Sue Olmscheid tears into the hulking UPS boxes, pulling out items soon to be on display at the Lillians Shoppe in St. Paul. Tattoo messenger bags, animal-print luggage, small purses with flower accents, oversized handbags with big buckles.
"Love it!" squeals her sister and business partner Cindy Deuser, bouncing like a child on Christmas morning. "You wouldn't think we just saw this a week ago in New York."
Operating in a retail world where orders are placed months in advance and high-tech distribution centers track new products with precision, the two founders of the Lillians Shoppes franchise are turning norms on their heads. Top brands? Forget it. They sell "designer inspired" purses and accessories. Convenience? Nah. Their stores are open just four days a month.
At a time when the nation's recession is crippling many retailers, the Plymouth-based chain of trendy handbags and accessories is expanding beyond its Midwestern base. By May 1, Lillians will have opened its first franchises in Texas and Colorado, for a total of 28 stores in seven states.
The sisters have grown the chain at a steady six or seven stores a year since opening the first Lillians Shoppe in 2005 in Buffalo, Minn. Lillians became a franchise operation a year ago and incorporated all but the Buffalo and Waconia stores, which the sisters own separately. Last year, the stores posted sales of $3.3 million, said Olmscheid, 45, who handles operations and finances for the privately held company. Deuser, 50, a former recruiter for Target designers, is the CEO and self-described "visionary."
Lillians' unusual business model is as much the reason for its success as is the duo's seemingly bottomless well of energy.
Stores are located in suburban "main street" areas with restaurants, movie theaters or beauty salons nearby. They're stocked with purses, which range in price from $30 to $50, as well as jewelry, wallets and scarves.
Deuser anticipates trends by scouring European fashion magazines and tracking celebrity styles. She obsessively fills a three-ring binder with ideas on color, style, silhouette and fabric and brings it on monthly buying trips to New York. They've come to know their vendors' tastes -- bringing along Ghirardelli chocolate or Minnesota Wild items -- and vice versa. Vendors routinely hold back selling certain handbags to give Deuser a chance to see it first.
Merchandise gets shipped directly to stores with such speed that "sometimes it beats us home," said Olmscheid. Though drop-shipping can get expensive, the just-in-time inventory model provides the business with the flexibility to keep fashion fresh and to turn away quickly from duds.
Such newness keeps customers coming back. "We're frequent buyers," said Lucy Rogness, 51, a furniture sales rep from Minnetonka, who made her usual foray to the Hopkins store earlier this month with her daughter, Cassie Bohmbach, a preschool teacher. The women spent $120 on four handbags, with Rogness getting a freebie using her "buy 10, get $30 off" punch card.
Asked whether she's cutting back to cope with the recession, Rogness cracked: "Food, yes. Handbags? No!"
Lillians hasn't been immune to the nationwide slowdown, but store owners say sales have been more resilient than at national retail chains. Patti Winger, who owns the Lillians Shoppe on Grand Avenue in St. Paul, attributed it to the "lipstick" effect, where women splurge on small, affordable luxuries for themselves despite the tough times.
You won't find designer-labeled handbags, but the essence of Jimmy Choo, Chanel or Hermès is there. Deuser sees a distinct difference between the "designer-inspired" items sold at Lillians and the counterfeits and illegal "knockoffs" that can be found online and at some home sales.
Deuser and Olmscheid have become more sensitive to this point since attorneys for Coach Inc. threatened to sue the company for trademark infringement. Coach, which sells luxury leather wallets and purses, demanded in a Nov. 26 letter that Lillians destroy all merchandise that was "a 'replica' or 'inspired' by any Coach product."
Deuser and Olmscheid refused, and in December filed a defamation suit against Coach in Minnesota's U.S. District Court, seeking more than $75,000. The case is pending.
Sherry Evans, one of three owners of the 2-year-old Hopkins franchise, said she often covers her monthly lease bill before the doors even open to the public by hosting trademarked "Diva Nights." The private events -- class reunions, weddings or birthday parties or simple gatherings of friends -- give attendees a first crack at the merchandise the week before the four-day sale. Free hors d'oeuvres and salon services from nearby businesses are part of the event. "Diva Night" organizers pocket 10 percent of the sales.
"Only being open four days a month creates scarcity," said David Brennan, of the Institute for Retailing Excellence at the University of St. Thomas. "It's not too different from the old Tupperware parties. It's a socializing deal as much as it is about the product."
Kevin Quinn, whose StyledLife store in Edina sells exclusive designer merchandise with a price tag to match, had no harsh words for Lillians' faux-fashion wares. A former fashion director at Nordstrom, Quinn praised Lillians for its "laser focus on customers ... and strong point of view." At stores, Frank Sinatra and Dean Martin croon on overhead speakers, shop owners clang a cowbell anytime a man or new customer enters the store, and the supply of cookies and lemonade never drains. Owners sometime dress in theme costumes and offer cheers and hugs to shoppers they know by name.
"When people go into Lillians, they have an authentic experience," Quinn said. "Creating experience isn't about having a key brand. It's about being focused on your value proposition and solving whatever problem your customer has."
Lillians may be expanding, but the outlook for retail franchises will be among the hardest-hit sectors in 2009, according to the International Franchise Association (IFA). The group expects 2.1 percent of retail-related franchisees to go dark this year, taking with them more than 560,000 jobs.
Only one Lillians -- at Xerxes Avenue and 50th Street in Minneapolis -- has ever failed, the owners said. Experts warn that successful franchisors can put the business at risk by growing too big, too quickly.
"Growth in and of itself is innocent," said Terry Hill, the IFA's vice president of publishing. "But it gets complicated when you start looking at logistics of trying to help franchisees in 10 states, let's say. I've heard people put it in military context: You can't let the franchise outrun your army."
Despite the headwinds, Deuser and Olmscheid are pushing forward. They're launching a new occasional store concept for men and women, Moon Goon, next month in Buffalo, that their sons will run. Meanwhile, six Lillians Shoppe franchises have opened this year, and the company plans to hit a dozen by year's end -- half of its pre-recession plans.
There seems to be no lack of interest in the queue. At least 10 potential new owners, from such untested states as Florida, California and Kentucky, are signed up for the company's next franchise meeting, which it calls "Passion Day," on May 15. There's also a waiting list of 100 women who want to open stores in Minnesota, Deuser said. With 17 stores open in the state -- a Minneapolis one close at hand -- they plan to open only a handful more.
Deuser and Olmscheid personally screen candidates, a labor-intensive process to ensure that new owners fit the corporate mission.
Aside from business basics, the sisters look for women who will support the business districts in which the Lillians stores operate and who can put personal relationships above profit. Lillians franchisee owners are known for giving away handbags to lift spirits if there's an illness in the family or someone gets laid off.
"We want to do this strategically, so business owners can live the dream we're living -- and that is, to own a business, and to change women's lives," Deuser said. "That's what it's all about."
Jackie Crosby • 612-673-7335