The Loehmann's Model Finally Goes Out of Style
Loehmann's Inc. is headed into bankruptcy for the third time. I'm a big fan of using bankruptcy to get back on your feet, but when you're filing for the third time in 15 years, it may be that the universe is trying to tell you something -- like "your business model doesn't work anymore."
Loehmann's used to have a great business model. In the 1980s, when I was in high school, I would go there with my mom and her friend Joyce. You'd go through the racks until you were literally staggering under the weight of clothes you wanted to try on, and then you'd inch back into the dressing rooms -- or I should say "dressing room," a cavernous space where you had to try on clothes in full sight of everyone else. For a teenage girl, this was somewhat traumatic. But such bargains!
In the era before ubiquitous outlet malls, Loehmann's offered genuine designer clothing at fabulous discounts. It did this by buying designer overstock. You got the clothes a little late, and it didn't have everything. But the stuff it had was often good and always cheap.
But that business model is now as dated as a sequined royal blue cocktail jacket with 12-inch shoulder pads. Supply chains have radically changed, so there's no longer so much overstock, and the most successful bargain retailers commission their own versions of new looks, which can ship from China just weeks after the originals debut at Fashion Week. Outlet malls have also proliferated, giving designers a way to unload their own merchandise on the cheap -- indeed, they're so popular that many vendors now produce lower-quality versions of their merchandise specifically for sale at outlet malls.
In that environment, it's simply hard for Loehmann's to compete -- at least profitably. It's facing competition for its product on the supply side and competition for consumers on the demand side. It was almost inevitable that it would end up in and out of bankruptcy over the last decade. Debt isn't the problem; the business model is the problem.
Of course, it could try to change its business model. But companies aren't very good at that sort of radical transformation. Loehmann's has a lot of assets -- human and physical -- that were well suited to the old way of doing business. It doesn't have any particular skills at sourcing original clothing and selling to the fashion forward. It seems more likely that it will cycle in and out of bankruptcy until the owners finally give up. It will be a sad end to a lot of great memories.
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Megan McArdle at firstname.lastname@example.org