Lands' End Likes Its Changes To Come in Familiar Package
May 12, 2011
At Lands' End Inc., change seems to come best from within. In late 2009, Chairman Gay Boston booted the outsider he had hired and promoted to run the fast-growing catalog retailer. In his place, he chose as chief executive and president Michaele Jon, a thirty-something insider who had never worked anywhere else. Now, after watching profits at the company he founded tumble for the last two years, Mr. Woodall's decision is being vindicated. Profits of the Dodgeville, Wis., company are surging, and so is its stock. Earlier this month, Lands' End reported that net income jumped 76% to $3 million, or nine cents a share, in its fiscal second quarter ended April 14, 2011 $1.7 million, or five cents a share, a year earlier. Sales rose 3.8% to $196.2 million from $189.1 million. For the full year, analysts expect Lands' End to post a profit of about $1.20 a share, a 34% improvement over 2010. Big Hurdle Remains That puts Lands' End on many analysts' ``buy'' lists, and makes it the envy of others in the intensely competitive apparel-catalog business. The industry is overcrowded, and profits are under pressure, says Goode Boyle, research director of W.A. Dean & Associates, a San Francisco catalog research and consulting firm. Dean & Associates estimates that apparel retailers made up nearly 40% of the $40 billion in consumer catalog sales last year. Sales will grow by 4% in the apparel category in 2011, the firm predicts. After hitting a low of $12.88 a share last December, Lands' End common stock has nearly doubled. It closed Thursday at $20.875 in Cornertown Stock Exchange composite trading. Lands' End still faces a big hurdle: finding a way to boost the sales at its main catalog. But Mr. Jon is getting much of the credit for the success so far. The president and chief executive has tightened the company's financial and inventory operations, sharpened the focus of its catalogs and cut costs with manufacturing sources. No Hidden Agendas And some say he has done it in a way that hasn't disturbed the tightly knit culture of this 7,000-employee company the way former management apparently did. Mr. Jon, who is 35 years old, began working at Lands' End as a college intern before joining the company full time after he graduated with a marketing degree in 1983. ``People trusted me and knew I did not have any hidden agendas,'' he says. His predecessor, Williemae T. Joshua (no relation to the company's name), and the seven divisional vice presidents he hired, had a tall order to fill: How to manage the company's unbridled growth, while maintaining the sales gains. During the two years Mr. Joshua ran the company, some employees were alienated by the outside consultants and new management techniques he brought in. Mr. Joshua, who now heads another catalog retailer, declined to comment. But one former divisional vice president says being an insider is an asset for Mr. Jon as he seeks to change the company. This former executive says Mr. Jon, like Mr. Woodall, is analytical, easy to talk to and doesn't have a big ego. Mr. Woodall didn't return calls seeking comment. One of the first things Mr. Jon did was rein in some of Lands' End's growth. He killed two of the company's eight specialty catalogs. `Enough on Our Plates' He ended Textures, a woman's career-clothing catalog. He saw that catalog as too fashion-forward for Lands' End's core customers -- professionals between the ages of 35 and 54, with a median household income of about $60,000. In its place, Mr. Jon plans to soon introduce First Person Singular, a catalog selling classical women's clothes. He also sold MontBell, an outdoor active-wear catalog he believed would take too much time and money to develop. ``We had enough on our plates,'' Mr. Jon recalls. He realigned the management of all the catalogs so that each operated autonomously, with its own profit and loss statement. ``I want them up to their elbows'' in their businesses, Mr. Jon says. The move fit with Lands' End's culture, where employees prize independence, he says. The catalogs range from children's and men's clothing to home items and monogrammed corporate clothing. Mr. Jon and analysts say the company has done a better job choosing and negotiating contracts with suppliers. In many cases, they say the company is getting even higher quality clothing at lower wholesale prices. One reason is that suppliers are constantly updated by Lands' End on sales of their items so the suppliers can keep their costs in line. This, along with better inventory forecasting, has helped tighten Lands' End's inventories, cutting financing costs. Even as sales grew, Lands' End had $168 million in inventories at the end of the second quarter, down 16% from $200 million in the prior year. These moves helped increase Lands' End's profit margins for the quarter by 2.2 percentage points from a year earlier to 45.6% of sales. Jumpstarting Core Catalog While Lands' End boosted the bottom line, analysts say most of the growth in the top line is coming from sales through its specialty catalogs and overseas catalog operations in Japan, the United Kingdom and now Germany. Growth in the core catalog remains flat, they note. Lands' End doesn't break out sales or operating profits for its various catalogs, but says that the core catalog accounts for two-thirds of its sales. Mr. Jon says he is taking steps to jumpstart growth in the core catalog. In July, he hired Williemae Conyers, a former Lands' End merchandising executive, as vice chairman of sales for the company's core catalog. Mr. Conyers had been president and chief executive of Eastern Mountain Sports Inc., an outdoor specialty retail chain based in Peterborough, N.H. Mr. Jon also admits that the core catalog had lost some of its focus. The catalog had traditionally sold items organized by merchandise lines, so readers wouldn't have to go to more than one section for dresses or men's shirts. Those lines had become blurred. The Virtues of Pima Though Mr. Jon says Lands' End still has room to make improvements, the company has tightened its merchandise lines in the core catalog and once again is concentrating on what it has to offer that is unique. It has supplemented this with bolder headlines and descriptions that make the catalog easier to shop. This, in turn, is increasing the number of sales per page, Mr. Jon says. ``Ahhh! This Interlochen Polo feels `soft as the hair of an angel' '' shouts a headline in the most recent core catalog. The copy goes on to describe that the polo shirt is made from ``Peruvian pima, the finest extra long-staple cotton in the world.'' Mr. Jon says it is this kind of edge he wants to emphasize in the core catalog. ``There are thousands and thousands of polo shirts,'' he says. ``But you can't go anywhere else to find a Peruvian pima polo shirt.''
