Belk Inc. is fortifying its flagships as part of a master plan to reach $6 billion in sales within five years.

This story first appeared in the January 30, 2013 issue of WWD. Subscribe Today.

Under the new strategy, Belk, which last year generated $3.78 billion in revenues, will invest $140 million on up to 15 stores to convert them into bona fide flagships through enlargements, remodels or pumped-up assortments of “premium” brands, or some combination thereof.

In addition, Belk will open two new flagships, in Dallas and Huntsville, Ala., in 2014. The Dallas store will be the retailer’s first flagship in Texas.

Belk currently has 15 flagships, meaning that in a few years, the 301-unit department store chain could practically double its flagship count.

In the next three years, “we believe we can pick up $75 million in incremental revenues by investing the $140 million in the locations,” Belk president and chief merchandising officer Kathryn Bufano told WWD in an exclusive interview on the flagship strategy.

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Retailers like to refer to many of their stores as flagships, sometimes too loosely. But Belk officials say they have clear criteria for the designation. To qualify, Belk officials said, the store must be around 160,000 square feet or larger in size, must have a strong enough assortment to convey the company’s new messaging about Southern, modern style and must have a halo effect on other Belk stores within a 50-mile radius.

There are also minimum volume requirements, which Belk executives declined to reveal. They are believed to be a pretty wide range, depending on the size of the store and its geography.

“A flagship really needs to have a first-class premium brand assortment,” explained Ralph Pitts, executive vice president over real estate and legal, among his other areas of responsibility. “We are looking at some of the stores we have that are large enough to be flagships but don’t have the full flagship assortment. There are probably 10 or 12 stores that will become flagships in the next several years through assortment enhancements.

“We also have several stores in the right areas with the right customers and brands but simply lack the size. We will expand three to five stores over the next five years,” Pitts added.

According to Bufano, Belk has plenty of opportunity to maximize the brand presentation on a location-by-location basis. Among the labels Belk merchants consider premium brands are Michael Kors, Lilly Pulitzer, Vineyard Vines, Free People, Lucky, Ugg, Eileen Fisher, Calvin Klein Collection, Diesel, Seven For All Mankind, Tommy Bahama, Bobbi Brown and MAC.

“With our premium brands, the focus is on customer service. It’s not a price game.”

Belk has flagships in a number of its major markets, including Atlanta; Raleigh and Charlotte, N.C., and Birmingham, Ala., among other cities. The Southpark Mall in Charlotte is Belk’s largest unit, at 330,000 square feet. Belk stores can be as small as 75,000 square feet in some locations.

While the flagship strategy is critical to the $6 billion objective, there are other strategies for growth, among them Texas, where the company saw its biggest sales gains last year. Belk entered Texas about 20 years ago with two openings, in Paris and Greenville. It wasn’t until 2005 that the company really set out to expand in the state. Since then, 11 more stores have opened there. Another Belk store is opening in New Braunfels, Tex., in fall 2013, though this will not be a flagship.

Belk has stores in 16 states, the furthest west being Texas. Regarding further geographical expansion, Pitts said, “Presently we are not seriously looking beyond Texas. But at some point we may be looking at contiguous markets.”

Belk’s first flagship in the Southwest will open at the Galleria Dallas, where the company is taking over a 170,000-square-foot Saks Fifth Avenue site. Saks will close the store in June, and Belk will start construction in July to convert the site and reopen it in spring 2014. Belk and Simon Property Group Inc., owner of the Galleria, will jointly pump $20 million into the construction.

At the Galleria, Belk will be facing stiff competition from Nordstrom, Macy’s, and the only existing Gap, Banana Republic and Old Navy combo store, among other retailers. Bufano said Belk can successfully compete by offering strong service and assortments that are being merchandised to meet the needs of Southern customers. “Our merchants made their first buying trip to the Dallas market last year,” said Bufano. “We were impressed with the vibrancy of the city, and the modern Texas style we saw. At Belk we understand local and regional markets, and we know how to translate the trends to our individual markets.”

“Texas has been a very strong market for us, and we see great opportunities for growth in the state,” said Tim Belk, chairman and chief executive officer of Belk, and grandson of the store’s founder, William Henry Belk. In Texas, Belk currently has 13 smaller-format stores.

Asked why Belk is performing better in Texas than other states, Pitts cited the Texas economy, the retailer’s marketing connecting better in the state, and a stronger and more established online business.

“I don’t know how many stores we could operate, but Texas is the greatest growth opportunity we have,” Pitts said. “It’s not nearly as saturated in Texas as we are in some places. We have not targeted a specific number of stores, but over the next five years we probably could double our volume in Texas.” Belk’s Texas volume is just under $100 million annually.

In Huntsville, Ala., Belk will open a 170,000-square-foot flagship at Bridge Street Town Centre in fall 2014, replacing an existing unit. Belk said the store will cost $20 million.

To reach $6 billion in revenues, Belk last year set a $600 million, five-year modernization program. According to Tim Belk, $270 million will be spent on remodels and expansions; $263 million will be spent on new technology; $42 million has been earmarked for branding, and $14 million will be devoted to enhancing service. The program encompasses everything from updating the image to spotlighting “modern, Southern style,” to growing its assortment of contemporary and Southern designers while reducing its dependence on traditional labels. At the same time, Belk is getting aggressive developing a stable of exclusive private labels and, in March, will launch an exclusive men’s collection called Made Cam Newton, in association with the Carolina Panthers quarterback.

The company has also just begun developing omnichannel capabilities, where it admittedly has a long way to go. In 2009, only 1 percent of Belk’s sales were conducted online. Last year, 3.3 percent of Belk’s sales were online. The company expects to hit 10 percent by 2015.

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