Bauer’s newest new approach

Now that Spiegel Inc. has yanked Eddie Bauer off the selling block and is committed to revitalizing the $1.3 billion business, many industry observers are waiting to see just what the company plans next for the brand.

As of mid-March, Eddie Bauer Holdings, as the new parent company will be called, was scheduled to emerge from bankruptcy on March 29 as a leaner, meaner version of its former self. The company will no longer be owned by Germany’s Otto GmbH & Co. but will be turned over to Spiegel’s creditors. And it will be headquartered in Redmond, WA, long Eddie Bauer’s hometown.

Eddie Bauer Holdings will also pursue a new strategic direction for its home products division, focusing on licensing agreements rather than operating its own stores and direct business dedicated to home. As a result, 34 Eddie Bauer Home stores will close.

The Eddie Bauer Home catalog will also close by the fourth quarter. But spokesperson Lisa Erickson says the company, which mailed 9 million copies of Eddie Bauer Home in 2004, will mail 7 million copies of the book through the end of the third quarter. The Eddie Bauer Home Website will remain in operation as a liquidation site.

Cindy Fields, the former president/CEO of Victoria’s Secret Direct and now a New York-based catalog and retail consultant, applauds Bauer’s decision to exit the home business. “Eddie Bauer thought the solution to fixing and growing their business was to expand into the home category,” she says. But unless your existing business is going strong, expanding into a new category is generally a mistake. “It’s always more glamorous, more fun, more ‘sexy,’ to try something new rather than doing the hard, sometimes boring, sometimes tedious work of evaluating results.”

A brand identity crisis

Some believe that Eddie Bauer’s problems go deeper than its foray into rugs and lampshades. “The brand is comatose,” says Katie Muldoon, president of Tequesta, FL-based direct marketing consultancy Muldoon & Baer. “There’s no real identity that separates it from its competitors such as L.L. Bean or Lands’ End. Ask people on the street and most couldn’t tell you the brand stands for. That’s a problem.”

But Stan Fridstein, president of Westlake Village, CA-based consultancy Synapse Infusion Group, believes the Bauer brand still has “tremendous equity.” What’s more, the company is bolstering its merchandise talent, Fridstein notes. In recent months Bauer has hired apparel executives from brands such as J. Crew, Banana Republic, Tommy Hilfiger, and Ann Taylor. Fridstein believes this shows that the company is aware that its offerings have become bland over the years and are in need of revitalization.

Sales reflect the stale merchandise designs: In 2004, Eddie Bauer had revenue of $1.24 billion, about 75% from retail, compared with $1.42 billion for 2003. On the other hand, earnings before taxes and reorganization costs were $108 million in 2004, up from $102 million in 2003.

In part because it remains a sizable business, few if any are counting Eddie Bauer out, especially as it seems to be taking the right tack. “The best approach to fixing and/or growing a business is to strengthen the core business,” Fields says. “That is best accomplished by having a clear point of view, sticking with it, and doing disciplined merchandise analysis,” including, in the case of apparel, classification, silhouette, fabrication and price point. Retailers and direct marketers often overcomplicate the business, Fields notes. “Customers tell you through their buying patterns what they like and don’t like.”