Jan. 20: Wilson Leather: Reversing field

In late November, the Wilsons Leather store in Edina's Southdale Center quietly closed and was quickly replaced by a hip, new leather-accessories store. Filled with bright lights, enormous fashion posters and airy displays of designer handbags, you'd hardly know that the store, named Studio, is owned by Wilsons.

And that's just the point.

"We're testing some things," said Wilsons the Leather Experts Inc. board Chairman Michael Sweeney, whose private equity firm sank $35 million into the struggling retailer last summer. "One of the things we're testing is not having Wilsons Leather on the door."

Wilsons has been trying to pull out of a free fall that has seen its stock tank from $23.50 a share in 2001 to less than a dollar today. Same-store sales were down 12.5 percent in December. Its fiscal year-to-date sales of $295.5 million are down 13 percent, compared with the same period last year. (Its fiscal year closes at the end of the month.)

"I don't go into Wilsons anymore," said Elizabeth Hanson of Eden Prairie.

"I think of them as heavy leather and old-fashioned. It's not the stuff I'm into now," Hanson said while shopping at Southdale.

Hanson's often-shared view is not lost on company officials, who are in the midst of overhauling the Brooklyn Park-based chain. The strategy is largely about de-Wilsons-izing the chain of 411 stores in 45 states. Gone are rows upon rows of leather coats. Accessories are now the main offering, with a goal of making them account for 70 percent of merchandise mix in mall stores by year's end, up from about 40 percent now.

And the Wilsons Leather brand has for the most part been replaced by coats and handbags from designers such as Kenneth Cole, Calvin Klein and Nine West.

The hope is that designer handbags such as Kathy Van Zeeland and Guess can draw in younger shoppers and reposition Wilsons as a trendier place to shop. The shift away from outerwear is meant to mitigate seasonal fluctuations. A new handbag is always in season.

Whether to keep Wilsons Leather on the door is still undecided. The bulk of the stores will -- for now. Southdale's Studio store is one of just two such stores around the country. Two others that look the same as Studio, but are named Wilsons Leather, have also been opened. Management is closely watching the results.

And while the Studio store may or may not stick around in its current form, early results appear positive. People are drawn by the bright lights and colorful displays, according to company surveys and store personnel.

"We're definitely attracting a younger and trendier woman," Studio store manager Denise Oscarson said. "People who would have walked by the store before are coming in to check us out." And people are staying longer than they did at the old store, she added.

"Maybe, eventually, you just have to get rid of the Wilsons name," said Eric Beder, an analyst with Brean Murray Carret & Co. in New York. "People don't think of Wilsons as a fashion destination. I think it's a somewhat tired name that connotes things the company isn't trying to be anymore."

'The customer has voted'

Wilsons traces its roots to a hide and raw-fur business launched by three brothers in 1899. The company, which became Berman Buckskin, has survived the Depression, multiple wars, buyouts, acquisitions, layoffs and expansions.

It may be at another crossroads now.

Since August, the company has been slashing prices on its name-brand leather to make room for designer coats and jackets. By November, those designer brands were outselling the Wilsons Leather line 3-1, officials said. As CEO Mike Searles opined during the company's third-quarter results call with analysts, "We're proud of our [Wilsons] brand, but it is clear the customer has voted."

Part of the struggle for Wilsons is that leather isn't just a high-end fashion niche anymore. Cheap leather abounds. Shoppers can find steals on stylish leather coats at Target, Kohl's and J.C. Penney.

But while many stores now sell leather coats, far more sell handbags. Macy's, Bloomingdale's and other department stores carry Calvin Klein, Nine West and other designer handbags, wallets, jewelry and sunglasses.

With Wilsons' combined 1 million square feet of retail space in malls, outlets and airports nationwide, Sweeney is convinced that the specialty retailer can do a better job of displaying and promoting designer brands than what he describes as the "pile high and let it fly" approach of department stores.

Sweeney, a managing partner at private equity firm Goldner Hawn Johnson & Morrison, took over as Wilsons chairman in August. He said the department store industry has consolidated to the extent that designer names are looking for alternative forms of distribution, hinting that a deal is in the works, though he would not elaborate.

"There's no shortage of brands talking to us about selling their products," Sweeney said, noting an exclusive deal that Tommy Hilfiger made recently with Macy's. "There's a great opportunity here to be a nationwide retailer of women's accessories, where the product is treated with great respect and is recognized for its emotional value."

Turning a company upside down, particularly one that already is faltering, isn't easy. And the heavy markdowns that were begun this summer have cut into the bottom line.

It continues to operate with a net loss of about $20 million, as of Nov. 3, a loss that has widened by 43 percent since the same period last year.

But the company has been buoyed by the $45 million investment in June from Sweeney's Goldner Hawn and two previous investors, Quaker Capital Management of Pittsburgh, and Peninsula Investment Partners of Charlottesville, Va., which put in $5 million each.

"This is a tough time to change horses midstream, with the economy being what it is and consumer spending so tight," said Stan Pohmer, a Twin Cities retail consultant. "Trying to change your image in the marketplace takes a long time to do. Sears has been trying to do that since 1976. It begs the question, what's the point of differentiation from everybody else that's carrying a Calvin Klein jacket?"

The next year could be key.

"In some respects, they can limp around for a while longer, given the cash infusion they got," said Beder, the Wall Street analyst who has been reporting on Wilsons stock for years. "But the bottom line is this company has to restore some level of why consumers should care."

Jackie Crosby • 612-673-7335