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Hanover directs new growth plan

Andrea Lillo -- Home Textiles Today, December 16, 2002

Edgewater, NJ — Though still refining its growth strategy going forward, management insists that Hanover Direct has come a long way since nearing finanical disaster two years ago — when Tom Shull joined as president and ceo.

"We were perilously close to insolvency," he said recently at company offices here. When he arrived, the company had an $81 million loss in 2000 and an estimated 22 businesses.

To "stop the hemorrhaging," Hanover was forced to consolidate staff (with 30 percent of the work force let go in January 2001) and distribution. The retailer also moved its headquarters and divested itself of non-core businesses to focus on a handful of brands.

Now that the shedding is over, the retailer "has the best annual performance in profitability since 1994," Shull told HTT. The company has more focus as well, he added, now that only five core brands — Domestications, The Company Store, Silhouettes, Gumps, and International Male and Undergear — nest in its portfolio.

And its financial picture is much improved. The company no longer has to rely on outside financing, he said. "We have a strong cash position moving forward."

The company is projecting a loss of $4 million to $6 million for this year, while it expects to return to the black in 2003, forecasting $4.1 million in net income.

With a more stable financial picture coming into focus, Hanover can redirect its aim on other growth vehicles, such as the Internet, brand extensions and partnerships.

Two months ago, the company merged its Domestications and The Company Store divisions to leverage the merchandising, marketing, inventory control and finance functions of the groups, as well as to reduce redundancies. The division is now called The Company Store Group, and is headed by "two fine leaders in the industry," said Shull: John DiFrancesco, president, and Farley Nachemin as chief merchandising officer, The Company Store, and president, Domestications, reporting to DiFrancesco.

"It was done from a practical point of view," said DiFrancesco. "It brings merchants with years of experience together. I think we have one of the top merchandising teams in the industry."

Together, both catalogs generate $300 million in sales and account for 60 percent of the 191 million catalogs mailed out by the company this year. While Domestications covers the moderate/upper moderate market, The Company Store is the company's better assortment.

The new division also will allow merchants to "cross-pollinate ideas," and give its buyers more clout in the marketplace, said Nachemin. "Vendors see opportunities to grow and to gain a broader share of market."

Many of those same vendors will be given larger orders to accommodate the two brands, even though the brands differ in quality. "They will still need 'x' amount of fabric," said Nachemin. And from the buyer's point-of-view, it makes sense to buy for both brands, he added.

Executives stressed, however, that the distinct brands will not be altered and each brand will still have its own catalog and identity. "It's taken a long time to build brand identity," said DiFrancesco. The Company Store, for example, has been in business since 1910. Said Shull, "We have a loyal customer base. We won't lose sight of what we've created."

Building the brands will continue, and the retailer is constantly on the lookout for additional businesses to support the books, Nachemin added. Domestications has recently expanded its assortment in such decorative accessories as rugs, gifts and wall art, for example, he added, and the outdoor living/garden category will grow this coming spring. The Company Store has deepened its offerings in furniture and rugs.

The holiday season has already started off strong, said Shull. Both Domestications and The Company Store have been helped by the recent cold weather with items such as down.

According to Nachemin, combining forces will only strengthen the company's position in the marketplace. "It's significantly hard to make noise" in the apparel business, he said. "There are so many apparel brands out there." Hanover remains focused on the home arena, however. "We are dominant in the home furnishings business."

The company is looking to spread this dominance to other areas, such as juvenile. Launched last year, The Company Store-offshoot Company Kids is now its fastest growing brand, with a 30 percent increase in sales over last year. "It goes from top-of-the-bed, which we're known for, to the entire room, with furniture, wall hangings," said DiFrancesco. "It has a real warmth to it, a total room concept."

The company has upped the number of merchants dedicated to this book from one to four. Online, Company Kids currently is nestled within The Company Store's site, but executives plan to launch a separate website at the end of next year.

Due to the rapid growth of Company Kids, Nachemin added that Domestications is working on a similar strategy itself, and he is hopeful that it will begin testing something next year.

Executives also remain committed to superior levels of performance and have sought consumer feedback to help ensure those standards. "Quality, style and service are absolutely vital," said DiFrancesco, making reference to its "outbound" program, in place for about two years. A dedicated staff will follow up with about half of its customers that have made a purchase, asking about their experiences. DiFrancesco said that the staff usually leaves messages on answering machines because many customers are out during the day, and he is astounded by the number of return phone calls. "We get a phenomenal amount of callbacks."

Formerly on the block, its Gump's division is doing "much better," Shull said, adding that it has generated much more traffic at its San Francisco store by implementing in-store shops. Baby Gump's, which launched this fall with its own in-store boutique and which consists mostly of textiles, has performed solidly so far. Other shops, such as outdoor living and food, are planned for the retail store as well.

The majority of catalog retailers find the Internet a fine complement to the books, and Hanover is no exception. The volume of its Internet business has grown 24 percent this year and e-commerce is expected to produce $100 million in sales next year.

"Catalog will always be an important and core business, but as time goes on the majority of sales will come from the Internet," said Shull. "The best opportunities lie in the Internet, and not in retail." The Internet strategy has many facets, including Hanover's own recently renovated sites. It has also generated partnerships with affiliates to promote its brand, forging deals with Amazon and AOL. Launched a little over a month ago, the Silhouettes, International Male and Undergear brands have performed very well on Amazon's site, said Shull, and the company is in discussion with Amazon for the home brands.

Not only do the affiliates generate brand awareness, but they drive incremental sales as well, DiFrancesco added.

Scandia Down, the luxury down brand manufactured by Hanover, is another part of the business that is growing. It's opened more shops within the past year than it did in the previous five years, Shull said. It is positioned above The Company Store and Domestications in quality, as the best part of the good, better, best strategy. Its website, now informational only, will eventually become commercial as well.

Hanover still provides third-party Internet services — a large part of its strategy several years ago — though now it only looks at partners on a case-by-case basis, said Shull.

Hanover maintains high aspirations for its catalog businesses. "We believe we will be better than Lands' End home," Shull said.

"Our whole commitment is to direct marketing," he added. "We are a full-time direct to customer firm."

DiFrancesco added, "It has all started to come together."

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