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Shopping Centers Today -> February 2003
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ABOUT FACE
Wilsons shifts focus to core leather stores, exits luggage retail
By Anna Robaton
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In 2001 Wilsons, then the largest specialty retailer of leather outerwear and travel goods in the United States, weathered what it dubbed a “perfect storm” of misfortunes.
The Sept. 11 terrorist attacks seriously curtailed air travel, cutting into sales of the company’s travel goods chains, El Portal and Bentley’s Luggage, just as it was entering its peak fourth-quarter season. The attacks’ impact on an already soft economy further dampened sales for the company’s other divisions as well, including its flagship 632-unit Wilsons Leather chain, which specializes in leather outerwear, apparel and accessories. To make matters worse, record-high temperatures during the holiday season depressed outerwear sales, which account for more than half of Wilsons’ volume.
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In a big reversal for a company that has enjoyed healthy growth in recent years, Wilsons’ same-store sales plunged 12.1 percent in 2001. The company, which posted sales of $720 million that year, just broke even.
Today Wilsons, based in the Minneapolis suburb of Brooklyn Park, is retrenching. In a move last November that temporarily pushed its stock higher, from $4.34 to $6.16 — at press time it was back at $4.52 — the parent company (officially known as Wilsons The Leather Experts) announced that it would abandon its short-lived foray into the travel goods business and focus on boosting sales of its Wilsons Leather stores.
Of those stores, 493 are located in regional malls, where they average about 2,100 square feet each. An additional 113 are outlet stores, and the remaining 26 are in airports. The company also operates temporary stores during its peak season. (Last year it planned to open about 285 of these holiday stores.)
In November Wilsons began closing all 135 stores in its El Portal and Bentley’s Luggage chains; it had acquired them in 2000 and 2001, respectively, as part of an effort to continue growing and to make its sales less seasonal. (In 2001, 50.9 percent of its sales were posted in the fourth quarter, down from 58.5 percent in 1998.)
“They were getting a lot of pressure from the investment community to smooth out the seasonality of their business,” said Christina de Marval, an analyst at New York City-based equity research firm Sidoti & Co. By consolidating smaller players in the travel goods market, the company had planned to replicate the strategy it had used to dominate the leather market. Wilsons had intended to build a national chain, under the El Portal name, of up to 400 travel goods stores within five years of entering the highly fragmented business. It also saw the move into travel goods as an opportunity to expand its higher-margin private-label business.
But Wilsons had to contend with both the weak post-Sept. 11 travel market and the task of revamping the chains’ merchandise mix in a market dominated by the likes of Coach, said Christopher Krueger, an equity research analyst at Dougherty & Co., a Minneapolis-based investment banking firm. In announcing plans to exit the market, Wilsons said that though test stores operated through its travel goods subsidiaries had the right merchandise mix and pricing, sales would not recover soon enough to justify continued investment.
“It was a great strategy that just had unfortunate timing,” said Wilsons CEO Joel N. Waller. “It makes more sense to take our dollars and refocus them on our core business.”
The company’s history dates to 1899, when Berman Bros. Fur and Wool Trading Co. was founded in Minnesota. The business bought hides and furs to make into apparel and accessories. Berman Bros. later diversified into retailing and was renamed Berman’s The Leather Experts.
In the late 1940s a family named Wilson started Wilsons House of Suede and Leather in Southern California, which focused on selling quality leather goods at mass-market prices. In 1982 Melville, a retail chain holding company that is now CVS New York, acquired Wilsons and then embarked on a series of other acquisitions of leather goods chains. Melville bought Berman’s in 1988, at a time when sales were skyrocketing thanks to the popularity of the distressed-leather look. It subsequently merged the two companies into Wilsons The Leather Experts. In 1996 members of Wilsons’ management team, including Waller, bought the company from CVS, and they took it public a year later.
“We set out in the early 1980s to consolidate the industry,” said Waller, who became president of Wilsons Leather in 1983 after serving in several positions at Berman’s, where he started as a buyer in 1976. “We grew by opening stores in malls and acquiring other chains.”
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As a vertically integrated company, Wilsons designs and contracts to produce much of what it sells. Its designers and buyers travel the world to select hides and then contract with manufacturers to turn them into leather goods. This allows Wilsons, which positions itself as a value-oriented retailer, to tightly control its inventory, react quickly to changes in fashion trends and hold down prices by obtaining product from around the world.
Consequently, Wilsons was able to avert an even worse 2001 by responding swiftly to the economic slowdown. As the economy weakened, the company canceled production of nearly $60 million in goods and worked with its overseas partners to dramatically reduce its levels of raw materials.
“We control the process, from the cow to the customer,” said Waller.
Only a few years ago, Wilsons decided to take a fresh look at its marketing. Working with Minneapolis-based retail brand agency Fame, executives shifted the company’s branding focus from its private labels to its stores. The goal was to position the stores to appeal to “spirited participants in life” by marketing Wilsons’ leather goods as “sexy, smart and unique,” said Fame President and CEO Tina Wilcox. Fame operates a home accessories and gifts boutique in downtown Minneapolis that serves as a research lab for consumer shopping behavior. The research is used as a basis for many of the recommendations the firm makes to its clients (see story, Retail lab keeps an eye on customers).
“People who wear leather are much more apt to want to be noticed,” said Wilcox. “They are interested in fashion. We took Wilsons from being a leather outerwear company to a fashion apparel company, and that expanded what they could sell.”
Now, as Wilsons looks to boost sales at existing stores, it will push ahead with efforts to sell more accessories, which are among the highest-margin categories in its stores, and more apparel. The shift will also help make Wilsons less dependent on holiday sales by generating more foot traffic throughout the year.
Late last year the company was beginning to see some sun on the horizon.
Although Wilsons’ same-store sales (not including the luggage shops) were down 6.2 percent for the year to date through November, that wasn’t nearly as bad as the 11.5 percent drop for the same period the previous year. Of course, a lot hinges on the weather. A few real perfect storms would help.
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