Focus on: Site Selection and Optimization

Perfumania sets its sights on growth

Since Perfumania opened its first store in 1987, the Bellport, N.Y.-based fragrance retailer has made a name for itself in shopping malls and strip centers nationwide, establishing itself as the single largest player in the promotional designer fragrance space. In 2008, Perfumania’s publicly traded parent company, Perfumania Holdings Inc., added a lineup of wholesale and manufacturing businesses and fragrance consignment programs to its retail presence, and fiscal 2009 net sales for the combined companies was $511 million. 

Today Perfumania operates 350 retail stores in the United States and 20 in Puerto Rico. The company opened 57 stores in 2009, and nine stores in 2010. This year, it plans to open 10 to 15 locations, and is considering a Canada market debut.

Perfumania has outlined an aggressive growth strategy that could ultimately see 600 retail doors in North America and Puerto Rico. But the downturn has slowed its expansion rate.

“Our expectation is that we will be in a good position to expand when the time is right,” said Michael Katz, president and CEO, Perfumania Holdings Inc. “We have the infrastructure in place to expand as economic recovery occurs, but we are not actively chasing growth until that happens.”

To prep for expansion and to shore up its real estate position, Perfumania retained New York-based RCS Real Estate Advisors in January 2009 to act as its outsourced real estate arm. RCS responsibilities include lease renewals and renegotiations, terminations as required and, for new locations, all site selection and lease negotiation duties. But, according to Ivan Friedman, president and CEO of RCS, the top priority from day one has been portfolio evaluation and maximization. 

“Before we joined Perfumania in 2009, we reviewed the portfolio, and we discovered a host of locations that were operating under lease rates that were too high,” Friedman said. “Because of that, the company had a lot of unprofitable locations.” 

RCS’ focus has been on aligning the existing portfolio of 370 locations so that the rents are acceptable and the stores are profitable. “We will use renewals, kickouts and individual negotiations with landlords to accomplish this,” Friedman said. Going forward, he added, it will be crucial to ensure that all new sites are set up for profit.

“We will make sure to control how much rent we can afford to pay based on the location,” Friedman continued. “I see that as the continuing priority for 2011, just as it is for all retailers.”

Perfumania regional mall sites require 1,500 sq. ft., of which about 1,200 sq. ft. is selling space; outlet mall stores require 2,000 sq. ft., 1,700 sq. ft. of which is selling space. 

“About 80% of our stores are in regional malls, outlet malls or strip centers, and we have a few lifestyle center stores,” Katz said, “though those haven’t been as successful.” 

Perfumania also has some urban street stores that have been successful. The challenge with the urban stores is achieving the rent-to-sales volume ratio, according to Katz.

The typical Perfumania customer is a 25- to 45-year-old female. Positions next to high-traffic retailers provide the best results. 

“If every one of our stores could be located next to an Apple store, we’d be happy,” Katz said.

A strong mall can provide an opportunity for not one, but multiple stores. For example, Perfumania operates two similar (same name, same design, same inventory) stores in the Mall of America and is eying a third location. 

“The product is so much of an impulse purchase that if you’re on two sides of a really big mall, and it’s a great mall, why not?” Friedman asked.

Friedman predicts that for profitability reasons, much of Perfumania’s future growth will come from its outlet concept. 

“One of the most profitable parts of its business [is] the outlet stores, which is not unusual,” he explained. “Many retailers that have venues within traditional malls and shopping centers are so much more profitable in the outlet centers than in the malls. Expanding the outlet footprint for Perfumania would be our No. 1 expansion strategy.” 

Both RCS and Perfumania also have a list of traditional malls slated for future openings that they target as locations become available. The western United States is slated for expansion, as are the southeastern and southwestern United States. 

“The opportunities in the Midwest haven’t been as great over the last 12 to 24 months,” Katz said.

Canada also has significant appeal, especially since it lacks a national fragrance player. Katz said there are three or four Canadian cities that Perfumania would target for stores. 

Friedman feels the expansion possibilities for Perfumania are almost limitless. 

“It is a strong company with clout and strong financials,” he said. “Growth is restricted only to finding the right locations for the right price.”

Editor’s note: Additional coverage of Perfumania, its expansion progress and its leadership via a one-on-one interview with Mike Katz will be featured in the upcoming February issue of Chain Store Age.

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