NEW YORK — Specialty stores are out to capitalize on the consolidating retail landscape.

After the mega retail mergers of last year, key players in the independent specialty store sector see opportunity rather than threat. In their view, this is the time to expand into new territories and add more doors, while many also are cobranding with fashion and accessories houses to offer consumers a more special, less homogenized shopping experience.

And with all the private equity capital out there, observers predict that it is only a matter of time before hedge funds and other investors start snapping up the leading specialty store players following Nordstrom’s purchase of the Jeffrey chain last year.

“There are fabulous department stores all over the world, but there is also a severe case of product pollution,” said Stefani Greenfield, owner and founder of Scoop, on competing for department store customers.

Scoop has been gradually expanding its product assortment, with categories such as baby’s, men’s and home in particular stores.

“For me, it’s all about merchandising with a focus on service,” Greenfield said. “Those with the best service will rise to the top.”

This year, Greenfield is upping the number of Scoop doors to 12 from eight, with openings in Dallas, Atlantic City, N.J., and two other still to be finalized U.S. locations. Last year was the retailer’s biggest ever, with $62 million in sales, 15 percent of which came from the sale of cobranded merchandise. Scoop cobrands with companies such as Diane von Furstenberg, J. Crew and Theory.

“As a designer, cobranding with [a retailer] who knows exactly what her customer wants is a perfect fit,” said Lee Angel designer Roxanne Assoulin, who creates exclusive jewelry for the Scoop stores. “But to cobrand, you have to partner with a store that needs enough quantity, unless the collaboration is a completely creative experiment.”

Stacey Pecor, owner of Olive & Bette’s, cobrands with designers when the market trends aren’t in accordance with her customers’ needs.

“This season there wasn’t a miniskirt out there,” she said. “So we went to our favorite brands and asked them to make them. When we didn’t see colors that were good for us, we went to vendors like Autumn Cashmere, Jake’s Dry Goods and Velvet to make what we need at a price point that we want with a special hangtag.”

This story first appeared in the March 28, 2006 issue of WWD. Subscribe Today.

Having these categories gives Pecor the edge over a solely trend-based store that isn’t as connected to its customers.

Pecor’s business has grown steadily at 40 percent a year and, according to industry sources, the stores’ revenues amount to over $14 million annually. Late last year, Pecor launched an e-commerce site, which she said is thriving.

Calypso, which specializes in resortwear, opened a five-story, 10,000-square-foot flagship this month, its 10th location in New York. Calypso also has stores in Palm Beach, Fla., Chicago and Boston.

Owner Christianne Celle credits the firm’s success to offering weekly deliveries of merchandise divided into six seasons and the immediacy with which she can react to customer needs.

“Our structure is very reactive, since I am the buyer and owner,” said Celle. “I can therefore make quick decisions and react to the market and trend.”

Another contemporary specialty retailer, Searle, shares its Manhattan customer base with department stores and big-time specialty stores such as Bloomingdale’s and Bergdorf Goodman. Searle owner Steve Blatt said that regular sales and promotions like coupons are big advantages department stores have over the little guys like him. As such, Blatt counters with exclusives and offers private label dresses and outerwear to specifically suit his customer’s tastes.

Blatt said the department store mergers “force us to be much more careful” in what he carries.

“We have broadened the target audience,” he said. “We moved into accessories in the last couple of years. We constantly search out new lines and try to get people to keep special items for us alone.…We don’t use coupons or discounts, we would never survive with that formula.”

Searle is opening its eighth Manhattan shop on Eighth Avenue and West 67th Street this spring.

Expansion however, may pose problems for contemporary retailers who pride themselves on knowing their customers intimately.

“Once they start getting past six stores, they come to a challenge of keeping that small store approach,” said Marshal Cohen, chief industry analyst at NPD Group, a marketing research firm based in Port Washington, N.Y. “The minute you open that seventh one, you’re a chain store. You start getting issues that are further than your reach can solve.”

A tough consumer environment may be ahead. Earlier this month the Commerce Department’s monthly monitor of retail sales reported sales at apparel and accessories stores fell a seasonally adjusted 3.3 percent in February, to $16.2 billion, but were still 1.6 percent ahead of 2005. Revised figures for January showed a 2.4 percent rise against the preceding month and an 8.1 percent jump from a year earlier. Sales at department stores fell 1.4 percent in February to $18 billion and were off 2.8 percent from February 2005. This came after a 1.4 percent rise in January, which was also 0.4 percent ahead of a year earlier.

On the designer specialty store front, retailers such as Tracey Ross in Los Angeles, Kirna Zabête in New York and Ikram in Chicago are benefiting from a blitz of media attention. As stylists like Rachel Zoe, Jessica Paster and Arianne Phillips have been gaining attention from celebrity tabloids to cable-style network panels, some chic boutique owners are garnering their fair share of the limelight and with it, a new customer base.

Tracey Ross, who owns her namesake store, hired a public relations person to handle just that.

“It makes a big difference,” said Ross. “I’ve gotten clients from Japan and Dallas, by doing press, TV and news. You have to work every angle to keep yourself out there and keep your boutique hot.”

Department store retailers are faceless for the most part in magazines and on TV. Fashion- and media-savvy consumers often look to the store owners to identify the “best of the best” offerings in their shops.

At New York Fashion Week in February, photographers routinely popped their flashbulbs at Kirna Zabête co-owners Sarah Easley and Beth Buccini.

“You can feel that with our store, it’s a very personal store,” said Easely of her SoHo designer emporium. “Every piece in the store is handpicked by Beth and me. We buy clothes for Kirna that we want to wear ourselves.”

Of the paparazzi attention, she said, “it’s not a conscious [marketing] dedication.”

Designer specialty boutiques thrive on the one-on-one relationship with clients.

Brian Bolke, owner of 4510 in Dallas, got calls from customers during the recent fall fashion shows requesting him to buy specific looks for themselves, after seeing the shows on the Internet — and he did.

“That’s where hopefully we’ll always be a success,” said Bolke. “We don’t have the same relationships with designers as department stores do. We can’t buy the volume or every size. By opening in other cities, we wouldn’t be able to accomplish what we’re doing.”

Bolke is brainstorming ways to expand, but is not planning on growing into new territories.

Ikram Goldman, owner of the Chicago boutique Ikram, criticized department stores for a lack of editing designer collections and a lack of service.

“I always tell my staff to learn from department stores,” said Goldman. “You are supposed to say hello to every customer. There’s too much of everything [in the marketplace, namely in department stores] that people feel they don’t want to shop.”

Incentive, like good service, she said, is a necessity.

Jeffrey Kalinsky, who sold Jeffrey New York and Jeffrey Atlanta to Nordstrom last year, said the deal hasn’t affected his buying power whatsoever.

“A specialty store owner has to want this kind of thing [being bought out],” said Kalinsky, who is now president and chief executive officer of Jeffrey New York, and director of designer merchandising at Nordstrom. “This is part of what I wanted. I wanted to work with a big department store.”

Kalinsky is, however, helping Nordstrom build the fashion side of its business.

“I’m an employee of Nordstrom, and my job is to contribute to the designer business,” he said, adding that being bought out may have worked for his business, but is not the cure-all for specialty stores.

“The consolidation trend in retail will continue to happen at all levels of the food chain,” said Frederick Schmitt, vice president of The Sage Group, an investment banking firm in Los Angeles. “We’ve seen it happen with the larger players and the department stores. I think we will see it happening in the near future with specialty chains and those that operate in other retail channels.”

Schmitt said the reason for the interest in the specialty store category stems directly from the moving and shaking of last year in the department store sector.

“It becomes increasingly important for brands and wholesalers to diversify their distribution,” added Schmitt. “At Federated, where Macy’s had two buyers, now it’s one. Since there are fewer department stores to work with, specialty stores are becoming increasingly important to diversify the distribution.”

Schmitt said that private equity funds are going to become interested and active in this area.

Arnold Aronson, managing director of retail strategies, Kurt Salmon Associates, said specialty stores would be on the uptick this year.

“There is an opportunity for stores that can be differentiated in a real focused assortment and offer expert personal service,” said Aronson. “It’s beyond the image of the store. When you look at Scoop, Calypso and Fred Segal [in Los Angeles], you’re talking about multibrand stores. The major common denominator is that they are contemporary and at the edge of fashion, but they’re not so far out that they become limited in their appeal, that they can move into other areas.

“When customers shop [at Scoop] they aren’t buying a designer [item], they’re buying Scoop. [That happens] when the customer goes into the store that has an integrating feeling, that there is one headset orchestrating the whole store. Rather than feeling segmented it feels integrated.”

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