Retail Reborn

The Department Store shaped America. As a new type of building in which to trade clothing, home appliances, and a variety of other goods it penetrated American life and changed its course. There are a few notable examples in Europe; think of La Samaritaine and Le Bon Marché in Paris, two very prominent examples that changed the retail business in France, or the Schocken Department Store in Germany. But it is only in the US where this model of retailing changed life for good. It changed entire cities, their history and architecture. It changed people’s needs and wants. It became the cornerstone of new urban settlements and the center of social life. And while it spurred American consumerism, it also ignited manufacturing, entrepreneurship, and financial savvy all of which have defined American identity for at least the last one hundred and fifty years.

The decision to invite Michael Gould, Chairman and CEO, Bloomingdale’s to deliver one of the two keynote addresses at Columbia’s Business School Fifth Annual Retail & Luxury Goods Conference was truly enlightened.  The conference took place on February 4, 2011 at the Low Memorial Library, Columbia University in New York.  Aniza Shah (’11) and Derrick Chan (’11) hit the right note with that decision and also put a most interesting program in place for their audience.  They also echoed a similar decision the NYU Stern Luxury Retail Conference Committee made a little over three months ago (http://thomaiserdari.blogspot.com/2010/10/c-suite-retail-spotlight.html) when they invited Lord & Taylor CEO Brendan Hoffman to be the keynote speaker.

This means that student committees know how to read the pulse of the market and put together programs that many a professional organization would envy. It also means that New York City is blessed with two wonderful institutions, each one with its own character and approach to student life but both with a very rigorous business curriculum. These two schools have traditionally staffed executive positions both in the Garment District but also in the great department stores that dot the city’s grid. It seems that these two schools are also producing the executives for several retail and luxury brands that have already expanded their businesses oversees—and wisely so, as Rick Darling, President, Li & Fung, USA pointed out in his keynote address, later that afternoon. (http://www0.gsb.columbia.edu/students/organizations/retail/conference.html)

It is not easy to summarize the speakers’ main arguments in one entry only. But the same points kept returning in both key speeches: staff training and development and brand development strategy. The former raises questions of leadership (should it be top-down? Or should one lead and manage from behind? How does one reach out to recruit?). The latter is the outcome of two important events: a. manufacturing has very little future domestically (within the US) and is rapidly developing in new hubs in Asia (Central China, Thailand, Bangladesh for example); b. the size of the American market is not enough in itself for brands to maintain their competitive advantage. It may have rendered a variety of brands complacent because the opportunity to record substantial revenues within a consumerist society of the size of this country has always been present. However, today, when new economies are emerging and grow to consume, a brand’s viability and its competitiveness are proven on an international level. For this to be successful, brands need to study and understand their new markets rather than rely on outdated models supplied by the saturated by now American reality.

These are tough points to digest but Profs. Ketty Maisonrouge and Mark A. Cohen who moderated the panel discussions had planned a series of thought-provoking questions that allowed the panelists to express a variety of perspectives across brand levels (from mass-market to upmost luxury). It did not hurt that the audience (mostly Columbia students but young professionals as well) was particularly sophisticated and added to the discussion with pertinent, and rather challenging questions. I will make sure to return to a few of the most novel ideas that were presented last Friday in subsequent entries. Certainly, I am looking forward to the Sixth Annual Retail Conference of 2012.

Private Initiatives in a post-2008 World

            When private equity firm NRDC (a firm that specializes in real estate with investments in retail, office, and warehouse projects) acquired Lord & Taylor in March of 2006 for a reported $1.2 billion, the retail world made a bet that the oldest department store was dying a slow death. NRDC targeted the failing business for its prime real estate on Manhattan’s 5^th Avenue and 39^th Street.

            Four years forward, and under the leadership of retail executive and Stern alum, Brendan Hoffman, who already had over 15 years of executive experience with Neiman Marcus when he accepted the position of CEO at Lord & Taylor, the famed department store is thriving.  This discussion is particularly interesting today as a reminder of a topic we have touched upon before in one of the earlier entries. Namely, retail, an industry that has been shunned by most private equity firms in the past and certainly during the latest economic boom, is suddenly very trendy (pun intended). We have been watching major M & A taking place over the summer in Europe. Closer to home, we have been witnessing major restructuring of businesses here in the US, not to omit NRDC’s decision to acquire Fortunoff, the home-furnishings and jewelry retailer that finally filed for Chapter 11 bankruptcy and was successfully sold at auction. What retail does therefore is that it stirs the market. Even if consumer confidence is still low, deals do take place at a macro level and in between firms with mergers and acquisitions, consolidations, and successful turnarounds such as the one Lord & Taylor had.

            An industry that has been scoffed as too trivial and too messy has been elevated to an exciting playing field for major investors. This is happening because failure creates opportunity. (We have also discussed how failed banks have created opportunities for major investors who are in the process of assembling substantial portfolios of regional banks). It is also happening because digital technology has allowed retail to branch out to Web 2.0 and reconnect with its customers. This was particularly pertinent in Lord & Taylor’s revival. Having flirted with expensive brands, the department store was not good enough to attract the higher-end partners it sought and it became too expensive for its core customer. It had managed with this ill-advised strategy to alienate its core customer at all levels. The new owner brought the new CEO, who seems to be aligning his strategy for the reinvigoration of Lord & Taylor’s brand as a “House of National Brands” with the latest in infrastructure.

            Infrastructure today is a more complex term than when it was originally coined. It encompasses the physical real estate of the brand. The building is in fact undergoing major architectural work that showcases customer friendly design.  The renovation has gained support and enthusiasm from Lord & Taylor’s partners, who collaboratively began work at the department store’s ground floor and cosmetics counters that had been unchanged since the early 1970s. The “face-lift” is steadily moving to the upper floors where both space and windows are now open.  The latter are literally opening up to 5^th Avenue allowing natural light in—after having been blocked for almost a century. Infrastructure goes beyond the physical character of the building and includes the brand’s digital image, communications, mobile applications and everything that allows the brand to maintain a presence in a very competitive market. To extrapolate, I will note here that infrastructure may also mean the people who work for a business especially if the business would like to develop exceptional customer service—which today is key for success—and a coherent brand image aligned with the firm’s strategy for long-term success. This is where Lord & Taylor is at the helm of the retail industry with its initiative to re-institute Executive Training Programs through which to cultivate the next generation of leaders in the industry.

            Lord & Taylor’s current CEO, Brendan Hoffman, had participated in the brand’s Executive Training Program when he began his career and recognizes today the value of that type of training. He also recognizes his and the industry’s responsibility to develop their executives and therefore to implement training programs, a feeling that the CEOs of the C-Suite (entry of October 24) shared with him. Once again, private companies seem to be at the forefront of innovation in a post-2008 world.