“MERCANTILE GETS ACTIVE”

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WWD
March 5, 1998 | Bastian, Lisa

FAIRFIELD, Ohio — Although Mercantile Stores’ new Activezones will carry merchandise for men and women, it expects the departments to be, in particular, a destination for women.

The department store chain plans to open 18 Activezones — including one freestanding store — by August. Designed to appeal to both athletes and spectators, the departments will offer activewear, athletic footwear and accessories.

The department store has long been the women’s choice for her shopping needs for traditional apparel, said David L. Nichols, Mercantile’s chairman and chief executive officer. “We believe that the current emphasis on women in sports gives us a clear advantage to satisfy her athletic apparel and footwear needs.”

While Mercantile first disclosed plans for this concept at the Super Show in Atlanta last month, Nichols and other Mercantile executives further detailed the plans at a press conference held here Tuesday at the firm’s headquarters.

Following the initial installations this year, Mercantile expects to open at least 20 Activezones in 1999 and at least 60 more in 2000.

The investment in the new concept will be in millions of dollars, although executives would not be more specific. It represents the largest spending plan in the company’s merchandising budget, according to Mark Leslie, corporate divisional merchandise manager.

Although no female focus groups were conducted, there is ample evidence this new concept will be a hit with this audience, said Leslie.

“America’s appetite for the active lifestyle continues to grow. People are becoming more health-conscious,” he said. “Activezone affords us a significant opportunity to cater to the customers in the athletic zone.”

In 1997, women’s athletic apparel accounted for 11 percent of Mercantile’s total athletic apparel sales, Leslie said. By the end of this year, that figure is expected to be at least 16 percent. He declined to give dollar figures.

“With this new exciting and entertaining division, we’re taking athletic wear stores to a level never before seen in a retail environment,” Leslie said. Mercantile expects Activezone to not only help it take market share for athletic merchandise from its competition but also create added sales excitement in other departments in stores where these shops exist. Each shop will be positioned next to the young men’s and sportswear departments.

The average Activezone department will cover 6,500 square feet. In addition to its private label activewear, the shops will carry up to 17 different brands of activewear and athletic footwear such as Nike, Reebok and Champion. Laurie Hummel, buyer of women’s and girls’ activewear, said retail prices will range from $15 to $120.

The 17 Activezone shops to open this year will be in 13 cities: Cincinnati; Louisville, Ky.; Nashville; Augusta-Aiken, Ga.; Mobile, Ala.; Baton Rouge; Kansas City; Denver and Colorado Springs, Colo., and in Florida in Tallahassee, Jacksonville and Orlando. Sites were chosen for being densely populated with sports-minded consumers.

A freestanding 7,200-square-foot Activezone store is scheduled to open in August in Huntsville, Ala. Additional freestanding stores will have at least 7,000 square feet, Leslie said.

Designed by the Fitzpatrick Design Group, a New York firm, the Activezones feature various sport-specific zones such as a tennis zone, golf zone and running zone. There will also be the Aqua Zone water bar, featuring flavored, oxygenated waters.

In the center of each shop, a Hall of Fame area will showcase sports memorabilia from local professional and amateur athletes. The area is encircled by a rubber running track. Clips of sporting events, sports news and music videos will be shown in the shops, compliments of Z-TV, a make-believe broadcasting channel. An LED readout will post current sports scores.

Each shop will be equipped with a high ratio of female sales associates to insure a high comfort level among women customers, Leslie said. Every associate will undergo intense and ongoing education about the features, benefits and prices of the merchandise, he said. That training is being provided by the vendors.

To create year-round excitement in the category, Mercantile plans to tie into special events in the community, as well as those sponsored by vendors in its Activezones. Athlete appearances, sports clinics, cheerleading contests, charity sponsorships and sweepstakes for trips to major sporting events such as the Super Bowl and the World Series are some of the concepts being considered.

“Our entire management team is very excited about the energy Mercantile is going to create with their new Activezone concept,” said Marty Sappington, sales director of strategic department stores for Nike.

Activezone plans on becoming a highly profitable, leading athletic store in every community it serves through value, fashion and customer service, said Leslie.

“We’re offering the consumer a total athletic experience,” Leslie said.

“EXPRESS MAKES A TURN….”  (Q1 1999 RESULTS)

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WWD

NEW YORK — The Limited Inc., which released its first-quarter earnings report just prior to its annual meeting on Monday, said the branding approach that made Victoria’s Secret such a success is starting to take root at Express.

However, its other ailing apparel businesses, Structure and Limited Stores, have not been so quick to turn around. Losses at the two divisions actually widened.

“We are encouraged that the branding process that has produced such success at Victoria’s Secret and Bath & Body Works is beginning to have an impact at the apparel brands,” said Leslie H. Wexner, chairman and chief executive officer.

While first-quarter earnings at The Limited Inc. fell 57.8 percent due to a special year-ago credit, earnings before special items improved solidly, partly due to lower losses at its core women’s business.

Earnings slid to $33.5 million, or 14 cents a diluted share, from $79.5 million, or 28 cents, a year earlier. The year-ago figures were boosted by a special gain on the spinoff of Abercrombie & Fitch. Excluding special items in the year-ago period, earnings in the latest period climbed 29.8 percent from $25.8 million, or 9 cents.

“If you look at the trends overall in their apparel segment, the numbers look better than the analysts expected,” said Jeff Stinson, an analyst at Midwest Research in Cleveland.

Sales for the quarter, which ended May 1, rose 4.8 percent to $2.1 billion from $2 billion.

Results were in line with a forecast issued by the company in an announcement on May 3. Limited also said it expects to report second-quarter earnings of 18 cents a share, compared with 13 cents a year ago.

At the company’s annual meeting, at Limited headquarters in Columbus, Ohio, Wexner admitted, “On the apparel side, we have pretty mature fleets.” Growth for the divisions, he said, will come from “increasing the size and remodeling our best stores.”

Limited said it saw improved performances from Express, Lerner New York, Lane Bryant and Limited Too. Robust first-quarter earnings at Intimate Brands, 84 percent of which is owned by Limited, also contributed to the strong results, the company said.

At the annual meeting, Wexner told shareholders that the strong quarter earnings were a result of Limited’s efforts to better manage its inventories. However, performances continued to lag at Limited Stores and the Structure men’s business.

“With the `must-win’ strategy and what they’ve done with the other three businesses, they’ve demonstrated that they have the ability to turn them around,” said Kindra Hix, analyst at NationsBanc Montgomery Securities in San Francisco.

Last year, the two chains had an operating loss of about $170 million, according to Hix, who projected similar losses this year.

Limited’s apparel group, which includes Express, Lerner, Lane Bryant, Limited Too, Limited Stores and Structure, narrowed its operating loss to $8 million from $27.5 million a year ago. Sales were $1.15 billion for the quarter. Same-store sales climbed 12 percent.

Operating income and gross margins improved significantly at Express, the company said. Sales were $301.5 million and same-store sales rose 16 percent.

“Express is the best of the bunch over there,” said Midwest’s Stinson. “Comp-store sales were up and they had significant gains in margins. They have a really good trend there.”

Sales at Express were driven by Metro T-shirts, drawstring pants, microcord pedal-pushers and ponte pants, according to a spokesman.

Express is remodeling 100 “must win” stores, replacing its French-themed graphics with a cleaner look, Kenneth B. Gilman, vice chairman and chief administrative officer, told analysts.

“It’s a white background with a lot of chrome,” said NationsBanc’s Hix. “It makes the merchandise pop out a little bit. The environment’s a lot more exciting.”

However, efforts to turn around the struggling Limited Stores are still coming up short. The company said the chain’s operating losses grew compared to the first quarter of last year. Operating income margin was down significantly and gross margins also fell, according to the company. Sales at the chain were $165.6 million and same-store sales grew 5 percent.

“Our must-win stores are producing results that are double digits above the balance of the business,” said Gilman.

Asked by analysts when the must-win strategies will be rolled out to the entire chain, Ann Hailey, executive vice president and chief financial officer, said, “Our primary plan is to make sure the must-wins are fully contributing before we move on. We don’t have plan or timing about when we will extend to second tier.”

Limited is trying to improve profits by carrying deeper inventories of fewer offerings, Hailey said. The company is also trying to get collections into the stores sooner and off the floor faster. As part of that strategy, Limited Stores will be testing fall items at some stores in June, with the balance of stores scheduled to receive fall goods after the Fourth of July.

Gilman expects Limited Stores to turn out a “slight improvement” for the second quarter.

“We will see what happens in the fall when there is opportunity to get better leverage out of the inventory dollars we allocated to the business,” he added.

Structure also saw its operating loss widen over a year earlier, the company said. Sales came in at $123.3 million and comps picked up 3 percent.

Structure has some inventory buildup in bottoms, according to Hailey. However, she said fall merchandise margins should be higher than a year ago.

At Lerner New York, operating profit also was up significantly, and operating margin and gross margin also improved, the company said. Lerner had sales of $236 while comps climbed 23 percent. Sales were led by pedal-pushers, the spokesman reported.

Gilman credited Lerner’s strong performance to its management team, including Richard Crystal, president and chief executive officer; Jackie Corso, executive vice president of merchandising, and Charlotte Neuville, vice president of design. The chain is benefiting from the team’s coordinated approach to branding, merchandising, design and manufacturing, he said.

Limited also saw significant gains in operating income from its Lane Bryant chain. Sales for the group were $223.1 million and comps climbed 9 percent, the company told analysts. Skirts sold well, according to a spokesman.

The reasons for Lane Bryant’s success are similar to Lerner’s, Gilman said. Mary Kwan, executive vice president and general merchandise manager for sportswear and accessories at Lane Bryant, is making a strong contribution to the company’s performance, he added.

The Limited Too girls chain continues to perform strongly, with an increase in operating income and gross margin. The chain had $95 million in sales.

Galyan’s, the Limited’s sporting superstores, saw slightly improved operating income, the company said. Sales came to $59.9 million.

Limited said on May 3 that it would spin off Limited Too to shareholders and sell 60 percent of Galyan’s to investment firm Freeman-Spogli and Galyan’s management.

Operating profit for its Limited’s New York specialty store, Henri Bendel, was slightly improved, Limited said. Sales were $8.8 million.

Taken together, Galyan’s and Henri Bendel turned in an operating loss of $6.8 million, the company told analysts.

Limited results were buoyed by robust earnings at Intimate Brands. Last week, IBI reported earnings climbed 13.1 percent to $46.4 million, or 19 cents a share, up from $41 million, or 16 cents, a year ago. Sales gained 13.9 percent to $877.8 million from $770.9 million.

Inventories for the apparel businesses were up 12 percent per square foot at cost, the company said.

Gross margin in the apparel businesses climbed 2.4 percent because of leverage in buying and occupancy expense as a result of the comp gains and because underperforming stores were closed.

The Limited told analysts its lawyers had advised it not to discuss its tender offer that expires June 1. The company is offering to buy back up to 15 million shares for a minimum of $50 and maximum of $55 a share in a “dutch auction.”

Limited shares gave up 1 1/16 to close at 46 5/16 on the New York Stock Exchange Monday.

Women’s Wear Daily (WWD), a  Condé Nast publication, is the authority for news and trends in the worlds of fashion, beauty and retail.  It is the leading destination for all fashion week updates and show reviews from New York, Paris, Milan and London. Its online version, WWD.com, features daily headlines and breaking news from all Women’s Wear Daily publications.

TASKS

After finding Lisa via an Internet search, WWD editors hired her for two writing assignments, in 1998 and in 1999, to cover important news stories.

In 1998, WWD needed a local business writer to cover the breaking news about Mercantile Stores’ new Activezones division. Bastian wrote and filed story within 24 hours of assignment.

In 1999, a major press conference about The Limited was to be held in Cincinnati, Ohio (Lisa’s residence at the time) in a few days. WWD needed a business writer to cover the event, interview key people, and write a story about the first-quarter financials of the company, etc. The deadline was the same day as the event. Bastian completed the assignment successfully, and her story appeared the next day in WWD (print version) and online.  (As expected, another writer shared a byline as he was needed to add financial background data to article.)

SKILLS

Interviewing, writing — and writing on crazy-short deadline.

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