Big and Tall Market Reaches New Heights
Throughout the industry, retailers are reinventing strategies, changing formats and resizing footprints. While many are downsizing prototypes, Casual Male Retail Group is transitioning from traditional 3,500 sq. ft. Casual Male XL stores to a big-box Destination XL format. Dennis Hernreich, who holds the dual titles of COO and CFO for Casual Male Retail Group (CMRG), talked with Chain Store Age contributing editor Connie Gentry about the opportunities and challenges of transforming the business to better serve an expanded market.
The Casual Male brand has been around for decades, and the company’s IPO was in 1987. When did your involvement begin?
David Levin, our president and CEO, and I acquired CMRG out of bankruptcy in August 2002. Previously, we were at Designs, the operator of Levi’s and Dockers outlet stores, but we were dissatisfied with the growth prospects of that business. With Casual Male, we saw a business that was under-invested, under-managed and with great potential because it was already No. 1 in its sector.
Tell us more about the Big and Tall sector.
It is a microcosm of the male population overall, meaning our customers come from all demographics and all lifestyles, and they just happen to be big or tall. That dictates how we approach the merchandising assortment. It shouldn’t be focused on young or casual or contemporary; it needs to embrace all of those elements to truly capture the Big and Tall market. Generally speaking, our customers are at least 6 ft. tall and/or their waist measures 40 ins. or bigger.
What is the Destination XL prototype?
Destination XL stores, which are 8,000 sq. ft. to 10,000 sq. ft., have an enormous merchandise selection that canvasses all lifestyles and price points. For areas across the country that have a bastion of lifestyles and socio-economic groups within commuting distance, a DXL store is necessary to capture every potential big and tall customer in that market.
What is the rollout strategy for DXL?
Four DXL prototypes opened in 2010, followed by 16 in 2011. This year, we plan to open 35 to 40 DXL stores and close 60 Casual Male stores. The transformation is well under way, and the level of activity planned for 2012 will continue for the next several years.
What kind of reception have you had to DXL?
Our customers love it, and markets where DXL stores have opened are exceeding sales on a comp basis by 15% to 20%. But that’s not surprising: Big and tall men have never had a store where selection and size is no longer a challenge; they feel like a regular-size guy. Another example of success is the DXL stores are being copied — J.C. Penney and Men’s Wearhouse are trying to emulate the DXL format. Frankly, we aren’t concerned because they don’t have the focus on this sector to compete directly against the DXL stores. Big and Tall is not their core business, and to stay in stock by size and selection you have to focus on this segment.
Are you considering expansion outside the United States?
First we will concentrate on expansion in the states and then look at global aspirations. There will be DXL stores in Canada at some point. Presently we do business in Canada through the Sears Canada website and catalog. We also have a presence in Europe through websites plus one store in London, and we intend to enter the European mainland at some point.
Has the culture of your company changed as you transitioned to DXL?
Yes, our culture has changed dramatically. We’ve shifted from a task-orientation culture to an assisting orientation and a focus on customer engagement. To do this, our store associates have to know the product so there is an enormous > amount of training material that we distribute and update about the product we are selling. And we had a tremendous amount of turnover in the last two or three years because the staff was more task-oriented than people-oriented.
What is your leadership style?
I talk a lot and I lead by example because I am a very hands-on manager. I want to know details about what is happening whether it is within my pyramid or not, and I spend a lot of time studying the business. As CFO I’m able to pierce any line, so I use it to the benefit of the organization — to challenge the organization to think of how we do things better for the customer.
How often do you visit the stores?
I was just in stores yesterday, and on an average basis I’m in two markets per month, and in each market I will visit four to six stores. In a year, I’ll travel to around 150 stores — roughly one-third of our chain.
What are you most excited about?
The opportunity to transform the business, and we’ve finally found the right format to expand our market. Our marketing strategy has made a paradigm shift — less direct marketing to existing customers and more outreach to noncustomers who are big and tall people. The DXL stores are spacious, the dressing rooms are oversized — everything speaks to our big and tall customer.
Since you are not an XL-size customer yourself, where do you like to shop?
I am very agnostic and tend to shop several places — Nordstrom, Macy’s, J.Crew, Banana Republic and at times I’ll even shop Old Navy. Also, I am a big Web shopper, although I enjoy going to the stores as well.
What does your favorite wardrobe consist of?
I’m mostly a business casual dresser, and I’m very comfortable in slacks with a v-neck sweater and T underneath. Oh, and I like pink. On the weekends I wear jeans, but not at work. I’m not a flashy guy, but not a sloppy guy either — and I’m not afraid of fashion.
Making Their Mark: Top 10 New CEOs
Change at the top is an inevitable fact of life in any profession, and retail is no exception. While the reasons behind the need to find a new chief executive vary widely, the incoming executives face a common challenge: taking the business — be it faltering or thriving — forward without missing a beat.
In the retail industry, two of the nation’s biggest chains, J.C. Penney and Sears Holdings, both welcomed new leaders at the top in 2011. So did a drug store giant. Those executives, along with seven other notable CEOs who took office last year, are profiled here.
CEO, J.C. Penney Co. Inc.
Ron Johnson, 52, hasn’t wasted any time in getting down to business at J.C. Penney Co. Inc. Although it’s been only a couple of months since he moved into the executive suite, the former head of Apple Retail is already shaking things up. (Johnson took over Penney’s merchandising and marketing responsibilities on Nov. 1, 2011, and will assume remaining CEO functions on Feb. 1, 2012.)
Johnson, who has said he wants to “re-imagine” the 109-year-old department store chain, began making waves by bringing on former associates to help shape his new team. Most prominent is Michael Francis, Target Corp.’s former marking guru, who Johnson tapped as president (Johnson himself is a former Target executive). Also new on board are two of Johnson’s former Apple colleagues: Daniel Walker and Michael Kramer, appointed as chief talent officer and chief operating officer, respectively.
In his first strategic move, Johnson engineered a deal that saw Penney take a 16.6% stake in Martha Stewart Living Omnimedia Inc. Under a 10-year agreement, the retailer will create mini-Martha Stewart shops with specially trained staff in its department stores starting in early 2013. The two companies will also set up an e-commerce site in 2013.
“The Martha Stewart brand embodies quality, beauty, inspiration and possibility, and we intend for Martha Stewart stores to be a key centerpiece of our new strategy to transform J.C. Penney into America’s favorite store,” Johnson said in a statement.
The Martha Stewart deal is likely just the beginning of that transformation. On a conference call with analysts in November, during which the chain gave a fourth-quarter holiday outlook that fell short of expectations, Johnson said that Penney was rethinking everything it does, from pricing to product to promotional strategies. He made clear his ambition, saying he was at Penney to ‘‘transform,” not merely improve the business. With so many areas at Penney in need of change — from its apparel business to its overall store experience — it will be interesting to see exactly what his next move will be.
CEO, Sears Holdings
Hoffman Estates, Ill.
In a bold step that saw it reach outside the retail industry, Sears Holdings — after a three-year search — tapped Lou D’Ambrosio, 47, to serve as CEO and president effective Feb. 24, 2011. Although D’Ambrosio had consulted closely with the company’s board of directors in the six months leading to his appointment, his professional history was firmly planted in the technology industry.
Ironically, it was that experience, which included 16 years at IBM and three years at Avaya, a Fortune 500 global telecommunications and technology firm, where he rose from senior VP global services to CEO, that answered Sears’ mandate for a leader with information and technology expertise.
The allure of D’Ambrosio’s technology background was underscored by his reputation for driving market leadership and operational improvements at Avaya, where he led a successful $8.3 billion private equity transaction that delivered attractive returns to shareholders. After leaving Avaya in 2008, he served as non-executive chairman for Sensus, a provider of clean technology.
Speaking to the role technology will play in his vision of “integrated retail,” D’Ambrosio stated in the company’s third-quarter earnings release: “It is becoming more and more obvious that the future of retail will revolve around the seamless integration of online and offline experiences.”
Under D’Ambrosio’s watch, increased reliance on technology has been a given. But in addition to emphasizing online commerce, the chain is also emphasizing smaller stores and licensing Sears’s brands. It’s also downsizing some of its locations and renting out the leftover space to other retailers. And looking to the future, Sears is rolling out new technologies and devices to aid store associates with customer service and integrating online, mobile and in-store services in an attempt to provide faster, easier ways for customers to shop.
Whether D’Ambrosio has what it takes to turn around the ailing Sears’ ship remains to be seen.
For the time being, the chain’s performance remains lackluster. Its loss widened in the third quarter, ended Oct. 29, 2011, to $421 million, dragged down by weakness in Canada, declining consumer electronics sales and softer apparel sales at its Kmart stores. Among the bright spots were online sales, up 19% over last year.
Some industry experts contend that Sears will eventually evolve into a mostly e-commerce retailer with smaller storefronts to display its online wares.
CEO, Hot Topic,
City of Industry, Calif.
From merchandising and design positions at such companies as Levi Strauss, Limited Too and Gap, to chief executive of Gymboree Corp., Lisa Harper has earned her stripes in retail.
But she faces what is probably her biggest challenge in her role as CEO of the music-influenced, teen fave Hot Topic. Teens are nothing if not fickle and that, combined with some merchandise miscues, had put the once white-hot apparel and accessories chain in a downward spiral for some time. While a management shake-up was long rumored to be in the works, the industry still was surprised when it was announced that Hot Topic board member Harper would take the reins as chief executive, effective March 2011, replacing the retiring longtime chief Betsy McLaughlin. It was especially so considering that in the time immediately prior to joining the chain, Harper had worked outside of retail, developing and operating a boutique hotel in Mexico.
Harper served as chief executive of Gymboree Corp. from 2001 until her retirement in 2006, and she is credited with improving the chain’s clothing offerings and boosting overall sales. She moved quickly to do the same at Hot Topic, where she is personally overseeing merchandising. Under her leadership, the chain also has been closing underperforming stores and revamping others.
It’s still too early to tell if Harper’s efforts will pay off — most analysts believe that the full impact of the new management team won’t be felt until this spring. But some industry experts say that Hot Topic has already regained a more focused strategic direction under Harper, who was given the additional role of chairman in November.
Anthony M. Romano
CEO, Charming Shoppes, Inc.
The road to the CEO office ran full circle for Anthony Romano, whose retail career began in 1988 when he left Ernst & Young to join Charming Shoppes, where as a CPA he held various financial and operational roles, culminating in his appointment to VP international operations.
In 1997, Romano moved to Ann Taylor, where he spent 11 years progressing from senior VP logistics, to chief supply chain officer.
Romano, 48, returned to Charming Shoppes in 2009 as executive VP global sourcing and business transformation. In 2010 he was promoted to COO. He was named CEO in March 2011, in the wake of another economically challenged year. Revenues have steadily declined since 2007, and net income remained in the red, albeit since Romano’s return the losses have been mitigated.
Although overall year-to-date sales remained sluggish, the company’s third-quarter earnings statement reported comp sales at Lane Bryant stores showed a 3% year-over-year increase, and the company realized positive net earnings of $11 million.
On Dec. 1, Romano announced the company would divest its Fashion Bug business and focus on the more profitable Lane Bryant brand, expanding the current 821 Lane Bryant stores to an estimated 900 locations, roughly 750 full-line Lane Bryant stores and 150 outlets. Additionally, the company plans to reduce the number of mall locations and increase store counts in lifestyle, power and strip centers where occupancy costs are 30% to 40% lower than malls, and sales are 10% to 20% higher.
Susan P. McGalla
CEO, The Wet Seal, Inc.
Foothill Ranch, Calif.
When retail veteran Susan P. McGalla claimed the CEO post at The Wet Seal last January, she brought 25 years experience in merchandising and management positions, highlighted by 14 years at American Eagle Outfitters (AEO).
From 2003 to 2009, McGalla served as AEO’s president and chief merchandising officer, leading the company through a period of intense acceleration that resulted in nearly 1,100 stores and grew revenue from $1 billion annually to $3 billion. Throughout her tenure at AEO, McGalla made significant contributions across multiple departments and masterminded the development and launch of AEO’s aerie and 77 kids brands.
McGalla, 47, entered the retail industry in 1986 at Joseph Horne, which was one of the oldest regional department store chains in the country, founded in 1849 and based in Pittsburgh. She held various positions at Horne’s, where she remained until 1994 when the company was acquired by Federated Department Stores.
McGalla has already begun exercising her brand-savvy magic, fortifying the company’s flagship Wet Seal and Arden B. brands with new store locations, as well as opening the company’s second BLINK, a fashionable denim-focused concept for young women, in November in the Walt Disney World Resort in Lake Buena Vista, Fla. The first BLINK store is located in Disneyland Park in Anaheim, Calif.
McGalla described BLINK as an opportunity “to further expose and reinforce the Wet Seal brand as a fashion destination. The store design reflects the refreshed concept, layout and color palette representative of Wet Seal’s brand direction.”
Director and CEO,
Kenneth Cole Productions
New York, N.Y.
For Paul Blum, 51, becoming CEO of Kenneth Cole Productions signals an encore opportunity to lead the company where he previously spent 15 years, including four as president. From 1991 to 2006, Blum directed operations, marketing and finance, serving as COO and executive VP of Kenneth Cole Productions before being named president in 2002.
In 2006, Blum accepted the chief executive position at David Yurman. Under his leadership, David Yurman grew sales, developed a successful e-commerce channel, diversified product offerings through strategic licensing agreements, and opened company-owned operations in Asia and Europe. All of which hint at things to come for Kenneth Cole Productions.
In November, the company announced plans to enter India through a licensing agreement. Five stores will open over the next three years, with an additional 20 stores slated to open in the following five years.
Financial results for the third quarter of the fiscal year — and the first quarter under Blum’s leadership — also suggested impressive momentum is already under way. Net revenues grew 7.5% to $128 million compared with $119 million in the same period the prior year.
Steven M. Newman
CEO, Loehmann’s Holdings, Inc.
New York, N.Y.
Seasoned retail executive Steven Newman, 51, became CEO of legendary discount department store chain Loehmann’s Holdings in June, shortly after the 90-year-old retail company emerged from bankruptcy in March.
Newman brings more than 25 years of experience in women’s apparel retailing, most recently serving as president of specialty chain Ashley Stewart. Previously he spent four years as executive VP at New York & Company. His retail biography also includes a chapter as president of Eddie Bauer Apparel, from 2000 to 2002; five years in various roles at Brooks Brothers, ultimately assuming the president’s slot; and assorted positions with Ann Taylor and Gap. He began his retail career at Macy’s East in New York followed by a stint as a buyer for Burdines.
Newman replaced Jerald Politzer, who left the company in March after leading Loehmann’s through its recent Chapter 11 filing, and Newman will work closely with Joe Melvin, who served briefly as interim CEO and remains as COO of the company.
The unique business model at Loehmann’s, which relies heavily on vendor relationships and procuring designer-branded product, will present challenges and opportunities for Newman that are quite different from retail companies that carry private-label merchandise. With 40 locations in 11 states, Newman expressed excitement about the potential to expand the franchise and plans to build on the company’s brand recognition as the industry’s “original designer outlet.”
CEO, CVS Caremark
Larry Merlo has one tough act to follow. Merlo took the reins at CVS in March from the retiring Tom Ryan, who, over the course of his 17 years at the top, oversaw the company’s expansion from a New England regional drug chain into a $96 billion powerhouse that includes some 7,200 stores nationwide and is a leading player in the pharmacy benefits management (PBM) business.
A pharmacist by training, Merlo joined CVS/pharmacy in 1990 and played a key role in the evolution of the chain, where he amassed an impressive track record of integrating such major acquisition as Longs Drug, Eckerd and Revco.
Industry insiders say Merlo is the right man for the job, and has the steady hand and operational expertise that’s needed to keep CVS on the right path. Since becoming chief executive, he has focused on returning the chain’s PBM to healthy operating profit, and his efforts appear to be taking hold. The chain turned in a strong third-quarter performance, with its earnings rising a better-than-expected 7% to $868 million, primarily driven by a better-than-expected performance in its PBM.
Merlo also continues to expand the chain’s presence in the rapidly growing field of retail health clinics, with plans to open 500 MinuteClinics during the next five years.
“We believe our plans to double our clinic count over the next several years will position us well to play an important role in providing care to the 32 million newly insured beginning in 2014,” he said on the chain’s third-quarter earnings call.
Neil R. Austrian
CEO, Office Depot
Boca Raton, Fla.
The relationship between Office Depot and its newly appointed chairman and CEO Neil Austrian dates to 1998, when the company merged with Viking Office Products, where Austrian had served as a director for 10 years. Austrian served as interim CEO at Office Depot for five months from 2004 to 2005, and again from Nov. 1, 2010, until May 22, 2011, when he was named to lead the office supply retailer into the future.
In addition to considerable working knowledge of Office Depot, Austrian, 71, brings unique perspectives from an impressive career marked by such leadership roles as president and COO of the National Football League; managing director of Dillon, Read & Co.; and chairman and CEO of Showtime/The Movie Channel.
When he took the helm in May, the board applauded his efforts as interim CEO to strengthen the company’s management team and energize the company’s work force. Austrian said he would focus on initiatives that would return the company to profitability, and predicted gains would be seen as early as 2012 or 2013. (Office Depot recorded losses in excess of $641 million over the past two fiscal years.)
However, by the company’s third-quarter earnings release, it appeared Austrian had already begun to make good on his goal. Net earnings for the nine-month period ending Sept. 24 were $75.3 million, 40% ahead of the same period in 2010.
CEO, Jo-Ann Stores, Inc.
One of the youngest executives to assume the role of CEO in 2011, Travis Smith, 39, has steadily risen in the ranks at Jo-Ann Stores since he joined the company in 2006 as executive VP merchandising and marketing. A multi-year succession plan ensued and, in February 2009, Smith was named COO. A year later he was promoted to president, and in August he stepped into the CEO shoes previously filled by Darrell Webb, who remains chairman of the board.
Both Smith and Webb left executive roles at Fred Meyer Stores, a division of The Kroger Co., where Smith was senior VP general merchandise and Webb was president. Early in 2011, private equity firm Leonard Green & Partners acquired Jo-Ann Stores, subsequently naming Webb to interim CEO of Sports Authority, another of the company’s retail investments.
Defining the last five years at Jo-Ann Stores, Smith described a turn-around story of growth and success: “In 2011, we opened a record number of new stores, 58, and plan to match that growth in 2012. Our remodel program continues at a fast pace, as do initiatives around investments in information technology, product assortments and team member training. The goal of these expansions, remodels and investments is to create the most convenient shopping experience for our customer.”
While he does not anticipate veering from that strategy, Smith referenced one of his favorite quotes — “You bet on people, not strategies” — as a cornerstone of his leadership philosophy.
It’s a new year, and with it comes the opportunity for a fresh start for retailers as well as consumers. As in new years past, I’m inundated with a flurry of trend forecasts, surveys and predictions. One of the more interesting ones to cross my desk comes from JWT, New York, one of the world’s biggest marketing communications brands. It is the firm’s seventh annual year-end forecast of trends that will impact consumer behavior going forward.
“10 Trends for 2012” is a good read in general. And at a time when consumer behavior is so in flux, it provides retailers with some interesting insights as to what will be motivating their shoppers — and how they can best act on those behaviors. Not surprisingly, economic uncertainly and technology are driving several of the trends, according to the report.
“With our annual trends forecast, we aim to bring the outside in — to help inspire ideas beyond brand, category and consumer conventions — and to identify emerging opportunities so they can be leveraged for business gain,” explained Ann Mack, director of trendspotting for JWT.
Here’s JWT’s take on the trends to watch this year:
1. Navigating the new normal: As the new normal becomes a prolonged normal in the developed world, more brands will open up entry points for extremely cost-conscious consumers. Markets will find new opportunities in creating stripped-down offerings, smaller sizes and more accessible products and services.
2. Live a little: Stressed and worried consumers will look for ways to live a little without giving up a lot; loosening up once in a while by splurging on treats.
3. Generation gap: Enabled by technology, twenty-somethings, a “Lost Generation,” will transform itself, with many of them starting their own businesses.
4. The best of shared value: Increasingly, some corporations are deciding that making a profit and achieving social progress are not mutually exclusive goals.
5. Food as the new eco-issue: The eco-impact of food choices will become a more prominent concern as stakeholders drive awareness around the issue and rethink what food is sold and how it’s made.
6. Marriage optional: A growing cohort of women is taking an alternate life route, one that doesn’t include marriage as an essential checkpoint.
7. Reengineering randomness: As individual worlds become more personalized and niche — and the types of content, experiences and people we are exposed to become narrower — greater emphasis will be placed on reintroducing randomness, discovery, inspiration and different points of view into our worlds.
8. Screened interactions: Consumers will be interacting — touching, gesturing and speaking — more and more with interactive screens.
9. Celebrate aging: Popular perceptions of aging are changing — for the positive — and consumers are redefining what the term “old age” means and when it begins.
10. Objectifying objects: Expect to see more “motivational objects,” items that accompany digital property to increase perceived value, and digital tools that enable creation of physical things.
The “10 Trends for 2012” report is available at JWTIntelligence.com.