Sweet Smell of Success
Mike Katz, 62, has an edge sharpened not by decades in retail, but by an accounting background that has given him unique insight into the economics of business. The chief of Perfumania Holdings Inc., which operates 350 value-priced fragrance stores in the United States and 20 in Puerto Rico, is a certified public accountant — and, self-admittedly, a relative novice to retail.
Katz’s executive tenure with the company spans 20 years, but the bulk of that time was spent leading its wholesale business. His appointment in 2004 to president and CEO of the retail subsidiary, which consists of the Perfumania stores, perfumania.com and a consignment program called Scents of Worth, allowed Katz to turn his attention to solidifying the company’s retail presence and, in doing so, to apply his accounting experience to steering Perfumania toward a successful expansion platform.
Senior editor Katherine Field talked with Katz about status and growth strategies for the chain, as well as discussed plans for a new prototype rollout and Perfumania’s success in the outlet space.
How has Perfumania weathered the recession?
We’ve weathered it pretty well. Over the last year and a half, the focus has been on adequate liquidity to both run the stores and meet the financial needs of the company. In 2009 and early 2010, we were more aggressive on pricing to ensure liquidity was there and, in doing so, we probably sacrificed some on earnings. But we felt that liquidity was more important than earnings during the downturn.
What is your expansion strategy for 2011 and beyond?
We have the infrastructure in place to expand as economic recovery occurs, but we are not actively chasing growth until that happens. In 2009 we opened 57 stores, and in 2010 we opened nine. This year, the plan is to open 10 to 15 stores. Part of the challenge is what is involved in the evolution of a new store. You might have a new store in an area that is starting to grow, but you have to wait for that growth. In terms of our footprint, we think we can ultimately have 600 doors, but we don’t want to do that until we see stronger growth in the economy.
Being a public company, we have to be trained on shareholder value and expectations. We think there are modest growth opportunities in Canada, and that would be a new market for us as we haven’t pulled the trigger there yet. There are probably three or four Canadian cities that we would target for new stores. Here in the U.S., we would target the West, the Southwest and the Southeast as those have been strong markets for us, and we think there are more opportunities there. The opportunities in the Midwest haven’t been as great over the last 12 to 24 months.
Describe your typical mall site in terms of position, square footage and adjacencies.
In a regional mall, our ideal size is 1,500 sq. ft., of which 1,200 would be selling space. In outlet centers, our profile calls for 2,000 sq. ft., of which 1,700 is selling space. We like to be next to a high-traffic retailer, and it doesn’t necessarily have to be a complementary concept to ours. If every one of our stores could be next to an Apple store, we would be happy!
About 80% of our current stores are in regional malls, outlet malls or strip centers, and we do a few lifestyle center stores, although those haven’t been as successful. We have some urban street stores that have been successful, but the difficulty is achieving the proper rent-to-volume formula. Urban stores are good, but the economics are challenging.
How are you approaching your real estate strategy?
We work with RCS Real Estate Advisors, out of New York City, which serves as our real estate arm. (More on Perfumania’s and RCS’s real estate partnership was featured in the January issue.)
As you roll out more stores, will there be any alterations to your present store design/concept?
We are currently working on a new prototype that is slated for a calendar year 2012 introduction. We are moving toward a more contemporary look, and one that creates a more interactive environment between our salespeople and our customers, and introduces more in-store technology. We will roll out the new prototype in our regional mall locations first, as that is the most appropriate venue for the new look and new services.
How is your mall store differentiated from your outlet store, other than location and product pricing?
We will likely maintain the same store design in the outlet stores, at least for the time being. However, over time we may tweak the design of our outlet stores as well, but it won’t be an immediate change.
What do you think has made the Perfumania model successful?
First, because of the size of our aggregate business, we have enormous inventory clout. We can support the stores with product and be more aggressively priced. But the most important attribute we have is our people. We are a service store, not a self-service store. We invest a lot of money in training so that our associates know about fragrances, so that they know what our customers want and need and can properly serve our customers. Our business is a people business.
How would you describe your leadership style?
To pick a word, participative. The responsibility of senior management in any company is to create the environment and provide the tools for people to be successful. At Perfumania, we don’t micro-manage. We jointly define goals and, hopefully, our people will get the positive end result.
Has your accounting background impacted how you lead/operate?
Because of my accounting background, I understand the economics of business pretty well. Businesses have a myriad of entities to interact with, from vendors to shareholders to landlords, customers and associates. Understanding the economics of each of those interactive parts is very helpful when steering a business.
The Future: Converged Retailing
As consumers become more digitally connected than ever before, with product information and price comparisons at their fingertips, brand loyalty isn’t what it used to be. In response, the industry may be readying itself for a shift that puts consumers in the driver’s seat, dictating what they want, wherever they choose. “Retailers will have to offer a personalized, consistent experience across all channels to stay competitive and be willing to listen to each consumer’s preferences,” said Mike Webster, senior VP and general manager of retail and hospitality for Atlanta-based NCR Corp., a technology company whose assisted- and self-service solutions and support services address the needs of retail, hospitality, financial and other organizations around the world. Chain Store Age spoke with Webster about NCR’s interpretation of “converged retail” and how it has the potential to change the face of the industry forever. How would you describe “converged retailing?”
The intimate relationship between merchant and consumer is currently lost. Retailers are trying to connect with us via so many platforms, and personalization has faded along the way. Merchants try to push Web recommendation-predictions, but these are basically guesses. The future of the retail industry is going to move away from a business-to-consumer world and pick up a consumer-to-business model, where shoppers will be calling the shots and dictating their preferences. To do so, all channels will have to converge into one. This will allow the retailer to begin a transaction in one channel and add value in another.
Why is there a challenge with personalization right now?
It’s hard for merchants to create a consistent, personalized experience across various platforms. There remains a big focus on multichannel strategy, but multichannel is just another way to connect with the consumer, and it is inconsistent. Merchants often send different messages to different platforms. In reality, retailers don’t know that much about individual shoppers. Shoppers may be getting promotions about dog food from a pet retailer when they actually have a cat — the retailer only knows that they have a pet. It’s also a struggle for retailers to harmonize all of the fragmented data out there — from social media to the mobile world — to form a more holistic view of the consumer.
Merchants have to figure out a way to really engage each shopper to better understand their preferences and how they want to be served. In the future, consumers will instead be able to co-create with the retailer, so their presence can be detected in any channel and preferences can be met.
How would a shopper declare their preferences?
Sophisticated software from third-party providers can enable retailers to learn about each shopper on a personalized level. The retailer will ask simple questions via the Web, mobile device or at checkout in a store to hone in on their needs and wants. Shoppers don’t want to be inundated with unrelated promotions, so merchants can make their life easier. Soon, a whole profile can be developed about a shopper so the retailer could know that they prefer certain types of organic products for their six-month-old baby. In a store, a phone number or loyalty card could also be handed over so the cashier would know the shopper doesn’t want a receipt with their purchase (or wants the receipt printed in a certain language).
How will in-store technology reflect this change?
Digital signage can create a conversation with a shopper in a personalized, targeted way. Right now, it’s broadcasting a message, but in the next few years, shoppers will be able to interact with it by swiping a loyalty card, for example, that clues the technology into who they are. The signage, or even a kiosk, can also suggest items in the store that would match what they bought online last month.
How close are we to this reality?
We have already seen it in small pieces, but it’s probably the start to a three- to five-year journey. Personalization will be more prevalent in the next few years, and the results will be very powerful for those that take advantage of the strategy.
Lola Makes Stylish Debut
Fashion apparel powerhouse BCBGMAXAZRIA Group has opened a new retail format that combines fast fashions with a boutique experience. Targeted at young women ages 16 to 26, Lola has a cool, hip vibe and eclectic flair.
The prototype, at Mall of America, Bloomington, Minn., is designed to recall the sort of urban apartment that a young woman might rent, and comes complete with fireplace, daybed, spiral staircase and closet. It was designed in house by BCBG.
“To all of us, Lola was a real person,” said BCBG designer Amanda Thevenot. “It was more like helping my little sister decorate her apartment than it was designing a store.”
All the elements in the space, from the music to the wall decor, are intended to reflect the tastes and personality of the fictitious Lola, whose profile was developed by the BCBG team. The 3,000-sq.-ft. store is meant to be her at-home world brought to life in a retail setting, and is comprised of a series of “rooms,” with a living room, bedroom and closet.
BGBG partnered on the project with fixture company idX Corp., which built a model store at its St. Louis showroom. (Lola served as the launch pad for idX’s new program that allows fixtures to be shipped directly from its China manufacturing facility to the store. The program allows considerable time savings, critical to this project.)
“idX were true partners on the project,” said Chris Love, VP architecture and construction, BCBG, Vernon, Calif. “We went from concept to reality in six months, and we couldn’t have pulled this off without their hard work and resources.”
A spiral staircase ranks among the store’s visual highlights. It vertically enhances the space and breaks up the horizontal lines of the fixtures, while also providing a creative way to display accessories.
The living room area features a fireplace, complete with a mouse running into a hole beside it. In the bedroom area, the cashwrap is designed as the dresser, and some merchandise basics are displayed on a daybed. The closet serves as the fitting room area.
On the walls, the design team pasted relevant cut-out magazine photos, poems and other items. The storefront is set off with salvaged doors for a slightly Lower East Side feel, and trompe l’oeil hand-painted architectural details and hand-drawn graphics.
The fixtures are specifically designed to work with Lola’s fast-fashion merchandising. The wall displays were produced to clip in place and provide architectural detailing without making dramatic changes to the architecture. Clever details make the displays flexible and easy to merchandise.
Since making its Mall of America debut, Lola has opened a second location, at Plaza las Americas, in San Juan, Puerto Rico. The company plans more stores going forward.
“Sales are far better than expected,” Love said. “Because the vibe is so cool and the salespeople are trained to relate to the customers, girls don’t want to leave the space.”