MODERATION TO THE MAX
Byline: Rusty Williamson
DAYTON, Ohio — Elder-Beerman Stores is counting on an intensified focus on moderate apparel and a slick new store design to carry it to new heights in the coming years.
The 62-unit department store chain’s renewed focus on moderate was unveiled last month chainwide, and its new store prototype was rolled out in 1999. The initiatives are two of several strategic goals the chain is implementing to expand its business and take back market share lost over the last several years to value-driven discounters such as Target and savvy moderate chains such as Kohl’s.
Elder-Beerman is among a dwindling base of moderate department store chains left in the U.S., but executives think they can avoid the final fate of such stalwarts as Wards, Paul Harris and Sterns, which have recently or are in the process of fading to black.
Elder-Beerman’s board briefly considered selling the publicly traded chain in 1999 as a way to increase shareholder value, but, after a somewhat contentious battle with several shareholders, decided instead to redefine its merchandising focus and clarify its image as a value-driven moderate chain that’s easy and fun to shop. Elder-Beerman emerged from Chapter 11 at the end of 1997, after a two-year tour in bankruptcy proceedings.
Though Elder-Beerman’s comprable-store sales rose a scant 0.7 percent in February and were down 2 percent in January, retail analysts think the $667 million chain just may have hit on a winning turnaround formula.
Total sales grew 2.2 percent last year, though comp-store sales were down 8 percent. The overall outlook through the fourth quarter of 2001 is for low-single-digit gains, according to market sources.
Women’s ready-to-wear is the top-selling category at Elder-Beerman, and generates 33 percent of the business, followed by home with 25 percent of the mix. Another key area is junior apparel, and each of the three categories are expected to trend ahead by at least high-single digits by fourth quarter, sources said.
In an interview, Frederick J. Mershad, chairman and chief executive officer at Elder-Beerman, said the chain is devoting substantially more floor space to moderate women’s apparel categories at the expense of better.
The move toward more moderate merchandise began slowly last year and was rolled out dramatically in February. Now moderate is expected to account for nearly 65 percent of the chain’s women’s mix by third quarter, with better-priced clothes shrinking to around 35 percent of the mix.
Top moderate labels include Leslie Fay, Alfred Dunner, Koret of California, Tanjay and Sag Harbor, along with a few proprietary brands.
“The moderate business has always been more profitable than better and we plan to grow it at Elder-Beerman,” Mershad said. “We’re planning on high-single-digit gains for the first half in women’s moderate apparel. The category continues to chart amazing sales. Better is planned flat.”
Mershad believes that discounters and mass merchants have snared moderate business away from traditional mid-tier department stores, which have mistakenly devoted too much selling space to better.
“We’re reclaiming the category for our shoppers in a big way,” he said. “They’ve told us in our intense market research that they wanted to find moderate apparel at a great value at Elder-Beerman. So we’re giving it to them. We’re able to compete against mass and discounters by opening our price points where they leave off and we’re offering more fashion.”
Mershad and his board have given merchandisers and store planners the mandate to transform and refocus Elder-Beerman into a value-based business aimed at a highly defined target consumer base: shoppers with average household incomes of about $46,000.
The chain typically opens stores in secondary U.S. markets with a population of 50,000 within a 10-mile radius. The goal is to be the only moderate department store chain in the community and sidestep competition that proliferates in larger cities.
Other changes shaping up at Elder-Beerman include a more centralized merchandising and inventory structure that more accurately pinpoints individual stores’ needs and calls on vendors to help plan buys and keep stock tightly edited, installation of updated and centralized POS systems and $300 million in new financing.
Additionally, some underperforming stores have been shuttered and the chain divested its shoe store operations to focus on the core department store business.
Elder-Beerman also operates two freestanding furniture stores and has plans to open more in select markets when real estate permits.
The chain is showcasing its revamped merchandising strategy in five store prototypes opened in the last two years and it is on track to open five more this year.
The prototype was designed by Horst Design International and follows a modified racetrack design. The layout features lots of open-sell counters, low sight lines and soft but vibrant lighting. It’s designed to make shopping fast, focused and fruitful.
Inventories are tighter and operating costs are lower due to the prototype’s smaller size of about 55,000 square feet. Old-line Elder-Beerman units average 75,000 square feet. The largest is 217,000 square feet.
Elder-Beerman spends about $72 a square foot to construct a new prototype store, but $55 to remodel an existing unit.
Sales at the prototype stores are trending at least 10 percent higher a square foot than old-line Elder-Beerman venues. The five new stores beat pro forma sales plan by 14 percent and pro forma profit plan by 34 percent.
A tour of the chain’s new store in Frankfort, Ky., a charming and bucolic town nestled among Kentucky’s genteel horsebreeding farms about 100 miles from its Dayton headquarters, exemplifies the chain’s new approach.
Junior and young men’s lifestyle apparel is merchandised in graphic and colorful areas called The Zone, to the left of the front door. Women’s apparel wraps around the right-hand side of the store and comprises nearly 40 percent of the selling space. Average transactions are about $60 compared to $50 at older Elder-Beerman units.
Apparel is merchandised on spare, linear and unobtrusive tables and racks in a bid to let the merchandise shine. Inventory is kept on walls in individual departments, not in backrooms.
In a bid to offer trendier items, merchandisers are combing the marketplace for inexpensive fashion items that can be quickly expedited to the selling floor, such as blouses, denim or knits.
“There’s a real danger in becoming too safe, bland and predictable,” said Mershad. “Monotony doesn’t translate into a reason to buy. Women are into a buy-now, wear-now state of mind, and so we stagger our deliveries to hit the floor when women want the merchandise. We constantly test newness and are prepared to exploit a trend if its hot.”
An open-sell cosmetics department radiates from the center of the store. It features large trend-driven beauty signage and is clearly visible from any store vista. Accessories, shoes, men’s apparel and home departments make up the rest of the mix.
Retail analysts praised Elder-Beerman’s new-store prototype and said it holds the potential to guide the chain’s turnaround vision.
“The prototype makes a lot of sense,” said Jeff Stein, managing director at McDonald Investments, based in Cleveland. “It’s in step with what the consumer is looking for today: value and convenience. And Elder-Beerman is doing more business at opening price points, which is what their shopper research distilled as a top need.
“They also stay away from the competition and go to smaller markets. If they can execute this strategy, they can carve out a nice niche for themselves.”