Can Bebe Stores Fashion a Comeback?
Just a few years ago, Bebe Stores Inc. churned out figure-hugging fashions that had people—including financial observers—turning their heads in admiration.
Now, the former high flyer—Forbes named it one of the 200 best small companies in 1999—has some people shaking their heads in disappointment over its dismal sales results.
With its 178 stores in 30 states and Canada, the Brisbane, Calif.- based retailer and designer of contemporary clothing has posted consecutive same-store-sales decreases for the past 15 months and has watched its sales per square foot fall 12 percent in 2002 from a year ago.
Indeed, it’s been a frustrating, albeit busy year for the $142 million company, which announced a new fashion concept, witnessed a talent departure and split its operation. As a company in transition, executives say the fruits of their labor will ripen in the long term.
“We’ve planted a lot of seeds and those seeds will grow into trees and provide shade—I’m comfortable with that,” said John Kyees, Bebe’s chief financial officer. “We’re still making money when the comps aren’t wonderful—that’s the best of both worlds.”
The challenge facing Bebe today is twofold: “getting their fashion right and re-acclimating their customer,” according to Amy Noblin, a retail analyst for Banc of America Securities.
Bebe’s top priority is staging a return from casualwear to what it does best-–career and dressier clothing that resonate with stylish 20- to 30-year-olds. Bebe veered off course about two years ago when the denim business took off and it began moving away from the career category.
“That hurt them—their average transactions haven’t been as high,” said Liz Pierce, retail analyst at Wedbush Morgan Securities.
The transition isn’t an overnight process, though. In a sales warning issued Nov. 27, Kyees said customers from prior years had not yet “rediscovered” Bebe’s new focus and sales would drop in the mid-teen percentages in December.
Bebe is also in the midst of getting its production house in order. It began the year by moving its production team from its Northern California headquarters to a downtown Los Angeles 22,500-square-foot space in the Cooper Building, joining its existing design crew, which has been in Los Angeles since 2001.
The strategy has yet to pay off. Bebe’s vice president of manufacturing, Jamel Bennoui, a former director of production and sourcing with Victoria’s Secret, quit in December, after barely three months on the job. Taking his place as interim director of production is Paul Mashouf, son of the company’s founder, Manny, and a 14-year veteran of the business. His most recent roles were manager of production and information technology director of supply chain management.
“The transition of our production team has definitely had some hiccups, and we think we’re getting it in shape with our new leadership,” Kyees said.
Paul Mashouf will devote part of his job to revamping production, the main reason Bennoui was hired. Bebe has outgrown its capacity at local mom-and-pop factories, leading to delivery glitches, such as faulty sewing on suit jackets. Bebe now plans to move a portion of its production offshore, most likely to Asia, where it can streamline its efforts. It already produces 10 percent of its line overseas and hopes to increase that to 50 percent.
“I believe it’s a margin opportunity and it’s an opportunity to be competitive in our pricing,” Kyees said.
The company’s revolving door hasn’t inspired confidence. Along with Bennoui, Bebe’s president, John Parros, resigned after less than two years on the job. Head designer Monah Li also left in 2001 after only a year.
Pierce attributes the drain to poor fit, especially under the direction of the elder Mashouf.
“Manny is very hands-on, and perhaps, there wasn’t room for Parros and others,” she said.
Even Kyees has signaled that a president may not be in the cards for Bebe.
“We’re evaluating the position and we’re not certain if we’re looking for a president or a chief merchant,” he said.
Still, Bebe’s future isn’t bleak. It’s got zero long-term debt, about $127 million in cash and has rolled out new ventures.
The recent launch of Bebe Sport, a casual line of clothes and stores, has led to the debut of five stand-alone stores and 16 in-store boutiques. Next year, 10 more stores are planned, including a unit at the Shops at Mission Viejo in Southern California opening by June.
If the causal trend loses its fervor that could hurt Bebe Sport, but the less-dressy looks have introduced Bebe to a younger customer who may grow up with the brand.
“It appears that Bebe can go into about 350 malls and we think Bebe Sport can be a 500-store chain,” Kyees said, noting that the stores are already performing ahead of expectations.
Another morale booster for Bebe was its recent appellate win in a lawsuit against May Department Stores Co. preventing the St. Louis-based retailer from using the name “Be” on its private label clothing line for young women. Bebe will now seek damages for sales it claimed it lost due to the confusion.
The buzz Bebe creates also keeps it in good stead as malls actively pursue the retailer as a tenant.
“They’re in the majority of our centers and they’re very well-received by our customers,” said Arlene Kukowski, vice president of leasing for Westfield Corp. Inc., which operates 63 centers in the United States. “We look forward to making them a bigger part of our portfolio.”
