Nobody would accuse Gary Comer of being a trendy guy.
In his free time, the 72-year-old founder and chairman of Lands’ End Inc. is likely to be found in knit shirts and khaki pants. When he dresses up to chat with shareholders at the company’s annual meeting, Comer sports his usual preppy uniform: navy blazer, white shirt, striped tie.
They are classic looks that Comer adopted early in life as a serious sailor and advertising copywriter in Chicago, and they have helped transform Lands’ End from a tiny sailing outfitter to a catalog powerhouse with $1.3 billion in annual sales of casual apparel.
Classic style may no longer be enough.
Lands’ End’s sales sank unexpectedly during the 1999 holiday season, and the falloff carried over into the first quarter of this year. Disappointed investors jumped ship, driving down Lands’ End’s stock price.
Now, in an effort to get sales back on course, the cataloger is jazzing up its traditional offerings of polo shirts and chinos with trendier looks such as Capri pants and “tankini” swimsuits.
It probably should have happened a few years ago, said Bill Dean, publisher of the Dean Report, a shopping newsletter in San Francisco. “How much khaki can you have in your closet?” he said with a shrug.
Still, the strategy is risky. Lands’ End’s customers–a conservative, college-educated group ages 35 to 55–could end up being turned off by a younger, trendier look.
That’s a risk worth taking, Comer figures.
“I’m not worried. They’re making changes in the right direction,” he said, referring to Lands’ End’s new management team.
Other Lands’ End watchers aren’t so confident that Lands’ End has got it figured out.
“Lands’ End has a ton of problems,” said Sid Doolittle, a veteran Chicago retail consultant. “The biggest problem they always have had is consistency. Their business model doesn’t produce consistent results for shareholders.”
To be sure, Lands’ End had veered off in a number of mistaken directions in recent years.
In the late 1990s, former Chief Executive Michael J. Smith loaded up on inventory, trying to improve Lands’ End’s already enviable record of filling 87 percent of first-time orders.
That strategy backfired when boatloads of unsold merchandise had to be liquidated at deeply discounted prices.
Then Smith’s replacement, current CEO David Dyer, tried to cut costs last year by eliminating some catalog mailings, including one that would have arrived around Thanksgiving, the kickoff to the holiday selling season. Dyer thought Lands’ End’s booming e-commerce business would pick up the slack.
He was wrong. Sales in fiscal 2000 fell 3.8 percent, to $1.3 billion. In November and December, the two most important months of the year, sales plunged almost 15 percent. “In retrospect, we cut back a bit too far,” Dyer admitted to shareholders Wednesday. Reversing course, Lands’ End will be increasing page circulation about 6 percent this year.
Reduced mailings did help one important thing–Lands’ End’s bottom line. Fiscal 2000 net income rose 54 percent, to $48.0 million, or $1.56 per diluted share, but that was still down 25 percent from fiscal 1998, when Lands’ End earned $64.1 million, or $2 per diluted share.
The bad news hasn’t stopped. In the first quarter of fiscal 2001, sales dropped 8.1 percent while profit plummeted 96 percent, falling far short of analysts’ expectations.
The payback: Lands’ End’s share price has declined more than 60 percent since November to around $30 a share. That’s down from a 52-week high of $83.50.
Could trendier fashion provide the port in a storm that Lands’ End is looking for?
Sid Mashburn, Lands’ End’s new vice president of design, believes it can.
Mashburn, who has worked for such fashion powerhouses as Ralph Lauren and Tommy Hilfiger, is gently steering Lands’ End in a more fashionable direction. But he says he isn’t planning a radical redo of the relaxed style that Lands’ End’s customers expect.
“A little bit of style goes a long way. You can be fashionable and forward thinking and still be classic,” said Mashburn, a 38-year-old Mississippi native, who describes himself as “a preppy dresser, but not the bad side of preppy.”
Besides, he adds, it was Lands’ End’s customers who were asking for updated styles and closer-fitting silhouettes. Even fans of less fashionable items needn’t fear Mashburn’s creative touch, he promises. A pair of pants with an elastic waist now has the stretchy stuff only in the back, where it doesn’t show.
Don’t expect Lands’ End to be jumping on every trend, either. “We have to ask, `Will the customer trust this? Can we still keep credibility with this product?'” Mashburn said. “If it’s hot like spaghetti straps, the answer is, `Absolutely, not.'”
Early results from Lands’ End’s new offerings are encouraging.
Lands’ End expects to sell $12 million of tops and sweaters with three-quarter-length sleeves this spring and summer, compared with none last year. Two-piece tankini swimsuits will rack up $17 million in sales this year versus $2 million last year.
A broader color assortment for mesh polo shirts, including such shades as desert khaki and fuchsia pink, boosted sales 50 percent this spring.
“The mix of new products will grow on a percentage basis throughout the year,” said Derek Leckow, senior investment analyst with Barrington Research Associates in Chicago. “That will help drive the core business, which had been growing at a slow pace.”
Mashburn isn’t alone in leading the fashion charge.
Comer, who still owns 55 percent of Lands’ End stock, has assembled a new management team that includes several former executives who fled in the mid-1990s.
Dyer, who headed merchandising at Lands’ End in 1990 and rose to vice chairman in 1993, is one of them. He departed Dodgeville in 1994 for stints at the Home Shopping Network and J. Crew before returning 20 months ago.
Another second-timer is Mindy Meads, a former Lands’ End merchandising and design chief, who jumped ship for Gymboree, the children’s clothing-maker and retail chain in 1996.
She returned two months after Dyer. As executive vice president of merchandising, Meads is leading the overall efforts to update Lands’ End’s products. One of her big hits: a “spa”-themed issue of the Coming Home home accessories catalog.
Helping out with updating the look of the catalog and Lands’ End’s Web site is Lee Eisenberg, a former editor of Esquire magazine who left a high-ranking post at Time magazine to sign on as creative director for Lands’ End.
But will Comer, who is known for his impatience with top management, give this eclectic team time to jell? He says he will. “These people need some time and space to get it done,” he told shareholders gathered in the company’s recreational center, a gift from Comer to Lands’ End’s employees.
One critical thing to figure out is the Internet’s role in Lands’ End’s evolution. The cataloger had hoped that its computer-savvy frequent shoppers would start using the Internet rather than waiting for catalogs to arrive. Dyer tested that idea last fall by stopping catalog mailings to a group of Lands’ End’s best customers.
The idea backfired. Without catalogs arriving to spur their interest, the best customers stopped ordering. “It cost us $6 million in sales,” Dyer admitted. “But we learned there is a big relationship between the catalog and the Internet.”
One additional revelation: The Internet won’t cut Lands’ End’s paper, printing and postage costs to the extent Dyer had hoped.
Still, Lands’ End’s 5-year-old Web site has been extremely successful in generating sales, which more than doubled to $138 million last year. Its real-time customer service feature is cutting-edge for the industry, as is a virtual model that can be customized with a shopper’s measurements, hair color and skin color.
In fact, Lands’ End will be introducing itself to France this summer with a French-language Internet site rather than catalog mailings.
Perhaps a bigger issue for Lands’ End is whether it should open its own retail stores.
Both Dean and Doolittle believe it should. “We’re in a multichannel world now. They may be losing a real opportunity by not expanding into retail stores,” Dean said.
Added Doolittle: “Retail will always be a better place to do business than the Internet. Retail stores do 90 percent of the business.”
Even venerable cataloger L.L. Bean finally has taken the retail store plunge and is opening the first of several non-outlet stores in the Washington area this summer.
Retail stores are something Lands’ End would consider down the road, but they are not on Dyer’s “short-term radar,” he said.
Running retail stores requires another expertise and a “whole different thought process,” Dyer said. Down the road, stores may work for subsets of Lands’ End’s merchandise, such as kids clothes, he added.
For now, Dyer has his hands full proving Lands’ End is back on course.
