SUPPLY CHAIN

Atmosphere Is the Star

BY Marianne Wilson

Store atmospherics help G-Star maintain its cool, hip edge. In recent years, the Dutch denim brand has opened some 75 franchised stores, primarily in Europe. In 2007, the company is focusing on growth in the United States, where it currently has eight stores.

“We got involved because they make a great denim product, have a cool image and the marketing is very sophisticated,” said Tom Taylor, principal, Swimming Horses, Salt Lake City, which owns six G-Star stores in the United States, including units in Dallas, Manhattan and Los Angeles, and plans to open additional locations.

The design of G-Star’s in-store experience was carefully crafted to create the type of environment that would reflect the values and taste level of its young shoppers. A sleek design, and targeted music and video, help reinforce the brand and add to the atmosphere. So do special in-store performances by guest DJs.

To provide a consistent look and brand image across locations, the design of G-Star’s U.S. stores is controlled by the parent company in Amsterdam. The company ships materials to all new stores.

The same attention to consistency goes into its audio system. Initially, G-Star wanted to send a sound system from Amsterdam. But it was won over by the reliability and quality of an American brand, Harman Pro Group, so much so that Harman components are now standard for all G-Star stores.

In selecting an audio system, G-Star had some specific criteria. It wanted a single system that could handle its in-store music as well as the DJs in a simple manner. Also, employees had to be able to access the system without being able to adversely affect the settings.

“They needed high-level commercial sound,” said Rolo Casos, principal, Sonolux, Salt Lake City, which designs and installs G-Star’s audio systems (in stores owned by Swimming Horses). “With the DJs they bring in for store openings and other events, a high-quality, powerful system was a necessity.”

At the same time, G-Star did not want its store environment to be overtaken by loudspeakers and other equipment.

“They didn’t want it to impact the look of the store so ceiling-mounted speakers were necessary, with sound zones built in and controllable from the registers,” Casos explained.

About G-Star

The trendy Dutch brand G-Star is best known for its raw denim styles (G-Star Raw jeans retail from about $1,000). But in recent years, the company has been expanding its offerings, particularly its women’s wear collection.

With some 75 franchised locations worldwide, the company plans to open an additional 60 stores this year. It also wholesales to such U.S. retailers as Bloomingdale’s, Urban Outfitters and Metropark. The privately held G-Star does not divulge sales figures, but industry sources predict that it will generate $60 million in retail volume by the end of 2007, up 40% from last year.

Today, each store uses the same overall system from Harman. It is powered by Crown XL amplifiers and JBL loudspeakers (Control Contractor in-ceiling speakers), which work to deliver maximum intelligibility and control, ensuring that the correct content is heard in the correct part of the store. Subwoofers (JBL Control 19s) provide the lowend sound.

G-Star’s in-store music is provided by DMX, which updates the selection over the Internet. The company retains control over content. With the use of a zone controller (dBx ZonePro), employees can adjust basic volume levels without gaining control of or being able to override the system.

The equipment is totally unobtrusive. The speakers are hidden and the rack goes into an office, but with control possible from the cash register. Casos brings the rack pre-populated with the amps and controllers into each new store and makes sure that the speaker covers are painted the right color to blend in with the visual scheme of the store.

“The system is sophisticated, but easy to operate, flexible and can adapt to any need,” he said. “There is one setting for the normal DMX feed. And if there is a DJ, the store accesses the input panel at the register. One selection allows the DJ to plug into the installed system.”

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Weekly Retail Fix

BY CSA STAFF

THE NEWS: SAM’S REALIGNS STORE-LEVEL MANAGEMENT

BENTONVILLE, ARK. Sam’s Club is changing the management structure in its stores. In the realignment, approximately 250 positions will be eliminated, Wal-Mart Stores announced last week. The company said it’s replacing five lower level management positions at each Sam’s Club location with three new higher level and higher paying assistant manager positions.

“This is not a cost cutting effort. We expect a slight increase in payroll upon completion of this change,” said Sharon Orlopp, senior vp of Sam’s people division.

THE FIX: Differentiation would better help Sam’s

Since Sam’s decided that its refocus on the business customer was too narrow, it has sought to find ways to make its clubs more attractive to primary shoppers, i.e., women. And that’s a pretty tough row to hoe, as Costco has done a pretty good job at satisfying the club customer in general and BJ’s has been going after female shoppers for several years now, with some success.

Having fewer managers with more direct responsibility could create a tighter knit club-level management and shorten lines of responsibility and accountability. Yet, without differentiating the offering, execution isn’t going to overcome all of Sam’s challenges.

That being said, a store-level management realignment might be overlooked at other retailers, but, this being Wal-Mart, everyone has to make a big deal about it. But that’s the price you pay as the big guy on the block.

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Weekly Retail Fix

BY CSA STAFF

THE NEWS: TOYS ‘R’ US EARNINGS GAIN 40.1%

WAYNE, N.J. Toys “R” Us today posted net earnings of $199 million for its critical fourth quarter, which meant it turned a profit for the fiscal year ended Feb. 3. But special charges and gains had an impact on its numbers.

Sales for the previous fiscal annum were $142 million, the difference translating into a net earnings increase of 40.1% year over year. For the last fiscal year, Toys “R” Us posted net earnings of $85 million versus a net loss of $384 million for the previous period.

Operating earnings in the fiscal 2006 fourth quarter gained 53.1% to $571 million versus $373 million for the fourth quarter of fiscal 2005. For the last fiscal year, operating earnings were $649 million versus an operating loss of $142 million for the previous period.

THE FIX: Improved shopper experience ups comps

Of course, any observer has to take into consideration special financial circumstances. Fiscal 2006 operating earnings were positively impacted by $96 million from gains on property sales, slightly offset by restructuring and other charges. In fiscal 2005, operating earnings were negatively impacted by $410 million in costs relating to the merger of the company, as well as $58 million of costs and charges relating to contract settlement fees, restructuring and other charges.

Still, sales were trending up at last year’s end. Net sales gained 15.8% to $5.7 billion. In the full fiscal year, net sales advanced to $13 billion, up 15.2%.

Comparable-store sales for the Toys “R” Us’ U.S. division gained 0.6% in fiscal 2006, and that represents the division’s first comps increase in six years. Comps at Babies “R” Us were up 4.8% and those at Toys “R” Us international were up 2.6% for the fiscal year.

Jerry Storch, chairman and ceo of Toys “R” Us, said the company is “pleased with the strides we made in fiscal 2006 to improve at all levels of the organization and reposition the company for profitable growth over the long term.”

He said the company’s new management team has been focusing on executing a strategy that would turn the retailer into a global toy and baby products authority.

“This translated into higher overall sales, positive comparable-store sales, improved gross margins and strong operating earnings growth for the 2006 fiscal year,” Storch asserted. “The key to our strategy has been improving the customer shopping experience in our stores. We are accomplishing this by delivering a more compelling merchandise selection, better service and a cleaner and more comfortable shopping environment.”

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