EXEC TRIO: VIEWS FROM THE TOP
Byline: Valerie Seckler
NEW YORK — “We believe the most successful retailers will be more productive in existing space, rather than adding a lot of space,” forecast Mackey J. McDonald, president and chief executive officer of VF Corp.
McDonald, along with Terry J. Lundgren, president and chief merchandising officer of Federated Department Stores, and Bernard A. Leventhal, vice chairman of Burlington Industries, exchanged views on industry issues in a broad-ranging roundtable held in Federated Merchandising’s boardroom here Wednesday.
Micromarketing to reap greater returns in existing stores will help drive apparel business into the next millennium, while the industry also expands globally through acquisitions and other ventures, the executives observed.
The roundtable’s boardroom setting belied the informal nature of the question-and-answer session with the apparel industry’s powerful trio.
The event also marked the announcement of the three executives as the recipients of The Fashion Association’s American Image Awards, which are to be presented Nov. 5 at the Sheraton New York Hotel and Towers. Lundgren will receive the “retailer of the year” citation, Leventhal will be presented with the “special award for industry service,” and McDonald will be honored as “manufacturer of the year.”
“We’re investing more in technology,” McDonald related. “We believe that by making better use of it, we can mine our database to micromerchandise store by store, adding significantly to the business.
“Because the power in the apparel business has moved from the retailer to the consumer, we’re focusing on individual shoppers instead of our past priority on mass marketing,” McDonald continued. “We need to take advantage of our large scale to be able to do so, and we have to combine our global sourcing, marketing and information sharing capacities as never before.”
Aiming to pump up productivity and polish its image, Federated is intensively renovating its three flagship stores, Lundgren explained. “We have an asset that no other retailer has,” he said.
“We have three stores that do $1.3 billion [combined] annually,” Lundgren said of the Macy’s flagship at Herald Square, Bloomingdale’s at 59th Street and Macy’s on Union Square in San Francisco. “Those three stores and the Burdines in Dadeland, Fla., do more business than most regional chains.”
Noting that “productivity is an issue” prompting the makeovers, Lundgren emphasized that “there is an image issue as well.”
“When visitors from around the world shop our stores, it is the Macy’s and Bloomingdale’s flagships that convey our image internationally, not the branch stores,” he added. “We are focused on making them the most important retail emporiums in the world.”
About 20 percent of the Macy’s Herald Square flagship is closed off for renovations, the Federated executive noted. Currently housing more than one million square feet of selling space and producing sales of more than $500 million annually, the Macy’s flagship is seeking to raise its volume to $1 billion annually over the next 10 years.
Federated has allocated $150 million to the effort to revitalize the three flagships, according to Richard L. Church, retail analyst at Smith Barney Inc. The project is scheduled to be completed by the end of 1999.
The Macy’s Herald Square renovation will feature the extension of selling space by 5 to 8 percent a year, Church reported. The extra space will come from the back, room as well as from large departments such as home goods, and will be used to expand apparel, cosmetics, footwear and accessories areas.
As retailers strive to achieve double-digit comparable-store growth, Burlington Industries is “seeing opportunities to develop more private labels and store brands,” Leventhal said.
“We’ve worked on some programs with Federated,” he added, declining to specify.
Asked what brands are gaining selling space at Federated stores, Lundgren replied, “Both Charter Club and the women’s INC private labels are getting more real estate or more prominent space.
“We’re also introducing more sophisticated display fixtures and installing some concept shops for those labels to bring their merchandising on a par with market brands such as Lauren Ralph Lauren,” Lundgren added.
The executive trio was quick to acknowledge the significance of acquisitions in building brands, leveraging costs and expanding sales.
“Acquisitions will be important in developing new brands and concepts,” McDonald said. “Today’s customers want items specifically geared to their lifestyle aspirations and practical functions.
“You’re seeing more differentiation in lifestyles today, which is one of the reasons we will continue to develop our portfolio of brands,” the VF ceo added.
“Our Brittania acquisition will allow us to focus the label more sharply on its roots as a junior and young men’s denim brand,” McDonald said of the label that had become a basics business for the mass market.
With the completion of VF’s Brittania acquisition last week, McDonald said the line will be fully redone with a fashion flavor for back-to-school selling next year.
“In the retail world,” said Lundgren, “there will be more acquisitions driven by the need to improve operating efficiencies.”
Nonetheless, Lundgren maintained, “There are not as many logical and outstanding acquisition candidates out there as there were a few years ago.
“Everything Wall Street has thought or dreamed about, we’ve studied,” the Federated president continued. “We feel pretty good about our track record in paying good prices and getting good returns on takeover deals.”
Much of Federated’s growth, Lundgren noted, will come from “taking market share from competitors at all price points.”
“We no longer compete only with the department store across the mall,” he added.
Federated may close as many stores as it opens this year, said Lundgren, “as we recognize the oversaturation in certain malls and leverage costs by closing an underperforming unit in a market with several stores.” Federated is planning to close between seven and 10 stores this year, according to Wayne Hood, retail analyst at Prudential Securities.
For Burlington, acquisitions are a possible growth path, but the supplier is more likely to expand via deals such as the denim sourcing joint venture it struck in India and its Mexico sourcing setup.
“Acquisitions are possibilities, but there is greater potential in mining other parts of the world, as we’ve done in India and Mexico,” Leventhal said. “With Mexico’s proximity to the U.S. and the NAFTA trade pact, we anticipate the shift of a lot of garment-making down there.”
Leventhal also highlighted the manner in which heightened competition from global players is raising the bar on product quality. “We have many nations now offering far more goods than the consumer can buy,” he said. “This is placing more demands on the quality and prices of products we offer.”
Asked about China’s potential to fuel the growth of U.S. companies, Lundgren noted that Federated’s private-label sourcing there has grown substantially. He also said the company might consider opening stores in China — either Bloomingdale’s or Macy’s — but Federated has not yet established a timeframe in which to do so.
VF Corp. has a joint venture in China, said McDonald, who noted the vast market’s potential, but cited difficulties in “getting goods through distribution channels to the consumer.”
“Asia, Eastern Europe and South America all pose big opportunities,” McDonald observed. “They have growing middle classes and stabilizing currencies and governments. We’re working on converting licensed operations to owned businesses in those regions.”