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Reviving An American Icon

Reinvigorated Wards chain hopes new store prototype will help it emerge from Chapter 11 and rebuild its image. Three years ago, decorative accessories were virtually non-existent in the mass-merchandised furniture department at Wards stores.

Today, however, shoppers are finding a potpourri of accessories generously distributed throughout new vignettes that display Wards' more upscale furniture.

Better furniture is just one of several re-merchandised categories unveiled by the venerable retailer as its Chicago-based parent company, Montgomery Ward Holding Co., attempts to emerge from Chapter 11 bankruptcy. Wards is attempting to regain the middle-class shoppers it lost in the early 1990s.

The cornerstone of Wards' effort to return to solvency is a new prototype that debuted last September at three renovated Wards locations in Bloomingdale, Ill.; Las Vegas; and Towson, Md.

The prototype, combined with general cosmetic updates throughout the chain, is designed to rebuild consumer and vendor confidence while Wards awaits to learn its fate resulting from a bankruptcy court decision due this summer.

"The prototype is the essence of the strategy driving the new Wards," explains Roger Goddu, chairman and CEO of Wards. "It emphasizes the quality, value and style we offer throughout the store and demonstrates the excitement and vibrancy that is the new Wards."

Overcoming obstacles While Wards executives are high on the improvements, the shopping center industry is a little more hesitant to jump on the Wards bandwagon.

The bankruptcy has allowed Wards to cut many of its losses, mainly 63 poor-performing Wards stores that were closed from October 1997 through May 1998. These stores and an additional 40 stores under the brand names of Electric Avenue and More as well as Lechmere accounted for over 60% of the firm's 1996 operating losses.

Trimming the operation's losing parts hasn't renewed total confidence within the industry just yet.

"I'm not sure if I would have a lot of faith in the new Wards, especially if I was on the leasing end of a deal," says James Kaplan, managing principal of James Kaplan Cos. Inc., based in Highland Park, Ill. Before becoming an owner, operator and investor of retail properties, Kaplan at one time worked as an asset and property manager of centers in which Wards was a tenant.

"I certainly wouldn't refuse to look at a deal," he adds, "but then again, I'd look at it like I would any deal proposed by a company returning from bankruptcy. I'd be wary of items like kick-out clauses and other things that could be built into a lease."

With more than 90% of Wards' 291 stores serving as anchors at shopping malls or power centers in 36 states, real estate managers with vested interests are watching the comeback very carefully.

For example, Urban Retail Properties Co., the property management, leasing and development affiliate of Chicago-based Urban Shopping Centers Inc., a retail REIT, manages seven centers in which Wards stores are located. Urban also owns and manages one center anchored by Wards. In 1998, Wards closed two stores at centers managed by Urban Retail Properties.

"As owners and managers of real estate, we'd like nothing better than to see Wards pull out of its Chapter 11 next year," says James Czech, president of the development group of Urban Retail Properties Co.

Initial feedback favorable At the reopening of the store in Bloomingdale, Ill., last September, dozens of vendors from furniture, electronics, appliance and soft-goods companies saw a bigger, brighter and better-arranged Wards.

"The prototype is much brighter, more upbeat and fashion-forward than the older store designs," says Marc Fagot, president of Chicago-based Marc Marketing, a manufacturer's representative firm. "We're already experiencing reorders in less than two months with several of our vendors, so apparently the customer is responding."

Wards executives are indicating similar success. First-month sales for the three fully renovated prototype stores increased an average of 95% over September 1997 sales, according to Don Docken, senior vice president of merchandise presentation. Several categories, including furniture, home textiles, shoes and children's apparel, surpassed 100% increases.

It's not just the glitter of the new prototypes that's driving sales. Other stores throughout the chain with more modest updates have also benefited from the re-merchandising.

"The merchandise mix in those three stores is basically 98% of the products we're carrying throughout the chain," Docken notes.

The three prototypes were purposely chosen for their diverse geographic locations and retail formats. The Las Vegas store is one of the chain's few freestanding locations. The Bloomingdale, Ill., store is a two-level mall anchor tenant in a suburban Chicago mall, Stratford Square. The third location is a one-level anchor store in a power center, Towson Marketplace in Towson, Md.

While the prototypes were complete renovations costing more than $1 million per location, the rest of the chain's stores also received varying degrees of updates, depending on sales performances. Besides common remodeling updates, many stores' sales floors were expanded 10% to 20% by reducing backroom storage areas.

Those updates are already returning dividends. During the first six months of 1998, apparel sales were up 8%; soft goods, such as home textiles, increased 13% on a comparable store basis.

Except for a newly built store in the Hulen Mall in Fort Worth, Texas, where Wards will share anchor duties with Nordstrom and Lord & Taylor, no new stores are planned until the firm emerges from Chapter 11. When and if new construction commences throughout the chain, the 95,000 sq. ft. prototype will serve as a model for store design.

Emphasis on branding The main difference between the prototype and the older formats is the return to what executives term "oneness."

In the 1980s, Wards changed to a grouping of branded, value-driven specialty stores that were either freestanding or inside former department stores. Examples included Electric Avenue (electronics/appliances), Home Ideas (home furnishings) and Gold 'N Gems (jewelry).

The segmented approach was one reason for Wards' demise in the 1990s. Docken's in-house design and construction staff -- with assistance from two Park Ridge, Ill.-based architectural firms, Carroll Associates and Chipman Adams -- has returned the chain to the single brand name of Wards.

"The renovations and branding of the stores as 'Wards' is our strategy in separating us from the specialty-store focus we once had," says Docken.

Besides a drastic format change, the sales floor layout is decidedly different. Old designs utilized the jigsaw puzzle layout commonly found in traditional department stores.

The new layout uses the more contemporary racetrack design. By following the circular racetrack, customers are subliminally led through the store to find their destination department.

Along the racetrack, Wards can introduce customers to potential impulse purchases through eye-catching merchandising displays and signage.

The design also incorporates wide aisles, clear sight lines and easy navigation that provide customers with an efficient shopping experience while promoting cross-shopping.

"The merchandise is presented very well in terms of the layout," adds Urban's Czech, who attended the Wards prototype reopening at Stratford Square, a 1 million sq. ft. mall that Urban manages. "The lines look very clean, and their experiment with branded apparel looks very promising."

Special touches Another design change is increased signage that promotes each category's top brands. Touted in bold lettering throughout the prototype stores are such brands as Broyhill and Bassett (furniture); Admiral (small electrics and appliances); Jenn-Air, KitchenAid and GE (appliances); Farberware and Oxxo (kitchen accessories); and Cooking Classics (cookware). Education signage on each category and specific products have been added to enhance displays and dispense more customer knowledge.

Merchandising is updated with vignette-style displays, especially in the home furnishings area.

"In the past, you wouldn't have seen any of our lines in a Wards, because they really didn't do much with decorative accessories," adds Fagot. "But because they're cross-merchandising with vignettes, they need the accessories to complete the lifestyle look they're displaying. Their step-up in price points offers them the chance to sell better merchandise."

Another drastic design improvement is lighting. Previously, Wards stores were dark by today's industry standards.

Docken's department has taken great strides to nearly double illumination from 35 to 65 foot-candles while trimming lighting energy expenditures by 20%. Re-fixturing and re-lamping with more energy-efficient products accomplished this feat.

Similar to its strategy of retaining only top-performing stores, Wards is strengthening its viable categories and discontinuing products that performed poorly in the past.

One example is computers, which routinely produced sales upwards of $50 million, but with declining margins due to intense competition, Wards has discontinued the category.

On the other hand, the furniture category has always been a strong producer of sales and margins. That, combined with a continued rise in consumer spending for furniture during the past two years, prompted Wards to treat the category more seriously than in the past, says Docken.

Historically, Wards has massed furniture together by item, but the new merchandising thrust is toward room settings that create entire bedrooms, living rooms and dining rooms in a wide range of styles.

"Over the past year, we have significantly upgraded and expanded our housewares and home furnishings departments, making Wards a destination for everything for the home," says Goddu. "These merchandise initiatives and our improved design, fixturing and display all come together in the Wards prototype."

Reaching out to customers With the new prototype comes a new targeted demographic and price point structure that will capture an audience of women age 30 to 55 with annual household incomes of $25,000 to $50,000. Wards hopes to fill what it sees as a void in quality and price points lying between the department stores on the high end and the discounters on the low end, says.

Internal improvements have been drastic during the bankruptcy protection and restructuring. Among the improvements:

* Stock levels have been bolstered.

* The headquarters staff has been downsized.

* A new "Kick It up a Notch" customer-service program was instituted at the store level.

* Store manager turnover was reduced by 40% while field management was upgraded.

Additionally, Wards has taken an introspective approach. The firm identified its targeted demographic base and performed some 3,000 customer interviews to better understand customers and shopping patterns. Wards' field management team participated in surveys to determine internal perceptions of Wards' assets, most common customer complaints and ways to improve field service.

Wards also measures customer service in every store every week through a third party that makes 5,000 calls weekly to recent Wards customers. Another 1,600 calls are made weekly to measure the effectiveness delivery services.

Reshaping its image If Wards emerges from Chapter 11 sometime in mid-1999, as company officials expect, the firm will continue its long-term goals of mainly winning back consumers who stopped shopping at the store in the 1980s and 1990s. Anchoring this effort is a new, $10 million television advertising campaign, "We've Changed Everything To Change Your Mind." In the TV commercials, everyday consumers are asked to guess the retail outlet that sells the furniture they're sitting on. The culmination of the commercial displays their surprise that Wards sells such high-quality merchandise.

"I like Wards' new advertising strategy," Kaplan concedes, "but would it bring me in as a shopper? I doubt it because I wasn't a Wards shopper before."

The re-examination, advertising and general new store look is beginning to reap rewards. After more than 10 consecutive quarters with negative earnings before interest, taxes, depreciation and amortization (EBITDA), the company expects to record a positive EBITDA in the fourth quarter of 1998. Moreover, the company expects a positive EBITDA for the entire year of 1999, if sales continue their upward swing.

Wards isn't the only stakeholder in the company's bid to reposition itself for the future. Says Czech, "As (shopping center) owners and developers, we have to hope for their comeback because they're anchoring a lot of our malls."

Wards' rich retail history one of highs and lows The revitalization of Wards is important to the history of American retailing. Wards is one of the few remaining retailers from the bygone days of the late 1800s that spawned many retail entrepreneurs.

Aaron Montgomery Ward founded the company on the principle that Americans were paying high prices for shoddy goods. In 1872, he quit his traveling-sales career to pursue the strategy of selling quality merchandise by direct mail. Essentially, Ward founded the catalog industry by distributing a single sheet that listed 163 items.

Throughout its 100-plus-year history, Wards has reached many milestones. In the 1875 catalog, Ward was the first to introduce the "Satisfaction Guaranteed or Your Money Back" policy that has since become a retailing staple.

Its first freestanding retail store opened in 1926 in Plymouth, Ind.

A Wards copywriter, Robert L. May, contributed greatly to American culture by developing the character and story of "Rudolph the Red-Nosed Reindeer" for company executives who requested something new and different for Santa Claus to hand out to children.

After 1968, Wards experienced several mergers and ownership changes starting with the merger with Container Corp. of America. The merger was later sold to Mobil Oil Corp. in 1974.

In 1985, the firm discontinued its catalog operations and unveiled its specialty-store format. The initial success of the specialty-store strategy led to a $3.8 billion leveraged buyout by senior management in 1988, the largest management-led buyout in U.S. history at the time.

But as competition increased in the 1990s, company profits eroded and sacrificed the needed store remodeling and systems upgrades that is essential to sustain growth.

The firm eventually filed for Chapter 11 bankruptcy protection in July 1997. Today, Wards is a wholly owned subsidiary of closely held Montgomery Ward Holding Co., which is leading the historic American chain's attempted emergence from bankruptcy protection.

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