Righting Blair Corp.

In its 97 years in business, Blair Corp. has been through a lot. The apparel and home goods merchant has gone from loose-sheet mailers to bound catalogs, from housecoats to careerwear, from targeting mature consumers to chasing baby boomers.

But after 14 consecutive quarters of sales declines, Blair needs to change its course. With new owner Appleseed’s Topco, which bought Blair in April, and new president/CEO Adelmo S. Lopez, who took over for retiring chief executive John Zawacki the same month, a new captain and crew have arrived, and they’re already working to right the ship.

“I think it best to begin by admitting right up front that Blair, relatively speaking, is the new kid on the block when it comes to catalogs,” Lopez says. “We began our transition from [loose-sheet] mailers to catalogs in the early 1990s. Looking back on it, we’d probably have to admit that the learning curve in this new arena was steeper than what we expected. In short, we didn’t master the art of producing catalogs before we were entirely dependent on it.”

As a result, as the loose-sheet mailers became a smaller portion of Blair’s business, the weaknesses of the catalogs became more apparent, he says. And when Blair tried to chart new territory with specialty spin-offs such as Crossing Pointe, a more fashion-forward women’s apparel catalog founded in 2000, and Allegheny Trail, a wholesale apparel business launched in 2003, “we diverted corporate attention away from our core at a critical time, just when the apparel market was softening.”

Indeed, after posting sales of $581.9 million in 2003, the Warren, PA-based merchant saw its revenue drop 15% in 2004, to $496.1 million, then another 8% in 2005, to $456.6 million. Last year revenue dipped yet again by nearly 7%, to $426.4 million. Some of the sales declines were expected, as the company reduced its unprofitable mailings and in 2005 closed Crossing Pointe and Allegheny Trail. In fact, those moves contributed to a leap in net income for 2005, to $31.5 million from $14.9 million for 2004.

But the bottom line eroded last year, to net income of just $216,000 for 2006. Officials cited a 5.7% rise in advertising costs for much of the decline; the company also admitted that its merchandising was in part to blame. During the previous few years Blair’s apparel offerings had strayed too far from the value-priced, basic offerings its customers had come to expect. Last year it had tried to overcompensate by offering more lower-priced separates and fewer suits and dresses, which generally have higher prices and higher margins. As Blair’s 10-K filing stated, “Management believes that competitive price point repositioning and increased offerings of lower priced tops and bottoms did not generate sufficient lift in units and orders to offset the drop in selling prices and average order value.”

“We lost a bit of focus on our core customer,” Lopez says. “We were trying some things, going a little younger, [trying] a couple of new catalogs, that took focus away from our core. That caused our sales to stop growing, and the decline started.”

New procession

A native of Honduras, Lopez joined Blair in September 2006 as executive vice president/chief operating officer/chief financial officer; he became president/CEO when Zawacki retired seven months later. Lopez, 41, is somewhat of an anomoly at a company that prefers home-grown executives. Zawacki, for instance, had joined Blair, then called New Process Co., in 1972 and became president/CEO in December 1999. Zawacki’s predecessor, Murray McComas, had been with Blair for 37 years. Lopez is just the fifth president in the history of the company.

Before coming to Blair, Lopez was group general manager, responsible for five strategic business units, at Russell Corp., a $1.4 billion manufacturer of athletic apparel and activewear. Before joining Russell, Lopez served as vice president/chief financial officer of Dole Fresh Fruit International, a $1.6 billion subsidiary of Dole Food Co., and was a regional vice president of Frito-Lay. Earlier in his career, Lopez held a series of executive positions in the Sara Lee Corp.

But given that Lopez has no catalog experience, some may question whether Lopez is qualified to run a mail order business. Lopez is indeed aware that some may perceive him as an unseasoned upstart: “Soon after I started at Blair, someone said, ‘Al, you haven’t been in the catalog space before. What makes you think you’ll be successful?’ People, strategy, process. We have great talent at Blair. Focus on the people. People are proud, and they want this company to be successful. They see the light.”

With his financial background, Lopez brings certain necessary strengths to Blair, says Stuart Rose, managing director of Wellesley, MA-based investment bank Tully & Holland. “He certainly has the numbers background to work the expenses, circulation, and category management that is required of any business.”

But though Lopez’s apparel background, courtesy of Sara Lee and Russell, is no doubt valuable as well, “the question is whether he is a merchant,” Rose adds. “The company needs a reason for its customer to buy the merchandise. I don’t see him as a style picker. He can probably control one, but having someone understand the tastes of where customers are today and predict where they’ll be a year from now, sourcing that at good prices, building a coherent line, and doing that consistently is what the company needs.”

David Solomon, co-CEO of New York-based investment bank Goldsmith, Agio, Helms, agrees that Blair will not be able to right itself without improving its merchandising, especially now that apparel — a notoriously tricky and fickle sector — accounts for 88% of the company’s sales.

“Apparel is all about style and trend, having the right collection, copy, and creative on the catalog side,” Solomon says. “That is the heart and soul of many retailers to me. That has to be the number-one issue Blair will ultimately have to deal with.”

Lopez knows that, and he says that Blair’s first priority is providing the right merchandise to the core customer. Although the company has tried during the past decade to court the youngest of the baby boomers, and even consumers in their 30s, mature buyers remain its core audience. According to its data card, the average age of the Blair customer is 55.

“We’ve gone around and talked to them and asked, ‘Why aren’t you purchasing the same way you used to?’” Lopez says. “A lot of it is because we’re not producing the merchandise they want.” Blair will concentrate on its core customers — those over the age of 55 — and offer them style, quality, and service. “Those are the keys to winning the hearts of this latest generation of Blair shoppers,” he says.

Indeed, improving customer service and back-end efficiencies is Lopez’s second priority. “Right now we can’t track customers’ orders, and we can’t tell them with certainty when an item is out of stock,” he says. “That’s unacceptable to shoppers today, and we need to spend the money at Blair to give our customer service reps the information technology tools they need to adequately serve our customers.”

The company also needs to step up its order delivery times, Lopez says: “Blair simply takes too long to get its products to its customers once an order is filled. Two-week Postal Service delivery times don’t cut it today.”

Blair is reviewing its circulation tactics as well. Instead of printing two 52-page catalogs, Lopez says, it might mail one 84-page catalog.

The company is even considering a return of the traditional envelope mailings — collections of single-sheet solo mailers that appealed to the senior citizens that traditionally accounted for the bulk of Blair’s customer base. Though Blair ceased mailing the loose-sheets in 2006, “they could come back,” Lopez says. “The impact of the postal rate case is causing us to look back at these. We’re going to work smarter.”

Enter Appleseed’s

Now that Blair is owned by Appleseed’s Topco, Lopez has more help getting the business back on course. “Appleseed’s Topco agrees with the plan and vision here,” he says. “We are in no doubt in a critical turnaround mode.” But considering that Appleseed’s Topco is “running other companies similar to ours, I feel very good, and I’m excited about the partnership.”

Appleseed’s Topco — a portfolio company of Golden Gate Capital — includes women’s apparel cataloger/retailers Appleseed’s and Draper’s & Damon’s, women’s clothing catalog The Tog Shop, apparel manufacturer/marketer Haband Co., outdoor-apparel mailer Sahalie, home goods title Solutions, and and home products and gifts cataloger Norm Thompson. Another Golden Gate portfolio company, Catalog Holdings, includes general merchandise cataloger Spiegel and women’s apparel titles Newport News, Venus Swimwear, and A.B. Lambdin.

Solomon of Goldsmith, Agio, Helms, says Blair is “almost a carbon copy” of Oakland, NJ-based stablemate Haband Co., which Golden Gate acquired last year. “They grew up at the same time in the same market, and Blair used to have the same loose-sheet fliers that Haband has,” Solomon says. “They moved to catalogs and fliers and then went to all catalogs.”

It’s interesting, Solomon adds, that Blair’s decline “coincided with that shift. It’s hard to change business models without a lot of testing.”

Nonetheless, Solomon is optimistic about Blair’s outlook “based on what I’ve seen Golden Gate do in the past. Blair could be a home run for them.” And if it’s not a home run, “Golden Gate is not afraid of making hard decisions.”

For his part, Lopez realizes the longevity of the brand and its historical significance, and he feels a responsibility to structure Blair for future success. “This company has been around for nearly a century, and there’s no reason for it not to be around for another century,” he declares. “We owe it to ourselves, to our city, to our customers, and to our new owner.”

The new Chainsaw Al?

When Adelmo Lopez arrived at Blair in September 2006, “we spent time declaring war on cost,” he recalls. “In week two after I landed here, our business was bleeding, but I didn’t feel, based on one-on-one conversations, there was a sense of urgency. So we got all the executive officers together, and I presented our interpretation of the business, including cost-reduction initiatives. We identified a significant range, $10 million-$20 million, to take out of the business.”

In a major initiative, Lopez consolidated the company’s returns center, which was 50 miles away in Erie, PA, into the home base distribution center. “We were renting space in Erie for about $400,000 a year,” Lopez says. “We had excess capacity here like there’s no tomorrow. So we consolidated.” And during the fourth quarter of 2006, Blair laid off 40-50 employees from its workforce of nearly 2,000. Lopez believes that more “rightsizing” looms on the horizon, though he won’t provide specifics.

“In 2003 our company invoiced $582 million, and to service those sales we had a fixed amount of general and administrative costs,” Lopez says. “We’ve lost a significant amount of revenue, and our fixed expenditures have remained the same. We haven’t adjusted our spending based on our ability to bring revenue into the business, and that is a recipe for disaster.”

He likens the situation to what happens in the average household when income is cut in half: “Your typical family will cut expenses — fewer restaurants, more home cooking. Blair is in the same situation. We simply have to cut expenses to survive.” — JT

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