Embrace the local community.
That’s the first lesson Brendan Hoffman learned when he took over the reins of The Bon-Ton Stores Inc. in early 2012.
Hoffman, who had cut his teeth as president and chief executive officer of Neiman Marcus Direct and also served in the same role for Lord & Taylor, said he thought it would make the most sense to follow in the footsteps of Macy’s and others and merge the company’s seven nameplates into one. Over the years, Bon-Ton has cobbled together a company that incorporates Bon-Ton, Bergner’s, Boston Store, Carson’s, Elder-Beerman, Herberger’s, Younkers and other nameplates.
“I studied what Macy’s had done and some of the obstacles they had gone through but how they had been vindicated and validated,” he said during a question-and-answer session with Harold Reiter, chairman and ceo of the Herbert Mines Associates executive search firm. “But a funny thing happened: I didn’t know what name to go to. Carson Pirie Scott is probably our most national name, but it’s still regionally based in Chicago and the Midwest. I realized it would be very expensive to change the name and very capital-intensive to change the marketing. So I held back and went to visit the stores. I got out to states I’d never been to and cities I’d never heard of to see the 270 stores that are part of our portfolio. I went to Des Moines, Iowa, and realized Younkers is their store there. It’s a very important nameplate — as important as any of the New York brands are to where we are. Younkers meant something to that customer, and if I were to suddenly put the Carson’s nameplate on it, it would be a hit to sales. And that was the same in St. Cloud, Minn., with Herberger’s.”
As a result, Bon-Ton has no immediate plans to make any changes to its store names. “It’s something we’ve tabled for now,” he said. Although he said having one store group “would certainly make life a little easier” in areas such as marketing and e-commerce, “it wouldn’t be a whole lot easier.”
While the company’s e-commerce site may operate under different names, “they’re all managed as one, it’s just the skin that’s different. It does hurt us in terms of efficiencies at some of the search engines, but for the most part in the medium term, it makes a lot of sense to keep the integrity of the names.”
Hoffman said that regardless of what name it operates under, e-commerce is the “largest growth vehicle” for the company today. “We did less than 2 percent [of sales] when I got there, we did 3 percent last year. This year, we’re tracking to do 5 percent, so that means we have $150 million this year. It’s really grown in leaps and bounds, both in terms of e-commerce and for branding and being able to reach out to a younger customer. We’re really pleased with the progress we’ve made. When I got there, we were spending less than 2 percent of our budget on digital. Now that has grown to about 10 percent.”
Hoffman said that having Neiman Marcus Direct as a “foundation” has been beneficial to him but the business has changed substantially since he left five years ago. “Yes, I spent six years there and understood early on the power of this channel and how it could be integrated, but I feel like a dinosaur when it comes to some of these technologies.”
He considers himself fortunate to have worked at Neiman’s just when the Internet was becoming important. Running an Internet business in 2002 was like “the Wild Wild West back then,” he said. “We were empowered to go out and test things and ask questions because even if they had been asked before, a year later they deserved to be asked again because the space was changing so quickly. [And you knew that] the more you failed, the more you’d ultimately succeed, because you were learning so much.”
This is in sharp contrast to Bon-Ton, a department store business whose concept goes back more than a century and where “every question has been asked and answered 1,000 times.”
But the Internet has permeated all parts of the business, even those with roots as deep as department stores, and “completely changed the landscape again.” Running a multichannel business of any sort has “completely revolutionized the way we look and run the business.”
Looking to the future, Hoffman said he expects Bon-Ton’s brick-and-mortar store base to “stay fairly consistent,” but the big push is to “understand the local customer.” Although the back office duties of the different store groups have been consolidated over the past decade, the stores continue to service a shopper in smaller communities around the country. “One of the things that [I have learned] is how complex this customer is compared to some of the other places I’ve been because of the spread-out geography. I think we’ve homogenized that customer too much from our perch in Milwaukee to try to have the same kind of merchandise and pricing strategy that works in Chicago work in Nebraska.”
He said the customer is very different, as is the way she lives her life, “and yet our stores have looked too identical in the way we merchandise and market them.”
Over the past six months, he said, the company has spent time working on its methodologies, processes and technologies to “help us tear this apart without actually decentralizing.” Toward that end, the store is creating localized versions of its catalogues for the first time and analyzing its pricing in different markets. Similar strategies will be employed as the company rolls out these initiatives in the future.
As a ceo of a public company for the first time, Hoffman now has to answer to Wall Street in addition to customers — an experience that has its challenges. “When the numbers are good, it’s a little easier,” he said with a laugh. “It’s a little tricker when the numbers aren’t up to expectations. But I enjoy the back and forth.” He said that going to quarterly comps has been especially helpful “to manage the business more prudently.”
Understanding the customer in the communities has also been eye-opening for him. Hoffman related how he recently visited a store in North Platte, Neb., and was happy to find that the best restaurant in town was an Applebee’s. “My life certainly has changed since Neiman Marcus,” he said. But with this came the realization of how severely this middle-American customer is affected by macroeconomic issues such as a rise in payroll taxes and gas prices. “I never appreciated before what that means in terms of taking disposable income out of their wallet. During Q2, I could see the business was trending down, but there was such a disconnect with what was going on with Wall Street and what was going on in middle America” as the customer continues to struggle and is loathe to spend on “things that are not absolutely necessary.”
He has also learned the importance of such things as college sports. In Nebraska, one needs to have 20 percent of the store screaming “Nebraska Cornhuskers” to feel like the retailer understands that customer base. “And it’s things like that that we need to take advantage of while we wait for some wind at our back.”
But does putting a focus on localization potentially hurt the corporation as a whole as it strives to compete with larger national retail organizations? “I don’t want to overstate it,” Hoffman said. “Localization might mean 20 percent of the assortment, and there’s still a lot of consistency across the store portfolio. But there are a lot of things around the 20 percent that can make a huge difference. It is challenging, but the company has really bought into it and it’s not a hard concept to think about — that you shouldn’t merchandise Nebraska exactly the same as you merchandise Chicago or Philadelphia. It’s an easy message to get out there, but a tougher message to execute on, and that’s what we’re in the process of doing right now.”