The New Stars Of RetailingLaura Zinn
Ask Ira Neimark and Marvin S. Traub to reminisce, and you'll get a feel for the heady days of retailing. Neimark, chief executive of Bergdorf Goodman, can still picture the Christmas of 1938, when, as a page at Bonwit Teller in New York, he saw customers such as the Vanderbilts shopping for stocking stuffers, footmen in tow. "I fell in love with the store and the attitude," says Neimark. And Traub recalls arriving fresh from Harvard business school at Bloomingdale's, a barn of a store he later turned into the country's capital of fashion glamour.
Now, the glamour has mostly been worn away by the harsh new realities of retailing. Bonwit's is gone from New York. Bergdorf's operating profits plummeted 82%, to $3.8 million, on sales of $199 million for the year ended in July. Bloomie's parent company, Federated Department Stores Inc., entered bankruptcy in January, 1990. Says Traub: "When I joined Bloomingdale's, I didn't have the goal of running a company in Chapter 11."
Nor will Traub be at the helm as Bloomingdale's and Federated navigate out of Chapter 11, most likely next year. Traub retired on Nov. 15. And this will be Neimark's last Christmas at Bergdorf's: He is retiring in February. At other premier stores, some of retailing's best-known impresarios are departing. In November, Joseph E. Brooks, 64, the former head of Lord & Taylor, abruptly resigned as chief executive of Ann Taylor Inc. The 66-year-old Edward S. Finkelstein, chairman of R. H. Macy & Co., has said he will probably retire in the next few years.
With their departures, an old way of life is ending -- the days when a great merchant saw his store as theater and stocked it with sumptuously presented goods. For these merchant princes, selection of merchandise for their emporiums was paramount. Sure, they had to know a thing or two about finance, inventory control, and marketing. But the man with flair for the wares ruled the stores. "The old guard were style pickers, not number crunchers," says Alan G. Millstein, a retail consultant in New York.
WARY SHOPPERS. But it is clear that the old ways don't work anymore. Retail business failures have been surging (chart, page 122). Since peaking in early 1990, the ranks of retail workers have fallen by more than 230,000. And store owners face the prospect of the third crummy Christmas in a row as cautious shoppers cut back even further. "Consumer confidence is back to the same level as at the start of the Iraqi war," says Michael Gade, co-chairman of Coopers & Lybrand's retail consulting arm. "Retail spending will clearly not exceed last year's unless something positive happens."
Nothing is likely to save Christmas from the Grinch this year. But some good may be found in this wrenching experience: As the old order fades away, a new breed is rising up in retailing, fashion, and cosmetics. Some of them already have superstar status. Millard S. Drexler, president of The Gap Inc., has masterfully combined fashion, advertising, price, and market penetration to reach mall-weary shoppers. Each month, The Gap posts year-over-year sales growth of 30% or more.
But Drexler isn't alone: Retailing has other young talents who just might reinvent their industry. With retailers groaning from the hangovers of the 1980s, some rising stars are financial whizzes. Others are computer jockeys. And the presence of female senior managers signals that women could assume industry leadership.
Above all, this rising cadre of retailers and designers understands how important marketing is. Where the old-line merchants seemed to operate on one simple credo -- "Build a store, and they will come" -- the new breed knows shoppers won't come anymore unless stores offer them a reason to. "Retailers of today have to be market-driven and use the customer to tell them what to sell," says Douglas Tigert, retailing professor at Babson College. That means relying more on such classic consumer marketing strategies as extensive testing of new merchandise and retail formats.
One rising executive who's working hard to find out what's on consumers' minds is Jay Margolis, 42, the vice-chairman of Liz Claiborne Inc. Margolis briefly attended Columbia University business school. But he has been interested in fashion since his teen years when he bought a bearskin jacket in Greenwich Village. His mother hated it.
FOCUS GROUPS. He has become a better judge of other people's taste. After successfully launching Liz Claiborne's $120 million menswear business, Margolis is now in charge of the $970 million women's sportswear division, where he relies heavily on focus groups and sends consultants to stores to survey shoppers' reactions to Liz Claiborne fashions. "With only a handful of stores doing well, we need to move closer to the consumer," he says.
Recently, Margolis personally asked 180 Macy's salespeople about Liz Claiborne's strengths and weaknesses. They told him shoppers wanted dressier merchandise. Margolis also helped launch Liz Claiborne's first ad campaign for apparel, a $6 million effort.
Grace Nichols, 45, also pays close attention to what consumers tell her. With a master's degree in history from the University of California at Los Angeles, Nichols planned on a law career until she decided she was having more fun at her part-time job at Cadwells Emporium in Los Angeles. In 1986, she joined The Limited's Victoria's Secret division, then showing roughly $150 million in sales. Nichols helped her boss, Howard Gross, turn the lingerie chain into an $800 million business and one of The Limited's most profitable units. Now, Nichols runs the division with an unsentimental dedication to product testing and a gimlet eye on margins. She has to: Sexy lingerie -- especially in a recession -- isn't exactly a necessity. Says Nichols: "Our business is based on indulgence, which is very different from 'I need a gallon of milk.' "
So Nichols loads up on the lace and beads and never uses such mundane words as underwear. She is constantly looking for ways to raise prices without appearing greedy. One example: Victoria's Secret had sold a lot of loose soap bars at roughly 50~ each. But Nichols figured a way to sell them for more by packaging fancifully shaped soaps in lace and ribbon. New price: two for $7.50. "That," says Nichols, "is an example of how to move your price point."
The consumer focus and emphasis on marketing is taking hold even in some corners of high fashion, long the province of customer-be-damned arrogance. Donna Karan, for example, represents the new wave of designers. Karan, 43, dropped out of Parsons School of Design and went to work for Anne Klein. After being fired and rehired, Karan stayed for 20 years, eventually becoming head designer. In 1985, Tomio Taki, the Japanese owner of Anne Klein, pushed her out of the company -- and staked her to her own venture, Donna Karan Co.
Karan has created a startlingly successful company by assuming -- correctly -- that her concerns about her own figure and comfort are universal. "The woman buying my clothing is in her forties, fifties, and late thirties and has been exposed to an enormous amount of fashion," says Karan. "She doesn't buy clothes just because you design them." Karan's clothes don't work just on ultrathin models: The Donna Karan look incorporates wraparound skirts and draped fabric to flatter older figures. Flattery works: Karan's sales rose to $215 million this year from $163 million in 1990 and, with a new menswear line, will probably reach $250 million in 1992, says Stephen L. Ruzow, Karan's president.
BARGAIN BOUTIQUE. Besides fashions that make sense, the need for value is something these retailers understand. Eugenia Ulasewicz, 38, heads New York's Galeries Lafayette store that opened this fall, a satellite of the French chain. Ulasewicz, a business major from the University of Massachusetts, once wanted to work for Ralph Nader. But after a Christmas stint at Bloomingdale's, she joined its training program. As a protegee of Traub's, she underwent the classic training of a department-store executive. But Ulasewicz sees a simple but crucial difference between then and now. "When I first started, people were buying, buying, buying," she says. "You would never have sales before Christmas."
Her strategy at Galeries Lafayette reflects the new reality. The store sells European fashion in New York's priciest retail district but doesn't use foreign labels as a justification for higher prices. The result: a sort of bargain boutique of the 1990s. Shoppers are snapping up inexpensive cosmetics from France's Bourjois line, and skirts and other apparel are mostly under $300. The Gallic atmosphere is free: Edith Piaf's singing fills the air. The store had aimed for sales of $40 million in its first year, and Ulasewicz says she is on schedule.
The drought of shoppers Ulasewicz is fighting has pinched Estee Lauder Inc., the $2.5 billion privately held cosmetics manufacturer, where unit volume is down. "For many years, we had the luxury of just catering to the traffic already there," says Robin Burns, Estee Lauder's 38-year-old president. "But customers are not coming into the department stores where we're selling our product."
To build traffic, Burns has crafted a set of flashy ads and promotions. She attached videocassettes of a three-minute commercial for Lauder's new scent, SpellBound, to 14,000 copies of the September issue of Elle magazine, a publishing-industry first, and sent out an additional 238,000 videos to selected department-store customers. For Christmas, she is selling $20 how-to makeup videos starring supermodel Paulina Porizkova and the model's mother. And Burns is building minishops within department stores where customers can try out products without asking a salesperson for help.
George R. Mrkonic Jr. is not selling makeup videos, but he wants to reach out to his customers, too. As head of Kmart's $7 billion specialty-stores division, the 39-year-old Mrkonic oversees Waldenbooks, Pace Membership Warehouses, Sports Authority, Builders Square, and Pay Less Drug Stores. Mrkonic's four-year plan is to boost the division from 22% to 30% of company sales. To do that, he is relying heavily on data-based marketing. "Retailing is becoming more marketing-driven," he says. "That didn't used to be part of retailers' portfolios."
Mrkonic, armed with a master's in economics from Stanford University and an MBA from Harvard, was running W. R. Grace & Co.'s Herman's Sporting Goods chain by age 29. In 1987, he left to become chief executive of Eyelab, where he boosted sales by collecting data on eyeglass purchasers and sending them regular promotional offers to get them back into the stores for new glasses, even though their prescriptions hadn't changed. Industry sources say he profited handsomely when Pearle Inc. bought the chain for $140 million in 1989. At Kmart, he has developed membership programs to create huge lists of bargain shoppers, book-buyers, sports enthusiasts, and do-it-yourself homeowners. To handle all the data, Mrkonic relies heavily on sophisticated computers.
BIG RISKS. Financial savvy is also crucial. Before leveraged buyouts, finance in retailing mostly meant making sure prices were higher than costs. Now, takeover-related debt makes the job of financial control critical to the survival of many companies. One retail executive with such skills is Macy's 45-year-old vice-chairman, Myron E. Ullman III, a onetime White House Fellow and former COO of Wharf Holdings Ltd., the Hong Kong conglomerate.
At Macy's, Ullman, 45, doggedly chips away at costs. So far, he has sold off credit-card receivables, raised new equity from insiders, bought back bonds at depressed prices, and reduced debt by $2 billion. His work could still come undone, though he bristles at any suggestion of a Chapter 11 filing. "We're not failing, and we're winning customers back with our marketing," he says.
Like Ullman, many of these rising stars of retailing face daunting challenges, and all their savvy, creativity, and technical skills are no guarantee of success. Verna Gibson, for example, was a longtime head of Limited Stores, the conglomerate's flagship division. But when sales started to slow, she abruptly resigned. Clearly, the professional risks are high for this new generation. But their work in marketing, customer research, finance, and merchandising just may point the way out of retailing's most beleaguered era since the Great Depression.