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Spiegel's Book Is A Real Page Turner


The Corporation

SPIEGEL'S BOOK IS A REAL PAGE-TURNER

When retailer Eddie Bauer Inc. opened a store in Wichita in July, shoppers snapped up 250 men's flannel shirts in three weeks, wiping out the inventory. With temperatures hitting the 90s, it sure wasn't the weather. Besides, the same August craze for flannel has pummeled inventory in Eddie Bauer stores from New York to San Francisco.

Why the rush? Flannel is hot for back-to-school dressing--almost as hot as Eddie Bauer itself. Says Alexander P. Paris, retail analyst at Barrington Associates: "They've got a lot of momentum."

The same could be said for Spiegel Inc., the Chicago-based clothing merchandiser that bought Eddie Bauer in 1988. Fueled by expansion at the popular outdoor-clothing chain, which now accounts for 47% of Spiegel's sales, and a revival in its mainstay catalog business, Chief Executive John J. Shea has transformed Spiegel into one of the fastest-growing players in the retail landscape.

NEW DATA. While onetime rivals such as Montgomery Ward & Co. and J.C. Penney Co. phased out their general-interest catalogs, Shea revamped Spiegel's 600-page catalog--and its sales are up 30% this year. Spiegel's $40 million purchase of New Hampton Inc., a catalog company aimed at moderate-income women, and new-product launches such as E Style, a catalog for African-American women, have also spurred revival. And in a bid to gain a foothold in the potentially lucrative market for on-line shopping, Spiegel has launched an experimental cable-TV channel. "Wherever the consumer wants to be, that's where we'll be," says Shea. "If we're not printing catalogs in 10 years, we'll still be here."

Although many hot retailers have stumbled over too-rapid expansion, so far Shea's strategy appears to be working. Net earnings before nonrecurring charges jumped 49%, to $70.4 million in 1993, while revenue rose 17%, to $2.6 billion. Analyst Dean Ramos of Minneapolis-based broker Dain Bosworth Inc. estimates earnings will rise 26%, to $88.6 million, for 1994, on revenue growth of 23%, to $3.2 billion.

That's a long way from the company Shea took over back in 1981, when the floundering merchandiser was acquired by Germany's Otto-Versand, Europe's biggest catalog merchandiser. Otto-Versand's backing enabled Spiegel to invest in state-of-the-art computer and distribution systems. Just as important, the German giant shared its sophisticated market-research methods. Armed with new data, Shea saw a niche in creating the first apparel catalog targeted at upscale working women and remade the once dowdy general catalog.

By the late 1980s, revenues had tripled as Spiegel sold scads of $495 wool blazers to working women too busy to shop. But Spiegel stumbled during the 1990-91 recession. Forced to fold its $33 million upscale Honeybee Inc. catalog and stores, Spiegel's profits plunged from $73.3 million in 1989 to $16.9 million in 1991.

TV LINK. But as the recession ended, Shea seized on another change in women's buying habits. "Value became an important equation. The consumer went from Gucci to the Gap," Shea says. Spiegel scaled back pricey things and began discounting hundreds of "Best Bet" items.

But Shea's smartest move may have been the 1988 buy of Eddie Bauer, a Seattle-based retailer of casual clothing, from General Mills Inc. Eddie Bauer mail-order and retail sales have since quadrupled, to $1 billion, spurred by the trend toward casual work togs and popular TV shows such as Northern Exposure featuring its outdoorsy look.

The value philosophy was also applied to Eddie Bauer, where the price of all denim jeans was permanently lowered to $30 in 1991. As a result, jeans sales quintupled, to 2.5 million pairs, in 1992. Last year, Eddie Bauer's same-store sales averaged 11% growth while many retailers struggled to achieve low single digits. "We're obviously gaining market share," says Eddie Bauer President Richard Fersch.

That success has allowed Eddie Bauer to expand quickly. Sixty new stores will open this year and 75 in 1995, bringing the total to 430, up from 58 in 1988. Eddie Bauer is also launching its catalog and opening three stores in Japan this fall and, with backing from Otto, will expand its catalog to Germany.

STRETCHED? Still, analysts question whether Eddie Bauer is growing too fast. Although store expansion has been financed by cash flow, management resources could be stretched thin. Dain Bosworth analyst Ramos also worries that Eddie Bauer's narrow focus will make it vulnerable to changes in style. But Fersch dismisses such concerns: "We think we have a balance sheet that will support our growth and the management expertise to handle it." Bauer's customers average 30 to 50 years old, making them less likely to chase fads.

Shea will have his hands full developing Catalog 1, an upscale cable-TV channel. The Spiegel/Time Warner Entertainment Co. joint venture began in March, featuring merchandise from Spiegel, Crate & Barrel, Williams Sonoma, and the Sharper Image, among others.

Shea has tried to position Catalog 1 far from the downscale slot occupied by QVC Network Inc. and the Home Shopping Network Inc., where cubic zirconia rings and thigh toners are hawked in a game-show atmosphere. Catalog I stars highly polished women "anchors" who discuss fashion and decorating. One show features Crate & Barrel Stores Chairman Gordon I. Segal presenting wine glasses and wrought-iron bed frames.

But the sophisticated approach has not worked. Industry sources say sales in the first six months have been tiny and the station is being extensively revamped. In October, the program's anchors will disappear. The pace will be quicker, with twice as much merchandise shown. Yet there's little evidence that the wealthy actually want to shop by TV. Q2, an upscale channel rolled out in June by QVC, is also off to a bad start. Shea admits it may take years to find the correct formula, but he insists that Spiegel must position itself now. "It's the future," he says. "Why wait?" Given his track record sniffing out retail trends a step ahead of the crowd, don't bet your cubic zirconia against it.Susan Chandler in Chicago, with bureau reports


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