumer happy.” Moving past 40 percent of the mix, however, would mean “a reemphasis on men’s and I don’t know if that’s the right thing to do,” she said.

A focus on men’s wear affords K&G a point of differentiation from off-price competitors. “Burlington Coat Factory, TJ Maxx, Ross, they’re more skewed to ladies,” she said. “So I caution K&G and myself not to be like all the others. Maintaining what we’re known for — tailored clothing — is a competitive advantage.”

But one thing that wasn’t in dispute was instituting a redesign of the store fleet. She said the stores, which average 25,000 square feet, were not “visually exciting,” and men’s tailored clothing was front and center. “When you walked in,” she said, “you were bowled over by 5,000 units of suits on racks. The ladies and children’s wear were hidden.”

So she spearheaded a program to revamp the stores, inserting more visual imagery and moving men’s suits to the rear. Because the fitting rooms and tailor shops were located in the back anyway, it just made sense to relocate the tailored merchandise.

The result is a “more customer-centric” shopping experience that created a “suit superstore” for men in the rear and allowed K&G to move the faster-turning women’s wear, men’s sportswear and accessories to a more visible position in the front of the stores.

“It allowed the rest of the merchandise to shine,” she said.

She also brought the number of suit stockkeeping units down a notch. “It was like we were a stockroom on the floor,” she said. “We carried too much merchandise.” Now, the average store offers 3,600 suits and suit separates for men and women. And although tailored goods still represent 30 percent of the total mix — 25 percent is men’s and 5 percent women’s — it freed up space to expand the women’s and children’s categories. K&G now offers boys’ sizes 4-20 and girls’ sizes 4-16, and last fall tested some infant and toddler goods, which “performed well,” she said.

Blake said the Men’s Wearhouse team, led by founder and chief executive officer George Zimmer and president Doug Ewert, “has been very supportive” of her efforts. “We were able to redesign stores and spend capital expenditures in 2009 when everyone else was pulling back. That’s a testament to their support.”

According to Ewert: “Mary Beth and her team at K&G are working hard to bring exciting fashions to our customers, and the reaction has been positive. From an expanded ladies assortment to compelling values on European designer products, our customers are enjoying a new K&G that gives them many reasons to come shop more often. Later this year, we will be launching an e-commerce site that will help us deepen our relationships with our customers.”

And in the fourth-quarter earnings call with analysts, Zimmer said: “At K&G we saw minimal erosion of top-line sale, while through vigorous testing and better merchandising at the individual store level, we continue to learn more about what our customers respond to. We saw significant improvements in our women’s business, resulting in an increase of 13 percent in 2009. We are continuing to invest in this business, gradually transforming K&G into a less male-dominated store. We believe that the growth of the women’s business will drive significant revenue increases that more than offset lower product margin in the women’s category.”

Analyst Kloppenburg agrees that K&G is on the right track, but “there’s more work to be done. They need to work harder on a region-by-region basis to know who their customer is. They have to ask themselves: What is our sweet spot? What type of marketing should we be doing? What are the drivers of the business to get customers to come to K&G and not TJ Maxx?”

Last year, Men’s Wearhouse had made a deal to purchase Filene’s Basement and the plan was to convert the majority of those stores to K&G units in an attempt to expand the chain’s reach. That deal was thwarted at the 11th hour, and Filene’s Basement went to Syms Corp. As a result, K&G will have to expand organically. Blake said the plan is to eventually add to the chain, “it’s just a matter of how big and when,” she said.

In the fourth-quarter call, Zimmer, who has made himself famous by appearing in the Men’s Wearhouse commercials, also pointed to K&G’s new ads as a differentiator, calling them “among the finest commercials I’ve ever been associated with in my career.”

Blake said K&G recently changed agencies, going with Mullen, and shifted focus away from mainly promotional advertising to one more image-related.

The campaign is titled “Invincible” and depicts men and women whose clothes give them the confidence to tackle any situation. For example, in the modern-day Hercules spot, a man rescues puppies and kittens from a burning building, brushes off a nunchuck-bearing attacker and bounces blindfolded through a crowded street. The tag line reads: “Invincible, at defiantly low prices every day. K&G Fashion Superstore.”

The same tone is used in print ads such as one of a well-dressed woman holding raw steaks in a cage of panthers.

“The essence of the campaign is to increase brand awareness,” Blake said. “We realized K&G has very low awareness in a crowded category.”

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