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No Off The Rack Solutions Here


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NO OFF-THE-RACK SOLUTIONS HERE

Howard Gross had no doubts about his mandate when he took over as president of Limited Stores Inc. in January, 1991. "Do whatever the hell you have to do," said The Limited CEO and founder Leslie H. Wexner. Gross isn't the only Limited division head with a turnaround to pull off. At Lerner New York, Barry Aved got similar orders when he took over as president in February, 1992 "Fix it," said Wexner.

Both Aved and Gross have difficult jobs ahead of them. The flagship chains they command are huge, and the problems they've inherited are already several years old. With almost 1,700 stores between them, Lerner and Limited Stores did roughly $2.3 billion in sales last year, 37% of the parent company's total. But they contributed just 29% of The Limited Inc.'s profits, according to Richard Baum, a retail analyst at Sanford C. Bernstein & Co. in New York. And though the company's sales rose 17%, to $6.1 billion, in 1991, operating profit crept up just 2.1%, to $713 million, largely because of lackluster results at the Lerner and Limited divisions. Earnings for the quarter ended May 2 were up a scant 1%, news that sent The Limited's stock tumbling three points, to 21 on May 12.

GRUMBLING. To make matters worse, Wexner has been promising a turnaround at these divisions for almost two years. Sixteen months ago, Limited Stores President Verna Gibson abruptly left and was replaced by Gross, who had shepherded Victoria's Secret Stores, The Limited's lingerie division, through five years of phenomenal growth. The same month, Aved was hired as a general merchandise manager at Lerner as a backup for President Robert Grayson, whose strength was in store operations. Grayson left last February, and Aved was named president.

It's not clear that a dramatic impro1"Very disappointing," grumbles one institutional investor, who proceeded to dump a chunk of his Limited stock. Investors and analysts are so fed up they plan to grill Gross, Aved, and Wexner at The Limited's annual shareholders' meeting on May 18. "They led people to believe the Limited turnaround would happen by fall," says Dave Gilson, retail analyst at IDS Financial Services Inc., which owns 1.6 million shares. "To the degree that they're making promises this year, they better be able to deliver."

Gross promises he can fix Limited Stores but says he'll need time. In his first year in charge, sales in stores open a year or more fell 5%, and profits tumbled 56%, to $102 million on total sales of $1.2 billion, Baum says. The 772-store chain once thrived by catering to fashion-hungry women who were satisfied with what Gross calls "throwaway" clothes. But it got pinched as shoppers grew value-conscious. At the same time, a sister chain, the 617-store Express, has lured many younger Limited customers with more cutting-edge looks.

Now, Gross is working to boost Limited's quality. And to differentiate it from Express, he's trying to establish his chain as a haven for more affluent, older women who are looking for clothes for work as well as play. He fired 70% of Gibson's merchandising team, hired top merchants from Saks Fifth Avenue and R.H. Macy & Co., and set about finding factories in Italy and the Orient that manufactured clothes for such upscale designers as Donna Karan and Liz Claiborne. For the first time, says Gross, Limited stores are stocking linen. "I'm embarrassed to admit it, but we'd never had it. We thought the customer wouldn't understand it because it was too good."

Gross's efforts may now be paying off. Christina Lovera, 49, is a New York attorney who shops at Bergdorf Goodman. She noticed a difference while on a recent visit to a Limited store with her 16-year-old daughter. "Today, I discovered things that were my age," she says. "I'll come back here and buy casual things." Says Gross: "We've improved about 3,000%, and we're only halfway there."

Unlike Limited, Lerner hasn't had a strong franchise in years, and that means Aved's job will be tougher. Lerner, a chain of moderately priced women's apparel stores bought by The Limited in 1985, now has 914 outlets and is the company's largest chain in square footage. Although Lerner managed to rack up $1 billion in annual sales by the end of 1991, it never captured a loyal following of budget-conscious shoppers who looked for bargains at discount outlets and mass-merchants such as Wal-Mart.

The result: Lerner's 1991 operating margins were 9.3%--much slimmer than those at The Limited's healthier divisions--and its sales per square foot were significantly lower. Baum says Lerner did $198 in sales per square foot last year, vs. $398 at Express, The Limited's most profitable division.

Now, Aved is working to drive away the customer Lerner tried so hard to court, and aiming for women with more money to spend. "There's a select group I'm trying to lose as fast as I can," says Aved. To do that, he's raising prices and filling racks with more expensive, better-made clothing. Aved says he's even started shopping in Italy for fabric. And he's unabashedly knocking off such designers as Donna Karan, while getting rid of lower-priced lingerie, hosiery, and socks.

A NEW CROWD. So far, so good. Lerner's same-store sales rose 2.5%, and total profits increased 10%, to $117 million, during Aved's first year at the chain. But like Gross, he doesn't expect strong sales until the fall. In the meantime, there's at least one sign that Aved's repositioning may be taking hold. Hundreds of items made of "crepon"--a rayon fabric that looks like crepe and sold out last summer--aren't moving this year. How come? "We've got a better customer in the store, and she's telling me that even the best of what we had last summer doesn't cut it this year."

To keep the new customers coming, analysts say Lerner needs to advertise aggressively. "You have to take the stigma away from shopping at Lerner and reeducate people so they're happy to carry a Lerner bag," says Jeanne Mockard, an analyst at Putnam Cos. Inc., owner of 1.6 million Limited shares.

As both division heads move their chains upscale, there's the risk that they'll be chasing the same customer. Small wonder, then, that Gross and Aved say they're more competitors than colleagues. But given the urgent marching orders they got from Wexner, neither has any time for pleasantries.SPRUCING UP THE LIMITED

Strategies of the major store chains run by The Limited Inc.

LIMITED STORES Est. 1992 sales: $1.3 billion. A confusing fashion message

alienated core shoppers and sent same-store sales down 5% in both 1990 and

1991. Attempted solution: A new upscale look and better quality

LERNER NEW YORK Est. 1992 sales: $1.2 billion. At 9.3%, margins remain far

below those at sister chains. Its traditional budget customers shop elsewhere

now. Strategy is to move upscale

EXPRESS Est. 1992 sales: $1.3 billion. On-target fashion boosted same-store

sales 12.5% in 1991. Continued expansion planned

VICTORIA'S SECRET STORES Est. 1992 sales: $950 million. Margins are fat at

18.4%. But same-store sales rose just 5% in 1991 after four years of

double-digit growth. Strategy is to branch out into fragrance and toiletries

DATA: SANFORD C. BERNSTEIN & CO., COMPANY REPORTS

Laura Zinn in Columbus, Ohio


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