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Retailers Test New Prototypes

Is an out-of-touch industry starting to get it?

As retailers seek to excite the elusive consumer and pump up underproductive space, a surge of store prototypes are being rolled out in an attempt to transform America’s cookie-cutter landscape.

All eyes will be on the West Coast next week, where Bloomingdale’s and Nike unveil prototypes in Santa Monica Place in California. In the case of Bloomingdale’s, it’s a beachy version of the department store’s contemporary-driven SoHo unit in Manhattan, which the company hopes to replicate elsewhere. At Nike, “there’s a new mission on retail stores now,” said a source. “They want to take control of the environment where their products are sold.”

Jeanne Jackson, former Banana Republic president and former chief executive officer of walmart.com and Gap Inc. Direct, was a Nike Inc. board member but last year shifted into the role of president of direct-to-consumer and has been leading the retail effort.

The two-story, 20,000-square-foot Nike store will provide sports teams customized products in 115 styles, market-tailored product offerings, community resources and the introduction of Nike+ Run Club, and is Nike’s first multicategory opening in the U.S. since the last one in 1999 in Denver, according to Nike media relations manager Jacie Prieto.

They aren’t the only brands tinkering with their retail formula, however. At Brooks Brothers, a younger adult offshoot is on the drawing boards. “We have something in mind but didn’t start anything yet. We put it on hold. There’s nothing before 2012,” said Claudio Del Vecchio, chairman and ceo. In line with its younger state of mind, Brooks Bros. on Wednesday opened its first freestanding girls’ and boys’ shop called Fleece, in Westport, Conn. The unit is a 1,500-square-foot “test” store, marking the company’s first go at girls’ merchandise, said Del Vecchio.

AnnTaylor Stores Corp. is cooking up an Ann Taylor prototype in Atlanta to test new concepts while a Loft prototype opened earlier this year in the Paramus Park Mall in New Jersey. Elements of the new Loft look will be rolled out in varying degrees to other sites. J. McLaughlin, the preppie chain, is developing a 5,500-square-foot format in Westport, five times larger than its largest store. Earlier this year, J. Crew opened is first bridal store on Madison Avenue that takes a broad point of view to the business, covering the before and after parties, rehearsal dinners and the honeymoon night, as well as the actual wedding.

“People are tired of the same old, same old. They’re hungry for new things that are not mass produced, and don’t want to buy into cookie-cutter,” said Raymond Graj, founding partner of Graj + Gustavsen, the creative firm that helps companies build and market brand images and also develops store concepts. “You do have established players looking to evolve. Progressive, more well-funded people are really trying to figure it out. Opening retail is not a cheap prospect, though the softness in real estate poses some opportunity.”

Among brands, Disney is reinventing its stores to revitalize the business; Levi Strauss & Co. has a trademark called Denizen, which, while not yet confirmed, retail sources said will be 1,000-square-foot stores targeting 18- to 28-year-old women and men in emerging middle-class markets such as India and China, and Kellwood Co., which has several labels in its portfolio, is said to be developing retail concepts. Kellwood currently operates just Vince stores and Sag Harbor outlets.

“We have been approached in the past six months by maybe a half-dozen major brands to do new prototype work,” said Tom Bowen, a principal of Callison, the architecture and design firm. “Some of those we have landed, some we haven’t. There is a surge among strong retailers looking at ways to position themselves ahead of the competition through new prototypes. We also see much more focus on making prototypes internationally adaptable. Real estate costs through the boom years went very high, so they’re paying [dearly] for underproductive space and have to figure out how to make those stores more productive.”

Innovation is also seeping into the outlet sector, which aside from the Internet has been drawing the best sales gains as shoppers trade down and seek better values amid the recession. Macy’s Inc. is considering opening Macy’s outlets, while the Bloomingdale’s division is set to open its first two fashion outlets, in Potomac Mills, Va., on Aug. 20 and Bergen Town Center in Paramus, N.J., on Aug. 27. Store executives say the Bloomingdale’s outlets won’t be the typical bare-bones rack operations that outlets tend to be, but will have an ambience befitting the brand.

“A small percentage of the merchandise will come from our stores, but the vast majority will be fresh for the outlets and within the Bloomingdale’s matrix,” Michael Gould, the retailer’s chairman and ceo, said in an interview earlier this year.

Bloomingdale’s moves follows those at Off 5th, the outlet division of Saks Inc., which elevated its look two years ago with a prototype in Orlando that’s being rolled out. Similarly, The Talbots Inc. in the past year opened about two dozen “upscale” outlets, and intends to raise the store count to about 100 units by yearend.
The prototype push comes after waves of store closings over the past two years, weeding out unprofitable units and rectifying years of overexpansion. With shored-up balance sheets, in many cases, retailers can take some of the cash they’ve stockpiled and experiment with new store designs and formats. Merchants seem to be waking up to what consumers want — retail experiences that are different and more exciting and sociable than shopping the Internet.

“The days of being able to just stamp things out isn’t good enough anymore,” observed Dawn Clark, vice president of international store design for Starbucks Corp. “The bar is now higher, especially for a more sophisticated, higher-value-oriented customer. They want to see variation. They don’t want boring. The customer has changed. When you are building multiple unit retail businesses, there’s great cost leverage by standardizing things. That’s something you have to look at from a business perspective. But things were overbuilt. Retailers became oversaturated.”

Starbucks, after seeing its business slump, is developing a concept called Olive Way, a bellwether store in Seattle selling wine and beer expected to open in the fall. Starbucks has also been testing its 15th Avenue Coffee and Tea concept, which has no Starbucks branding, save a tiny handwritten note on the door indicating the store was inspired by Starbucks. It also has different roasting methods and a European-style bakery.

“This was really an opportunity to create an environment that wasn’t affected by the already packaged nature of the established brand language,” Clark said. “It’s really an experimental store,” based on creating the aura of a privately owned local coffee shop with some of the standard elements of the Starbucks brand.

There’s also Roy Street, another Starbucks prototype in Seattle, which attempts to capture the character of the surrounding architecture and, last April, the Starbucks in New York’s SoHo on Spring Street reopened with a more sophisticated look featuring dark woods, big coffee-themed graphics, baskets to display coffee and comfortable seating.

The Starbucks prototypes are shooting for greater productivity and community aesthetics, and establish new formulas for further expansion, particularly overseas, where much more growth is seen and where Starbucks will be challenged to adapt to foreign cities what’s been a standardized approach in the U.S. According to Clark, Starbucks is developing different styles, palettes and environmental sustainable construction methods for greater adaptability to different settings. “Everything had become very systemized and very much the same,” Clark said. “Starbucks built out so fast there was not a lot of time to look more carefully at what was relevant to the local community. It was really one size fits all, and it turned out some communities didn’t relate to that concept.”

“Competition for customers is much stiffer and stores have been losing out to the Internet,” said Callison’s Bowen. “It’s crazy how the consumer dollar is being split across so many places. The days of people just going out and spending $500 in a day on clothes just doesn’t happen that much anymore. Retailers have to really appeal to the consumer with a differentiated brand and store experience.”

TO THE POINT
Formats for the Future — Who to Watch

Starbucks: Remaking stores with new designs and decors to break the mold, adapt worldwide and connect locally.

Bloomingdale’s: Scaling down with specialized stores emphasizing contemporary offerings, and introducing fashion outlets in August.

Levi Strauss & Co.: Launching a new chain for emerging middle markets, said to be called Denizen.

Brooks Brothers: Currently testing a new kids’ concept and planning a young adult chain possibly for 2012.

Nike: Looking to regain traction at retail with a prototype launching next week in Santa Monica.

Survey Finds Five ‘Shopper Personalities’

Understanding the personality of your targeted shopper is the first step toward effective retail marketing.

“While demographics matter very little, there are two critical personality dimensions that will define shoppers in the new shopping reality,” said Wendy Liebmann, chief executive officer of WSL Strategic Retail, a retail and marketing strategy firm. “There are people who lived within their means during the recession and will continue to do so, and those with the shopping gene who live to shop and will do it a lot.”

In a recently released survey, 2010 How America Shops MegaTrends Study, The Odyssey Begins to the New Retail World, WSL identifies five shopper personalities:

– Shop-a-Lot Sue. She loves to shop, and although she has limited means — a household income of $60,000 — this is “not a deal breaker,” the survey found. “Sue knows she doesn’t have much to spend, so she shops smart, which lets her buy more.” She often opts for online options or chooses mass merchants such as Wal-Mart or even dollar stores. “She’s given up her aspirations for big-name brands and is OK with less.”

– Miserable Mona, who also has a household income of around $60,000. She is “so jaded by her financial situation that she finds no pleasure in shopping. Making ends meet is a constant struggle.” Although she, too, shops at discount or dollar stores, she doesn’t use online tools to help her.

Although both Sue and Mona are discount-store shoppers, retailers are better served marketing to Sue with coupons and sales promotions. “As a bargain hunter, she will return again and again to the places that reward her hunt,” the survey found. Merchants should also strive to make their stores as attractive as possible and offer as much “aspirational merchandise” as possible to appeal to this shopper.

– I’ll Pass Patty, who is apathetic about shopping and views it as a necessity. She has an above-average household income of $90,000 but lives within her means. She often opts for online shopping to avoid having to go to stores. “To her, smart shopping is no shopping,” the survey said. “Low price is important, but not if it means having to shop around.”

– Bubble Barbie, who spent the recession living in a bubble, ignoring everything and continuing to shop. Her household income averages $72,000, and she visits stores often although her debt level is high. “Bubble Barbie is the best reason to keep doing attractive displays of new products that stop her in the aisle and add more to her basket,” the survey said. “Sales and discounts are good, but not necessary for her to buy.”

– Chic Chic Charlotte, who has a high household income, around $101,000, and loves to shop. But even she was impacted by the recession and will buy less than she had in the past. “The more affluent have developed a case of retail guilt. She is not as spendthrift as she was in the Nineties. Reassure her that you are offering her value.”

Upscale Dining

Darden Restaurants boosts payout by 28%; PetSmart launches new stock buyback.
THE WORLD’S LARGEST CASUAL-DINING company, Darden Restaurants, served up a meaty 28% dividend boost last Wednesday. It was the 42-year-old Orlando, Fla., company’s fifth consecutive annual enrichment, and it brings the quarterly payout on common stock to 32 cents a share from 25 cents. Darden, whose eateries comprise Red Lobster, Olive Garden, LongHorn Steakhouse, Capital Grille, Bahama Breeze and Seasons 52, has been disbursing dividends since 1995, when the company went public.

The new payout will be distributed on Aug. 2 to investors of record July 9. The ex-dividend date is July 7.

Along with the sweetened dividend, Darden announced results for its fiscal fourth quarter (ended May 31) that weren’t as appetizing as Wall Street had expected, even though it has been saying all along that sales trends could fluctuate because of tight-fisted consumers and the uneven economic recovery. For the quarter, Darden’s profit slipped to 80 cents a share from 87 cents in fiscal 2009 (which had one extra week), while revenue declined 5.7%, to $1.86 billion. Analysts surveyed by Thomson Reuters had predicted earnings, on average, of 88 cents on volume of $1.89 billion.

But Darden is upbeat about fiscal 2011. It expects earnings per share for the full year to grow 14% to 17%, and sales to gain 5.5% to 6.5%. Capstone Investments appears to echo Darden’s optimism, calling the company “the best of the breed in a tough economic environment.” The firm initiated coverage of the stock earlier this month with a Buy rating and a $51 price target. After setting a 52-week high of 49.01 on the Big Board April 23, Darden’s stock was recently quoted at nine points below that level, for a 3.23% yield. In fiscal 2010, the company bought back two million of its shares.

A YEAR AGO, the nation’s largest specialty retailer of products and services for pets, PetSmart, more than tripled its dividend and launched a $350 million stock buyback. Last Monday brought a 25% payout hike and a new $400 million repurchase plan.

The enhanced quarterly will be 12.5 cents a share, up from a dime. Holders of record July 30 will receive the dividend Aug. 13; the ex-date is July 28. Disbursements were initiated in June 2003, and last year’s increase was the first since 2004. The buyback authorization, which expires in January 2012, will replace the $103 million remaining from the earlier program.

CEO Bob Moran said Phoenix-based PetSmart “continues to generate cash well above the amount needed for optimal reinvestment in our business.” He added that “the return of excess cash to our stockholders…reaffirms the stability and predictability of our cash flow as well as demonstrating the continued strength of our business.”

PetSmart’s results have held up well during the recession. In its fiscal first quarter (ended April 30), earnings surged 20% on a 5% sales advance, topping analysts’ estimates. The company also raised its full-year profit guidance.

Traded on Nasdaq, PetSmart, which yields 1.62% with the new dividend, is priced a few notches under its 52-week high of 34.93, set May 12.