Byline: David Moin

NEW YORK — Federated, Sears and Carrefour — in business together?
In a most unusual retail alliance, the three giant chains have become partners in Retail Options. It’s a new venture they’re jointly funding whose mission is to identify wholesale and retail companies for potential investment and eventual rollout. The target size of these prospective companies is sales of $5 million to $50 million annually.
Online technologies are also being viewed with a high priority as growth opportunities.
St. Paul Venture Capital and Organic, an Internet professional services firm that is redesigning, are also partners.
The formation of Retail Options underscores the pressing need retailers have for innovative merchandise concepts and technologies and their lack of manpower to capture emerging ideas.
For small entrepreneurs who have something to sell, it’s tough getting through corporate bureaucracies and getting on the “matrix,” but Retail Options could be the ticket, at least for a handful of companies over the next couple of years.
Officials of Retail Options, based here at 15 East 26th Street, said Monday that they are in due diligence with a few “enabling” software technologies that will make it easier for consumers to shop online, and a couple of wholesalers and retailers, as well.
Retail Options has already bought a stake in Fishs Eddy, a four-unit upscale New York retailer selling dishes and glasses. No firm commitments to grow Fishs Eddy or any other firm have been made yet. However, it could happen soon. A Retail Options board meeting — the company’s second — is scheduled for today.
During an interview Monday, Ken Walker, managing director of Retail Options, said the company owns between 10 and 20 percent of Fishs Eddy. “I think they can be the next Pottery Barn,” Walker said. “There is room for a new kid on the block.” He also said it’s possible that Fishs Eddy will open additional urban locations, license products and launch a catalog. A test of four Fishs Eddy shops at Federated locations is under consideration.
“All retailers need fresh ideas flowing through their stores,” Walker said. “If we can find an interesting idea in children’s, in health and beauty or in decorative home, that helps our members,” by providing new products on an exclusive basis.
Other brands, which would be more appropriate for Sears or Carrefour, are being explored, as are Internet technologies appropriate to all of the retailers, such as software making it easier for consumers to buy the right sizes in different labels online. Retail Options is a new business model that could represent some significant financial and revenue opportunities for the partners, but not immediately. They have put up the money to staff Retail Options, and have the option of investing in any potential growth vehicles and developing exit strategies on how to cash in on their investments, such as through an initial public offering or sale of the company. Retail Options is structured as a limited liability corporation, with the members owning 48 percent of the company, directors owning 48 percent and advisory board members owning 4 percent.
“We will try to figure out what is needed to make the company grow in terms of capital and personnel,” Walker said. “The partners have the first look at all deals. If we are raising money, they have the first right of investment. If the retail members don’t want to invest, then we bring in the investment community.”
He also said there are “never-ending opportunities in health and beauty, which thrives on newness and innovation.
“One area we are focused on is the wellness category. It’s becoming an important part of people’s lives and transcends a broad group. It’s not just for people over 40.” He said wellness would encompass heath and beauty products, vitamins, skin care — all kinds of elements that make you feel good.
“There is also a proliferation of spas. We have one project on the table.”
Walker said that Retail Options won’t be considering pure-play online companies or turnaround firms, and thinks accessory, cosmetics, home, children’s and “enabling” technologies are stronger possibilities for investments than designer or apparel firms. That’s a different orientation from Pegasus, the recent start-up headed by Steve Ruzow to invest in designers, and the Neiman Marcus Group, which has taken controlling interests in Kate Spade and Laura Mercier cosmetics.
By the end of the year, Retail Options hopes to have one or more deals set, and wants to do two or three projects a year. Retail Options is also headed by Odine Bonthrone, managing director. Peter Morse and Bruce Dalglish, of Morse Partners, LTD., a private equity firm, and Philip Schlein, a former Macy’s West chief executive officer and member of U.S. Venture Partners, are directors of Retail Options.
The company has a high-powered advisory board, comprised of Richard N. Costello, former president and chairman of TBWA Chiat/Day East; Ronald V. Davis, chairman of a private equity investment company; Jonathan Linen, vice chairman of American Express; Walter F. Loeb of Loeb Associates Inc.; John Sculley, partner of Sculley Brothers and former Apple and Pepsi ceo; and J. Arthur Urciuoli, chairman of Archer Corp. and former chairman of Merrill Lynch International.
On behalf of its members, Retail Options will review concepts, create strategies, conduct and analyze market research and assess market and volume potential. Brands and technologies under consideration are presented to members and advisers to review potential concepts at an early stage, and if accepted, could be provided with working capital, strategic opportunities, expertise and access to distribution. Retail Options members can place these brands and technologies within their own operations or offer them to the industry.
“This is being done with some care,” said Walker. “Each of the retailers has a fairly clear market distinction. I don’t think there is much competition between Sears, Carrefour and Federated. They’re not direct competitors. We don’t have Wal-Mart, a direct competitor to Carrefour. They were very comfortable understanding that we are looking at two fields: the marketing and merchandising arena and technology.”
Each firm examined by Retail Options would most likely be appropriate for just one of the three retail members, while technologies, such as those providing online shoppers with suggestions on what size to choose, could transcend all three members, Walker said.
“One of the problems of online retailing is how do you get accurate sizing when there are no industry standards,” Walkers said. “We are looking at some technologies that will enable the consumer to have more success buying the right size from different manufacturers, and cut down on returns. That’s something that could be applicable to any one of our members.” Theoretically, if a customer knows what size in a Hilfiger shirt fits right, then that information could be used to suggest what size shirt works in other labels. Of eight sizing technologies, “One stands out in our minds,” Walker said.
Sears and Carrefour have already cooperated in a venture, as partners in the GlobalNet Exchange, a business-to-business supply marketplace format.
Walker and Bonthrone will seek out entrepreneurs, examine their businesses and conduct due diligences before presenting them to the Retail Options members. The two worked together at Walker Group, a retail design firm founded by Walker in 1970 and acquired by WPP Group Plc in 1987, and at , The Mark of the Millennium, a licensing firm for millennium products that Walker organized. Bonthrone was director of marketing and public relations at Walker Group, which designed stores for Federated, FAO Schwarz, and Gap, among other companies, and directed the licensing and retail marketing for .
Retail Options has a staff of seven people in New York, four in Philadelphia and one in San Francisco.
According to Joe Laughlin, senior vice president of finance and business development at Sears, “We only make money if Retail Options comes up with some interesting new ideas.”
“We have to look at some competitors as partners,” he added, particularly in the technology arena, where “a lot of things need critical mass and scale to establish a standard,” including sizing. “In some cases, traditional competitors can be partners and help you move faster.”
For Sears, he said Retail Options represents a small investment. “Rather than looking to get rich off this, we’re looking for new ideas.”
Said Walter Levy, senior adviser to Ernst & Young’s retail and consumer products group: “This is a very good format in a time of dramatic change in retailing. It gets funding focused, and it’s a platform to move a brand quickly to a roll-out stage if it tests well. If the concept is good, you’ll know quickly from the consumer.
It’s also an international platform for a quick rollout — on the Internet, in catalogs and retail stores.”

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