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The Paths to Growth: Know Thy Customer, Get a Niche, Innovate

Achieving growth in an environment as tough as this depends on carving a unique identity with distinctive products and services. Here are some ideas.

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NEW YORK — It’s crunch time at retail.

Travel security concerns, the threat of the SARS virus, a spike in gas prices and relentless angst about the economy continue to pound apparel makers and merchants. If bad times call for bold actions, then this would be the right time to start innovating.

Unfortunately, when the going gets tough, the first impulse for many executives is to play it safe. But growth in any environment — especially one as cluttered and competitive as this — depends on carving a unique identity with distinctive products and services.

The smartest retailers and manufacturers aren’t biding their time until the next bull market, however. They’re testing new products and store concepts and assembling strong management and creative teams. That way, when the economy rebounds, they’ll be ready to meet pent-up consumer demand. In the spirit of discovery, WWD asked some of the sharpest minds in the business to share their thoughts for achieving growth in an unprecedented new age.

Here are some their ideas.

1. BUILD FROM THE INSIDE OUT

One of the most important investments a company can make is in its employees. But simply finding the right hires is only part of the job. Creating fertile ground for new ideas to germinate can have the most profound effects on a company’s long-term results and future. "Build a strong, focused team and a culture where innovation and free thinking are valued," said Ed Burstell, vice president, general manager of Henri Bendel. "Everyone here is young at heart. Pulling from a lot of different people’s experiences makes for a very well-rounded company. It also translates to the shopping experience."

J.C. Penney has been rebuilt from the top down. The company hasn’t simply tweaked product or presentation, but focused on the most lasting legacy: building the next generation of leaders. "What’s been magical about what ceo Allen Questrom has done is post near-term performance improvement while making investments in the long-term success of J.C. Penney," said Angela Selden, managing partner of Accenture’s North American retail practice.

2. DEVELOP UNIQUE PRODUCTS

This goes without saying. But in a sluggish economy, it’s sometimes easier said than done. Consumers are trading down and nervous retailers are playing it safe. "There’s too much same-looking merchandise out there," said Terry Lundgren, chief executive of Federated Department Stores Inc. Rather than basics, Lundgren said he’s building the company’s private labels into bona fide fashion brands.
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"It’s not chasing after last season’s trends, it’s fresh, new design," said Lundgren. "The combination of consumers being ready to spend and us having fashion-oriented products back is what’s going to make it work for us."

Bendel’s Burstell and his team turned up a new core group of resources in Berlin, Tokyo, Warsaw and Sydney, among other places. "You have to be attuned to popular culture and be a trend-tracker who can divine the cultural mood," said Burstell, whose early interest in vintage resulted in Lair, Tiffany Dubin’s retro boutique on the third floor.

Denise Seegal, president and ceo of JLo by Jennifer Lopez, studies the anatomy of trends. "Snowboarding fundamentally changed the apparel worn for skiing, which changed what’s worn on the streets. That’s what started the baggy pants craze," she said. Seegal’s new buzzword is "fun." Anything that connotes happiness, like the beach, "is going to be more important as we get more serious politically and economically," she said.

3. PUT EGGS IN DIFFERENT BASKETS

Just as the smart investor diversifies his portfolio, smart retailers and manufacturers are diversifying their venues, targeting audiences and price points. Kellwood Co. ceo Hal Upbin is going after women’s sizes and the ethnic market and searching for any new demographic, sociographic or psychographic group. Kellwood recently launched the Lucy Pareda collection at Sears for the Hispanic market and is working on a line of clothing for African-American women. Maternity and clothes for aging consumers are two markets that are still underdeveloped, according to Upbin, who said the company will continue to acquire niche businesses.

Seegal’s strategy for JLo involves selling in various retail categories. "The greatest growth potential is to play across a multichannel distribution strategy," she said. "Everything is now mixed and there’s no channel loyalty. You need to say, ‘I want to own Generation Y, so let me have a multibrand strategy to capture her wherever she shops.’ The key is to stay close to your consumer and understand the shifts in their buying patterns."

4. DARE TO THINK SMALL

If it doesn’t appeal to everyone, it’s not worth selling — or so the conventional thinking goes. But bigger isn’t always necessarily better. When Diane Von Furstenberg’s company expanded in the Seventies, distribution spun out of control and her products turned up in some unappealing places. Now, she prefers to sell a deeper selection of products to fewer stores.
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"Less will become more," said Seegal. "It’s all about the editing process. Edited, clearly defined, exciting product with a definitive point of view and cohesive aspirational advertising is the key for future brand building."

Stores are in need of a singular, unified voice, maintained Burstell, who believes that Bendel’s can’t be all things to all people. He edits the entire store as if it were appealing to one customer. "From top to bottom, the store has to look like it was bought with one eye and it needs to be promoted the same way," he said.

5. KNOW THY CUSTOMER

Consumers want wear-now clothing, but department stores have been reluctant to give it to them. Target, Kohl’s and Wal-Mart have cut the time it takes for a product to go from factory to store. Liz Claiborne ceo Paul Charron wants other stores to do the same. "It’s not just the cycle time, it’s what you do with that time," he said. "Suppliers can use the time between shipments to refine and micromerchandise the assortment. This allows stores to correct errors in sizing, color, etc., and meet consumer demand more accurately."

Saks Fifth Avenue’s private labels 548 and Real Clothes have bimonthly deliveries. "It gives us time to make adjustments and react," said Christina Johnson, chairman and ceo. "Our top customers are in the stores 24 times a year. We need greater frequency of deliveries."

Now that runway shows are beamed around the world on TV and the Internet, trends have an increasingly short shelf life. "We all have to work hard to compress product lead times," said Glen Senk, president of Anthropologie. "It’s not unusual for companies to invest a fair amount of their open-to-buy four to eight months out. Our customers are going online and looking at the runway shows, so we need to do a better job of giving them what they want. For us, it’s a pre-production issue. You need a crystal ball if you’re committing a large percentage of your open-to-buy eight months out. There’s no way you’re going to hit it right, especially in terms of quantities."
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To get a good handle on consumer preferences, Anthropologie does extensive research through focus groups, exit surveys and fit sessions where 20 to 30 customers try on clothing for the production and design teams. "Because part of our business is the catalog, we have very specific return data," said Senk. "The fit sessions have had a tremendous positive impact on our sales. For example, more than 50 percent of our customers have kids. They’re bending down to pick up the kids in the supermarket. They want to look hip but not flash the people behind them. We raised the rise in our jeans and added Lycra. If you know your customer, you can do that."

Leave it to Miguel Adrover to come up with the heretical notion of designing long-term clothing. While Adrover has yet to sell his collection in a meaningful way —he’s now filling orders for Jeffrey New York and Colette in Paris — he might be on to something. He plans to design and present one collection a year with a single cohesive theme for all seasons. "Of course trends will be utilized, but it will be clothes that you can revisit," he said. "That’s how fashion is treated in Europe."

6. HARNESS TECHNOLOGY

The latest cutting-edge technology, pardon the pun, does everything from produce seamless knitwear to cut and sew an entire garment in a matter of minutes. According to Francesca Sterlacci, chairwoman of the fashion design department at the Fashion Institute of Technology, these devices will liberate the industry from the shackles of sweatshops. "The Santoni machine makes seamless activewear and sportswear, addressing the comfort issue," she said. "The Shima Seiki produces a whole garment right in front of your eyes. We have one of the many body-scanning technologies here at FIT."

Sterlacci envisions a world where designers-cum-entrepreneurs do everything in house, with the blessing of the unions, which have watched the manufacturing industry wither under the pressure of low-priced labor overseas. "You won’t need a whole bunch of factories overseas," she said. "Unless you’re making 100 dozen of something, you can’t manufacture offshore, and manufacturing in the U.S. is prohibitively expensive. This will bring jobs back into this country. You’re not employing a whole lot of people, but at least you’re employing some people."
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7. CREATE INNOVATIVE EXPERIENCES

Reinventing the store isn’t easy. Physical and cosmetic improvements help, and great events attract customers. But do they keep them coming back at the end of the day? According to Accenture’s Selden, PetSmart, the purveyor of pet food and accessories, has figured out a formula for breeding loyalty by offering medical, grooming and kennel services to customers.

Other innovative chains use loss leaders to bring in shoppers. Wal-Mart’s grocery business — where margins are razor thin — is a Trojan Horse that’s helped the retail giant double the frequency of visits to its SuperCenters. Department and specialty stores can develop their own loss leaders by offering such services as low-priced manicures.

Selden said retailers should remember that "innovation is an actual customer experience itself."

8. BE A SMART GLOBAL ADVENTURER

"Once the model is well defined, global expansion, while quite complex with exchange rate issues, consistent pricing and a host of other specifics by region and country, provides broad revenue growth and a cross-cultural experience," said Charles M. Jayson, president of Dickson North America.

JLo has crossed international borders to South America, Central America, Japan, Canada and Great Britain. "If you have a new brand that has great momentum, it will have great momentum globally," Seegal said. "It depends on which market you’re trying to capture. With their buying power, Generation X and Generation Y consumers are interested in multiple brands. They travel a lot and the Internet provides them with a lot of information."

But going global is not for everyone. Wal-Mart’s expansion overseas has been achieved largely by acquiring local chains, not planting its own stores on foreign soil. The debut of the first Wal-Mart SuperCenter in China, which was to open later this year, has been postponed until 2005.

Federated’s cautious approach might be the way to go. Without making a huge capital investment, the company sells private brands in Japan and Australia and opened a freestanding INC store in Tokyo. Federated is now negotiating with several retailers to sell INC in Europe, Lundgren said.

9. ADDRESS FORM AND FUNCTIONThere’s an entire population of women who don’t report to an office daily, but still want to look smart. They crave more sophisticated fare than jeans and sweatsuits, but so far, the pickings have been slim. Rory Tahari, creative director of Elie Tahari, is the designer’s wife and a new mother who aims to do for the Baby Bjorn set what Prada and Chanel did for skiwear. A new casual sport line, T-21, which bows in September, was born of Tahari’s search for comfortable, stylish clothes that could travel from the pediatrician’s office to her own office, where she keeps a playpen for her son, Jeremy.Companies like Nuala are creating apparel for such niche trends as yoga, which has shown some early momentum. Then there’s the long-overlooked Silver Age. “Nobody is talking about the needs of the oldest consumer,” said Seegal. “People are living longer, but nobody is addressing this consumer base.”
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10. PREPARE FOR INTERNET COMEBACKThe Internet has been a disappointment for retailers and e-tailers, but one significant trend bodes well for the future of apparel sales on the Web. Women are dominating online buying, now accounting for about 60 percent of people making purchases, debunking the long-running myth of male cybershoppers’ supremacy.“The Internet is still starting to come into its own,” said Kellwood’s Upbin. “It will become more and more meaningful. Department stores are struggling mightily with their bricks-and-mortar stores, discount channels reflecting price-consciousness are doing nicely and specialty chains are making a comeback, with the exception of Sears. The Internet will be part of the future and we’re exploring opportunities to be an Internet supplier. We have to.”
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