Next up for J. Jill: retail

Having grown sales nearly 158% in three years, from $85 million in 1996 to $219 million in 1998, women’s apparel cataloger DM Management is ready to conquer another sales channel: retail. The company (to be known as The J. Jill Group as of May 25 to better reflect its primary brand) plans to open 10 stores in 2000 and up to 50 stores by the end of 2001.

“We believe retail will eventually represent three to four times the size of our catalog business,” says Gordon Cooke, president/CEO of DM Management, which mails the Nicole Summers catalog as well as J. Jill. In fact, Cooke believes that within two years after opening the first J. Jill store, the retail division will account for nearly 15% of the company’s overall business.

Next year, DM Management will test 10 J. Jill stores in malls and as stand-alone establishments. The first stores will be near the company’s Hingham, MA, headquarters so that “we can keep an eye on the operations while we get our feet wet,” Cooke says. A nationwide retail rollout is expected by the end of 2000.

Each 6,000-sq.-ft. store will carry the same apparel, shoes, and accessories as the catalog. Retail customers will be able to order out-of-stock items from the catalog while in the store via an interactive kiosk or through a retail sales rep, and catalog customers will be able to return merchandise to any retail location. “We want the ordering process to be as seamless as possible,” Cooke says, “giving customers the choice to order through the catalog, Internet, or retail.” To that end, in July the company will launch a J. Jill Website, which will be fully transactional by October-five months before the first store is slated to open.

Even with just one sales channel, DM Management has grown rapidly. Income rose 115% last year, to $8 million from $3.9 million in ’97. And while the Standard & Poor’s 500 index rose 26% from December 1997 to December 1998, DM Management’s stock rose 69%, from $0.48 to $0.81 per share, during the same period.

The J. Jill brand, launched in 1987, has been driving DM Management’s recent success. The catalog sells moderately priced casual apparel, nearly all of it private-label, to women 35-45 years old with an average annual income of $50,000. (By comparison, the Nicole Summers catalog sells tailored and formal apparel to an older, more affluent audience.) And while J. Jill accounted for just 10% of the company’s sales in 1995, last year it made up 81% of DM Management’s total revenue, or $177.4 million.

“DM Management has a unique opportunity with a brand that far exceeded anyone’s expectations,” says Kelly Armstrong, equity analyst at Richmond, VA-based First Union Capital Market. “When we started following the company, we considered it a catalog consolidation-type company [akin to International Cornerstone and Hanover Direct], but it’s really become a branded company instead. The company would be foolish not to fully leverage the strong J. Jill brand through retail.”

Retail risks DM Management has already overhauled its warehouse and customer service computer systems, which Cooke says can handle a $1 billion business, and has built a distribution center able to accommodate a $500 million business. The company will operate a central inventory system for both the catalog and stores.

But plenty of challenges remain. For one thing, while the J. Jill catalog mails every six weeks with at least 60% new merchandise, the stores will have to add new product more often “to get the retail shoppers to come back,” Cooke says. Pricing issues may also come into play: An item may go on sale in the store to make room for a newer product, while the same item may sell for full price in the catalog.

And Armstrong adds that the cataloger, like J. Peterman, could find it difficult to translate its catalog’s lifestyle-type creative execution-which DM Management contends sets it apart from competitors-into the retail environment. “Retail doesn’t allow for the creative focus that catalogs can,” she says.

Establishing nexus, or physical presence in a state, is another potential problem for catalogers venturing into retail. Catalogers are required to collect and pay to the local governments the use tax of any localities in which it has nexus. (Because of its four outlet stores, DM Management has already established nexus in New Hampshire and Pennsylvania as well as in its home state of Massachusetts.) “Sure, establishing nexus will have an impact on our bottom line, but until the government comes up with an uniform use tax, we’ll have to deal with it,” Cooke says. To offset the additional taxes, the company plans to build three or four stores in some states. “Ultimately we’ll have to determine the level of business in that state and see if it offsets the impact of nexus.”

Then there’s the possibility that, rather than bring in additional revenue, stores will simply cannibalize catalog sales. But Cooke doesn’t buy into that theory-in fact, he believes that catalog sales will increase as a result of the retail initiative. “Having stores where there’s a hub of catalog activity only increases our brand awareness,” he says. “And if each store generates $3 million, it would take more than 100 stores to cannibalize the nearly $300 million we’re already doing in catalog sales.”

Continuing to sell off its non-sports-related titles, Secaucus, NJ-based (formerly Genesis Direct) announced that $84.8 million Concepts Direct has signed a letter of intent to buy music-related gifts catalog The Music Stand. Terms of the deal were not disclosed. Concepts Direct produces gifts and stationery catalogs Colorful Images, Linda Anderson, Snoopy Etc., and Linda Anderson’s Collectibles. The company plans to merge Music Stand’s merchandising, marketing, customer service, and fulfillment into its Longmont, CO, headquarters.

This is Proteam’s third divestiture in two months. On Feb. 3, it sold its $32.6 million Sportime unit to Appleton, WI-based educational supplies marketer School Specialty. And in March, Proteam announced the sale of collectibles cataloger Lilliput to its original owners, Justus Bauschinger and Stephen Singer.