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UPSCALE FASHION STRATEGY PAYS OFF FOR FILENE’S BASEMENT

By Curt Hazlett

Not long after becoming president of Filene’s Basement Corp. in 2004, Mark Shulman was prowling the off-price chain’s famously scruffy store in Boston’s Downtown Crossing. He was browsing for suits. “But I’m an odd size — a 41 long — and I couldn’t find anything,” he said.

Then Shulman spotted a smart-looking number scrunched up on a rack, its pants on the floor and its jacket hanging by one shoulder. “It was a 41 long, and it was an Oxford suit,” he said. “They usually run something like $2,800 or some crazy number like that, and this suit was $700. So I said, ‘I’ll take it!’ ”

The satisfaction of discovering a bargain, Shulman said, “is what makes that store so fantastic.” It’s also what has helped the off-price retail industry in general grow to nearly $15 billion a year in sales, a trend Filene’s Basement is aggressively trying to tap.

The original, 98-year-old Boston store is wildly popular, but it is no one’s idea of modern. Even so, Shulman would like to preserve some of what he called “that beat-up look” when the store gets renovated as part of Vornado Realty Trust’s redevelopment of the landmark building in which it operates. (Vornado bought the property from Federated Department Stores in the spring.)

But while the original Filene’s Basement store may keep its shabby charm, the rest of the Filene’s Basement chain is moving in a decidedly different direction. Between late summer and the end of the year, the chain will have opened five new stores emphasizing upscale brands, displayed in a way that more closely resembles a department store setting. “Our strategy is to become the premier off-price retailer and fill a niche that we think is out there,” said Shulman, who was COO of Retail Brand Alliance, owner of Brooks Bros. “What we try to do in our real estate strategy is to go into places we’ve had success in the past or are currently having success and can do fill-in.”

So far the approach appears to have produced results. New stores in New York and Boston have drawn good reviews, and the chain’s same-store sales rose 5 percent in the first half of the year, to $184.4 million. “They know what they are doing,” said Faith Hope Consolo, chairman of the retail leasing and sales division of Prudential Douglas Elliman, a New York City brokerage. “Under the new management, I think they are going to reinvent themselves and become once again a key player.”

Filene’s Basement has spent the past six years recovering from its overly aggressive expansion strategy of the 1990s, when it sprouted 56 stores, many of them outside its core Northeast area. The company filed for bankruptcy protection in 2000 and was eventually acquired by Columbus, Ohio-based Retail Ventures, which also owns the DSW shoe chain and Value City Department Stores.

Having shut 28 stores during the bankruptcy, Filene’s Basement has slowly added some back; the company will have 31 by the end of the year. The company has also worked to improve its merchandising by changing its approach to buying, among other things.

Shulman says that when he arrived two years ago, nearly 90 percent of what the company purchased comprised things manufacturers had left over. That had already begun to change under Retail Ventures CEO Heywood Wilansky. He wanted to buy more merchandise up front, Shulman says, so that the chain could have a superior assortment of sizes and colors and not have to settle for just leftovers. “Today our goal, depending on the area, is to try to buy 60 or 70 percent of it up front,” Shulman said. “We want to deliver more upscale merchandise. That’s where our opening is, and that’s where the strength of our business is. Our customers are very fashion-savvy. We do a lot with designer names like Prada and Gucci, and even if customers don’t buy those things when they come into the store, they feel good that we’re carrying that kind of merchandise.”

There is also a new emphasis on display. Shulman says Filene’s Basement is trying to create a different atmosphere by using fewer straight racks and displaying goods in a setting more like that of a department store. That’s not by chance. “With all the consolidation that’s gone on there — and, unfortunately, I think there’ll be more of it — the choices for the customer are not great today,” he said. “There’s Macy’s, and then there’s Macy’s and Macy’s. So we think there’s a nice niche to fill there.”

Geographically, the company has refocused on areas in which the Filene’s Basement brand is already known. Its newest stores are in Hunt Valley, Md., near Baltimore; in Boston, on bustling Boylston Street; Springfield, Pa., outside Philadelphia; Levittown, on New York’s Long Island; and Cleveland. The chain either has or had stores in each of those metropolitan areas except Cleveland, where it says it hopes to open a second store within two years. (There already is one operating in Columbus.)

Filene’s Basement continues to open stores in the suburbs, though it says it has an increasing presence in cities, as demonstrated by the new store on Boylston Street and a two-year-old store in New York City’s Union Square.

These urban stores are good performers, according to Shulman. The Boylston store had an especially strong opening, and the store on Union Square is possibly one of the company’s fastest growing, he says. “We have a store on Broadway at 79th Street that, on a sales-per-square-foot basis, is probably the best in the company, and we have a store on 18th Street in Chelsea,” Shulman said. “Those three stores are amazing for us. We also have a store in Atlanta that’s urban and a couple in the Chicago market, on State Street and on North Michigan Avenue. So when you look at our portfolio, it’s got a lot of urban locations, and they’ve worked great for us.”

So great, in fact, that Shulman has his eye on more city locations. “We’d love to do something else in Manhattan if we could,” he said. “Manhattan could support a couple more stores for us. We’re not in Brooklyn, and that could offer great opportunities for us if we could find a location there.”

Consolo, too, thinks Brooklyn would be a good fit. “That’s where many of its customers are,” she said. Manhattan, she cautions, already has some well-entrenched off-price powerhouses, including Century 21, Daffy’s and Loehmann’s. “I think they should go to the boroughs.”

For Shulman, the experience of running an off-price chain is both familiar and new. He started his career at Bloomingdale’s in 1971 and gathered plenty of specialty-store experience along the way.

“From a merchandising point of view, it hasn’t been that difficult a learning curve,” Shulman said. “The timing is different, and how you negotiate is different. When I worked for Bloomingdale’s it was nice to walk into a showroom and hear them say, ‘What can we do for you?’ It’s a little more difficult when you’re buying for an off-price retailer. For me it was learning the timing and not being insulted when somebody said to me, ‘We really can’t sell that to you, because it’s not something we want to put in Filene’s Basement right now.’ But those walls are breaking down. With consolidation, manufacturers need the channels of distribution.”

For Bostonians perhaps the biggest question is whether the chain’s new direction spells the end for the beloved dinginess of the Downtown Crossing flagship. “We have different points of view in the company,” Shulman said diplomatically, “but I love the way that place looks. If it gets new fixtures, we may have to bang them up a little bit. To pretty it up too much would be a shame.”