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Building Brand Convergence

BY CSA STAFF

Since taking the helm of NexCen Brands in June 2006, Robert D’Loren has led the company on a buying spree. In just 18 months, the company has acquired a global portfolio of brands that includes The Athlete’s Foot, women’s fashion label Bill Blass, ice-cream eateries MaggieMoo’s and Marble Slab Creamery, the Waverly home-furnishings brand and, most recently, Pretzel Time and Pretzelmaker. D’Loren’s talent for brand acquisition and management has not gone unnoticed. In November, he was named ‘Dealmaker of the Year’ by the Executive Council of New York.

With its business categorized into three operating segments (retail franchises, consumer-branded products and quick-service restaurants, or QSRs), NexCen’s brands generated sales of $1.2 billion in 2006. It operates some 1,500 stores doing business in more than 50 countries, with an additional 555 stores in the pipeline for 2008 and 2009. The franchising company employs 105 people and, at presstime, is expected to open a state-of-the-art campus, NexCen University, in Norcross, Ga.

NexCen corporate offices remain in New York City but all of the company’s brands were relocated to the Atlanta suburb, creating a single hub for training, research and development. The Norcross campus includes mock stores as well as a studio for producing training videos that can be broadcast over the Internet to franchise locations throughout the world.

Prior to NexCen, D’Loren, served as president and CEO of UCC Capital Corp., where he pioneered intellectual property (IP), whole company securitization finance and the value net business model. He talked with Chain Store Age senior editor Connie Gentry about the dramatic changes NexCen is making at The Athlete’s Foot as well as his strategy and vision for growing the company.

Chain Store Age: Tell us about your strategy for The Athlete’s Foot.

Robert W. D’Loren: The Athlete’s Foot (TAF) is a retail-franchise concept we own and manage, with more than 600 stores operating in 45 countries and generating approximately $400 million annually in sales. The stores are 100% owned by franchisees. We will continue to grow and build the brand globally by creating relevant store designs and merchandising strategies, as well as developing TAF-branded products to better serve our clients. Since we acquired TAF, we have re-branded the company from the ground up and introduced two new store designs.

CSA: What are the two different designs?

D’Loren: One is a performance store and the other is a more fashion-forward urban premium design. Our first new performance store opened last month in Alabama, and we should open 10 urban premium stores by the end of 2008.

The two designs provide flexibility for franchisees to adapt to local markets with merchandising modules that address the different lifestyles in the athletic-footwear industry, including classic athletics, performance sports such as running and cross country, street or urban [styles], and fusion sports like skateboarding. These are very different lifestyles, and in our stores there are dedicated sections with special merchandising racks that address the different looks and merchandise of the lifestyles.

CSA: Is the merchandise different?

D’Loren: We have two lines of private-label branded apparel that play off the acronym TAF. The taftec line is for the performance module and we have Track and Field for classic athletics. Our branded TAF lines are for apparel only. The footwear at TAF will continue to be all branded merchandise from other manufacturers. However, the taftec line may include some flip-flops and sandals.

CSA: What are your objectives for the private-label merchandise?

D’Loren: Our objectives are to drive more margin to our franchisees, deliver great product to our customers and price product slightly below the branded merchandise. We anticipate our private TAF lines will drive 22% to 25% more margin to franchisees and be priced about 10% below branded apparel. TAF-branded apparel will be out in second quarter 2008.

CSA: What are the differences in demographics for the two store concepts?

D’Loren: The performance stores will be primarily in suburban malls but could also be in urban settings. The urban premium store will be in neighborhoods or urban malls. The urban shopper is a more fashion-forward shopper and less performance-driven.

CSA: Will you redevelop your existing stores into the two new formats?

D’Loren: We have 325 new stores in the pipeline and all of these will [reflect] one of the two new formats. In the ordinary course of our business, we renovate stores every five years. Our plan is that each year the stores that are being renovated will convert to one of the new concepts.

CSA: Can you also talk about your strategy for the parent company?

D’Loren: The NexCen strategy is to acquire three to five companies a year, and we are looking aggressively to grow each of our segments, particularly the QSR. Additionally, we’re looking for luxury brands as well as large footwear retailers that can create a distribution channel for our brands, such as Bill Blass.

CSA: Do you anticipate growing the QSR segment more aggressively or equal to the retail segment?

D’Loren: Equal—but we’re moving very quickly in QSR. We want to be the industry leader in treats. We’re aggressively seeking cookie concepts, doughnuts and coffees so we can offer more products in our stores. We’d like MaggieMoo’s to serve cookies, ice cream, cakes, pretzels and coffee. We want to be the place a family can come for any treat or celebration.

CSA: Prior to NexCen, you pioneered the understanding of intellectual property (IP), particularly IP-centric businesses such as consumer-branded products, media and entertainment. Is a retail brand an intellectual property?

D’Loren: Yes. Whether you are producing electronics, pharmaceuticals or apparel—or selling products to consumers, the front-end drivers are identical. You have to do product development, trend analysis, advertising, promotion and marketing.

CSA: Is there overlap between the retail and entertainment industries?

D’Loren: Absolutely. Retail brands, consumer brands, sports brands and human, or celebrity brands, are converging today. Our strategy is to find the sweet spot between the different brands to maximize leverage.

CSA: What would you identify as significant trends?

D’Loren: The world has truly globalized in the last five years. I see continued globalization, continued margin compression for wholesale goods and continued convergence between entertainment companies, branding companies and large global-sourcing partners.

The full interview is available atwww.chainstoreage.com under Web Exclusives.

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CompUSA may get a new look

BY CSA STAFF

ADDISON, Tx. After opening a new format store last month, CompUSA may be changing the format of its other stores, depending on customer demand and product interest.

According to reports, the elements found in the prototype store, located in Texas, will be incorporated into other CompUSA locations across the United States.

The nearly 7,700 square-ft. relocation site includes an Apple shop featuring Mac computers, iPods and Apple accessories, and a full-length LCD TV wall.

Additional expansions include extended gaming, which includes an entire wall devoted to the Nintendo Wii, PlayStation3 and Xbox 360 gaming platforms, plus a PC gaming setup to test equipment and play new titles.

While businesses can get their share of support with a specialized services section, all consumers can visit the store’s redesigned IT support area.

“This new store aligns CompUSA’s vision to better serve its three core customers, the technology enthusiast, educated professional and small and medium businesses,” said Gabriela Villalobos, the retailer’s sales and operations evp.

CompUSA announced in April that it would narrow its focus to three core customer groups rather than try to serve a mass audience.

The move was part of a comprehensive restructuring, initiated last February, that included an overhaul of senior management and the closure of half its store base as the privately held chain looked to improve sales and profitability.

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Walgreens withdraws from CVS provider plans

BY CSA STAFF

DEERFIELD, Ill. After many months of talks over low and below-market payment rates by CVS Caremark for four prescription plans, Walgreens has withdrawn as a pharmacy provider from the plans.

Patients affected include members of prescription benefit plans managed by CVS Caremark for ArcelorMittal, Johnson Controls, Progressive Casualty Insurance and Wisconsin Education Association Trust.

Most of the affected members live in Illinois, Indiana, Michigan, Ohio and Wisconsin.

Trent Taylor, president of Walgreens Health Services, the managed care division of Walgreens, released the following statement:

“This is not where we wanted negotiations to lead,” he said. “We’re sorry that our pharmacy patients and CVS Caremark’s clients are caught in the middle, and we’ll do all we can to ensure a smooth transition for our patients to another pharmacy. Meanwhile, we’ll continue to work on resolving this issue with CVS Caremark.

“Leaving a benefits plan is an extraordinary step for us, but it demonstrates how extraordinarily low our payments were from CVS Caremark. We can’t continue accepting reimbursement rates that are drastically below market, while offering patients needed special services such as 24-hour pharmacy access and drive-thru pharmacies.”

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