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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) Sept. 11, 1999
LANDS' END, INC.
(exact name of registrant as specified in its charter)
DELAWARE 1-9769 36-2512786
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification Number)
of incorporation)
Lands' End Lane, Dodgeville, Wisconsin 53595
(Address of principal executive offices) (Zip Code)
Registrant's telephone number 608-935-9341
including area code
INFORMATION INCLUDED IN THIS REPORT
Item 5. Other Events.
Attached as exhibit 99.1 to this report is a summary edited
transcript of remarks made by Lands' End at the Goldman Sachs
Sixth Annual Global Retailing Conference held on Sept. 11, 1999
in New York and at the William Blair Seventh Annual Specialty
Retail E-commerce Consumer Research Conference held on Oct. 11,
1999 in Lake Buena Vista, Florida.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, its duly authorized officer and
chief financial officer.
LANDS' END, INC.
Date: November 1, 1999 By: /s/ STEPHEN A. ORUM
Stephen A. Orum
Executive Vice President &
Chief Financial Officer
Exhibit 99.1
Following is the edited transcript of remarks made at the Goldman Sachs
Sixth Annual Global Retailing Conference held on September 11, 1999 in
New York and at the William Blair Seventh Annual Specialty Retail
E-commerce Consumer Research Conference held on October 11, 1999 in
Lake Buena Vista, Florida.
Presenters:Dave Dyer, President & Chief Executive Officer,
Lands' End, Inc.
Lee Eisenberg, Executive Vice President & Creative Director,
Lands' End, Inc.
Statement regarding forward-looking information
Statements in this document that are not historical are forward
looking, including, without limitation, statements about goals for
Internet sales, anticipated cost savings, and possible circulation
reductions and their anticipated effects on sales or profits. As such,
these statements are inherently subject to a number of risks and
uncertainties. Future results may be materially different from those
expressed or implied by these statements due to various factors that
may occur. Such factors include, but are not limited to the following:
general economic or business conditions, domestic and foreign;
continued growth rates for e-commerce shopping; the company's ability
to attract customers to the Internet; technology developments and their
availability and cost; customer response to product offerings and
initiatives; costs associated with printing and mailing catalogs,
dependence on consumer season buying patterns; the ability of the
company to complete its Y2K programs; and fluctuations in foreign
currency exchange rates.
Presentation
It's great to be with you today and be able to share with you our
thoughts on today's challenges and future opportunities for Lands' End.
Chip Orum, our executive vice president and CFO, is also here today and
will be available during the Q&A.
I was asked to return to Lands' End as president and chief executive
officer just about one year ago, after a four-year absence. When I
returned, I found Lands' End to be a much more complicated business
than it was when I left. I found there were many new challenges, some
old challenges, but mostly great opportunities before us. In fact, I
can think of few apparel retailers as well positioned to capitalize on
e-commerce as Lands' End.
For years, Lands' End had thought of itself as one of the largest
catalog companies in the United States. And we are. We are ranked as
the 11th largest U.S. catalog company -- and when compared exclusively
to clothing catalogs, Lands' End, with fiscal 1999 sales of
$1.4 billion, is the largest.
However, we are not thinking of ourselves today in the same way we have
in the past. We are much more than simply just a catalog company. Our
label says it all -- Lands' End Direct Merchants. And our vision is to
be the premiere global Direct Merchant -- direct in our proprietary
brand merchandising and direct to the customer through multiple
channels of distribution: catalog, Internet, Corporate Sales and
International. We want each of our customers to have the best possible
shopping experience, whether they phone us, fax us, mail their order to
us, or come to us over the Internet, or a combination of these
channels. And more and more, with the tools available over the
Internet and through systems enhancements, we can get closer and closer
to a true one-to-one relationship with each Lands' End customer. To
that end, we are rapidly emerging as a major e-commerce player, and we
plan, over the next few years, to achieve a significant part of our
sales via the Internet.
However, as we began the metamorphosis from a U.S. catalog company to a
global direct merchant -- an emerging e-commerce force -- we have had
many challenges to overcome. We needed to freshen our merchandise
assortment, to freshen our creative presentation, to reduce inventory
to appropriate levels, and organize to support our business globally
through multiple channels of distribution.
We've been busy since I returned to Lands' End last November. I will
briefly touch on the many changes that have taken place, but in times
of change, it's very important to hold fast to basic principles. The
way we treat customers, the way we treat our employees, our commitment
to quality and value, the fairness in all our dealings -- personal,
honest interaction with others -- these are the foundation for Lands'
End. They will stay the same.
This past January, we reorganized Lands' End by function to support all
channels of distribution. This was a big change for us. Previously,
everything was organized around self-sufficient business units,
specifically around the core and specialty printed catalogs. This
caused conflicting corporate goals and inhibited Internet growth.
Our new organizational structure allows us to focus our efforts more
efficiently, eliminates duplication of efforts, reduces our expenses,
and allows us to accelerate our e-commerce channel and improve the
cohesiveness of all our brand marketing.
During the fourth quarter of last year and the first two quarters of
this year, we have concentrated on bringing our inventory levels down
and clearing out the old merchandise that will be replaced with new
fresh styles. In order to do this, we took price rollbacks, and we
mailed additional full price and clearance catalogs with steeper
markdowns. These price reductions and rollbacks have had a negative
impact on margin, but we do anticipate, through better sourcing, to
have substantial margin improvement in calendar year 2000.
We're quite pleased with our inventory at this time, both in quality
and quantity. As a matter of fact, this August we began the Fall
season with $120 million less inventory. That was 40 percent less than
the previous year, and our initial fill is currently above 90 percent,
which achieves our standard for excellent customer service.
It was no secret that the Lands' End product and creative were in need
of an update, and we're making great progress. Lands' End is, after
all, a merchandising company. We need to make sure that all our
products are of exceptional quality -- styled right, colored right,
priced right, and presented right.
We've brought on a tremendous amount of merchandising, design, and
creative talent in the past six to nine months. They are smart and
savvy, with the experience and knowledge to take us to another level.
We also have great people already on board. I believe our top
management group is just what we need -- strong leaders with strong
backgrounds -- good people with enthusiasm and a passion for our
business.
I will quickly review our merchandising and creative progress to date.
The new products, colors and styles that are just now finding their way
into our print pages and Web site are hitting the mark with our
customers. This cashmere sweatshirt, for example, which we featured on
the back page of our September core book, topped $1 million in sales.
There are several things driving the success of our new offerings, not
the least of which is a dramatically improved color palette for this
fall and beyond -- lots of heather and neutrals that are finding great
favor with so many customers. We're just now beginning to see the
introduction of a great many new products with the right contemporary
styling, such as this three-quarter-sleeve, stretch white shirt -- The
Great White Shirt -- which was featured on our September cover and
which will do about $1 million dollars in sales.
Also, in September, we offered side-zipped, stretch Chinos, which
provided us with an inside spread worth about $1.5 million. We'll have
this cashmere twin-set featured on the back cover of our November
catalog.
Looking forward to early next year, you can expect to see some
excitement and energy spent on how we approach our men's business:
special covers, new departments, and fresh creative presentations.
Specifically, we are putting significant resources behind what we think
can and will be a Lands' End franchise -- defining the art of business
casual for men and women in the rapidly changing workplace.
Beyond our improved merchandise, we are well on our way to improving
Lands' End's creative presentation with as much imagination and
intelligence as we can muster. Even in our most recent books, I hope
you can see the difference a more varied pacing can make in a catalog,
from conventional pages to non-conventional pages, from small pictures
giving way to large ones, crowded pages to simpler ones, and so on.
The result is a more involving experience from cover to cover.
You'll also be seeing a more refined, cleaner design and more customer-
friendly layouts, where our shopper can find what she wants in a
graphic environment that's more fun to browse, with livelier pictures
and varied layouts.
Regarding the Lands' End cover -- Each one should have all the
hallmarks of a great poster. It should surprise, delight, provoke,
entertain, stimulate. Just look at this group of covers: The Last
Splash of Summer; the Great White Shirt cover of September, a personal
favorite for many of us; our October book, where we're offering a
terrific new outerwear product at an unbelievable price. For November,
the first of our holiday catalogs, we've pictured our rendition of
Santa's Holiday Express, and we'll be showing beautiful Partridge in a
Pear Tree artwork on our Christmas cover for December, behind which
will be even more great surprises. To close out the season, our Last
Chance Before Christmas catalog will have covers featuring two famous
individuals disguised as our mystery Santas, giving our customers a
little fun in guessing their true identities and registering their
guess on our Web site.
I'd like to say a word or two about another Lands' End tradition,
running first-class editorial in our books and on the Web and
integrating these efforts into our selling pages.
Bruce McCall, a contributing writer at the New Yorker and Vanity Fair,
wrote a spread for our July catalog: The Thinking Man's Guide to
Wearing Hawaiian Shirts. Robert Hughes, the renowned art critic for
Time magazine and best-selling author of "Shock of the New" and other
books, wrote an exclusive piece on fly-fishing this past summer. And
beginning in November, we'll begin a three-month series of highly-
moving essays to mark the passing of the century: "Letters Across
Time," in which nine great writers share reflections large and small
about what's on their minds as we head into the 21st Century.
In December, the core catalog, in addition to great clothing, we'll be
delivering a specially designed calendar dedicated to how we can all
celebrate the last month of the century in true style. Think of it
also as a programming guide to landsend.com. It will contain recipes
for great holiday cookies, the words to selected Robert Frost poems,
and gift ideas for the postman. We believe it will drive a lot of
traffic to the site.
We'll be also running a 12-page gift guide, our best of the best for
this season, which we'll also mail as a stand-alone piece to Web
customers. And in our December Kids book, we'll be recognizing some of
the kids in this country who have done wonderful things as volunteers,
a program we'll continue further into the year.
And beginning in early spring, we'll introduce a new series -- Lands'
End Now -- a timely almanac of useful tips and products, and a series
of profiles of fascinating Lands' End people.
While it's a bit early to reveal our advertising plans for the year
2000, I do want to review what we've been up to this year. Basically,
we've run a print and video campaign to underscore Lands' End's role as
Direct Merchants and the pre-eminence of our Web site.
We placed print advertising in nearly three dozen national publications
that are upmarket, upscale, publications where affluent and intelligent
readers are. We ran full page ads and partial page ads -- all with the
message, "From the Catalog to the Web, the store is Yours," or "The
Web Site that Fits You." We also festooned buses in New York City
this past July, and we're coming back again pre-holiday. Look for them
when you're in New York. And for seven months, every day of the week,
we've run spots on a variety of cable networks. In all, we're producing
a total of seven distinct television ads this year.
At this point, I want to bring you up to date on what we're doing with
our circulation for this fall season and what we expect as a result.
Over the last two fiscal years, we increased the number of catalogs we
mailed by 22 percent and the number of pages mailed by 38 percent. In
the fourth quarter of fiscal 1999, circulation was greatly increased in
our efforts to liquidate inventory. In the last half of this current
fiscal year, we plan to reduce page circulation by about 20 percent to
eliminate unprofitable mailings and to manage the transition from print
to e-commerce.
As a result, we expect that sales for the last half of the year may be
flat compared to the prior year, particularly in the fourth quarter,
but we also anticipate that this change in circulation should have a
positive impact on our profitability rate by reducing SG&A expenses.
Circulation adjustments are important to realize the economies of
e-commerce in the future. This Fall we are implementing extensive
tests to help determine the frequency of mailing, size of mailing, and
content of mailing to our Internet customers.
We have some real advantages in migrating customers to our Web site.
For many, cannibalization is thought of as "bad for business." Even
traditional retail companies that have recognized the importance of the
Internet must still make large investments in direct-to-consumer
infrastructure and rationalize competing against themselves. This is
not true for Lands' End.
We do not have the investment or the continuing fixed costs of our
"bricks and mortar" competition. And this channel shift from catalog
to Internet, due to significantly lower ad costs, has the potential to
be more profitable. We have a relatively low-cost operation that runs
more efficiently and cost-effectively as volume increases.
I am not going to try to validate or invalidate any current Internet
market caps. I am sure there will be some big winners and some big
losers over time. I do know that there is always value to being first
and dominant in a category.
Lands' End's Internet business is profitable now. And I believe that
to be profitable in the future, profit must be planned from the
beginning. I also know that Lands' End has a business model that has
great SG&A leverage as we complete our metamorphosis from a U.S.
catalog company to a global direct merchant.
As I said, for many companies that are embracing e-commerce as a
defensive, market share strategy, cannibalization is a bad word.
However, for Lands' End, cannibalization equals better profits. From a
strategic point of view, we are looking at the Internet as a positive,
offensive opportunity from two standpoints: the opportunity for growth
and the opportunity for SG&A efficiencies. In the next several years,
we expect to have a significant portion of our sales from the
e-commerce channel, and we expect to improve our total profitability as
a result.
In our opinion, a retailer must possess several important attributes to
be successful in e-commerce. First, the company must be a recognized
brand that has a "trust relationship" with its customers. Brand
recognition can be established and the customer can be acquired at
great expense, as many e-companies are doing, or it can be crafted and
meticulously honed over many years as Lands' End has done.
PC Data Online recently published a report stating that familiarity
with a retail name is the number one reason in deciding which on-line
clothing site to shop. No wonder landsend.com was at the top of
apparel sites in their survey.
Reputation and trust, however, can only be earned one customer at a
time and one customer encounter at a time. Lands' End has a big
advantage in this area. We already have a 29 million name customer
list; more than 10 million customers have purchased from us in the past
three years; and more than 6 million customers have purchased over the
last 12 months.
Others, whether they are pure Internet plays or traditional bricks and
mortar businesses, need to build their customer lists just for
starters. The investments needed to acquire customers are quite
sizable. I have seen recent figures that indicated a range of
acquisition costs of $15-$100 per customer for Internet companies.
This huge asset for Lands' End is not even reported at cost on our
balance sheet, let alone stated for lifetime value.
Secondly, to be successful, I believe that a company must sell
proprietary products in a meaningful market segment with sufficient
margin to become profitable. Proprietary product provides
differentiation and helps protect margins from the price wars and
store-to-store, site-to-site comparisons. Apparel sales, our segment,
totaled $177 billion in the U.S. alone last year, and, of course,
apparel is a comparatively high margin category.
Finally, direct-to-consumer infrastructure and technology. Lands' End
has the right infrastructure in place. We are well known for our
friendly, knowledgeable telephone operators who are now seamlessly
integrated into our web site. Our distribution center sends out more
than 150,000 orders on the busiest days with close to 100 percent
accuracy. We efficiently handle returns. And, we can monogram your
shirt or custom hem your pants. When it comes to taking orders,
picking, packing, and shipping product -- Lands' End is about as good
as it gets.
I believe there are opportunities for SG&A efficiencies as we shift a
significant portion of our business to the Internet. We do know that
our catalog and Internet businesses are not totally separate. We are
well aware that our catalog mailings have a definite impact on Internet
sales, and we believe that this multiple channel distribution is a
strategic advantage for Lands' End. If you look at a graph of weekly
Internet sales for the first half of this year, you will see a series
of peaks. The peaks correspond to the in-home delivery of our monthly
catalogs.
We embrace this migration of our customer from the catalog to the
Internet as being good for our business, as it allows us the potential
to improve SG&A by lowering our advertising costs and marketing expense
and by obtaining variable expense advantages. However, we will not get
cost benefits without addressing how we circulate our printed catalogs
to our Internet customers. We believe there is a 500 to 800 basis
point difference in SG&A for the Internet sales channel versus the
catalog sales channel. How much of this differential we can realize
will depend upon two factors: the percentage of our business conducted
over the Internet, and the degree to which we can adjust circulation of
the printed catalog.
If you look at a directional charting that would be indicative of our
challenge, it would show what may result if we do not adequately
adjust catalog circulation plans as sales shift more and more toward
the Internet. You would see that the catalog SG&A expenses as a
percent of sales could balloon as this shift occurs. Our challenge is
to determine the optimal role for the catalog in order to manage our
SG&A ratio downward. As I said, we have already begun extensive
testing to move us in that direction.
If you look directionally at SG&A performance as our Internet business
grows, you would see that the SG&A ratio on the catalog side of the
business may increase. However, on the e-commerce side of the
business, it should be lower and drift downward as our business shifts
toward the Internet. As this happens, we believe that the SG&A savings
for the combined businesses could be several hundred basis points.
Potentially, we will have the added advantage of being able to realize
a reduction in our SG&A expenses as we increase Internet sales, due to
lower ad costs and lower variable operating costs.
I'd like to give you a quick update on the Lands' End web site before I
close. Sales from the Internet in the most recent fiscal year were
$61 million, more than triple those of the prior year. And there were
15.6 million visits to our site.
During the first half of the current fiscal year, Internet sales ran
about two and one half times those of last year, and there have been
just over 14 million visits to the site. The average order value at
$100-$105 is about the same as we see for the catalog. We currently
have all our products on line, and that totals more than 80,000 SKUs.
We continue to see that the Internet is bringing new customers to
Lands' End, as about 20 percent of them are new to our housefile. And
once a shopping basket is started, about half of them are resulting in
a sale.
We have three major Internet developments this Fall, and just a few
weeks ago, we had what has been the biggest news to date for
landsend.com. First, we've gone live with a comprehensive site
redesign that makes it easier to navigate and more fun to shop our Web
site. Second, we've introduced two new revolutionary features
exclusive to Lands' End: Lands' End Live, whereby you can talk or chat
with a live operator while you shop our site, and Shop With a Friend,
another exclusive feature that will prove to be a dynamic new way to
cybershop with family and friends.
Each of these innovations has been a first in our efforts to
personalize our e-commerce customer's shopping experience and give it
the friendly communication style that our phone operators are known
for. Our newest TV ads that we are running on cable TV focus on these
two features.
And last, on the international side, our newly redesigned Web site for
Japan will soon be launched, and we plan to have our Web sites in both
the United Kingdom and Germany up and running and selling product in
November.
As you have seen, many of these changes deal with improved navigation,
globalization, and most importantly, personalization -- getting close
to the customer, making the shopping experience fun and easy.
In summation, I want to reiterate that the catalog will always be an
important part of Lands' End. Compared to the Internet, the catalog
has its own advantages. It's easier to browse, you can take it
anywhere, and it continues to bring many new customers to the Lands'
End file. More importantly, we have a very large group of dedicated
customers who prefer to shop the catalog and phone in their order, and
that's just fine with us. We are basically channel agnostic.
But the Internet also has many advantages that the catalog does not
have. There are personal services and features that we believe add
value. For example: Your Personal Model, Oxford Express, our Suit
Finder for swimwear, real-time personal shoppers, personal reminders,
registries, and calendars. These can be provided at less expense on
the Internet and are next to impossible to deliver in a catalog or even
a bricks and mortar environment. As we move to real one-to-one
marketing, the Internet is going to be the best bet in town. I believe
that's what we need to do to get customers and to keep them. That's
how, over time, we will increase profitability and realize meaningful
returns on our investments.
Back in the early '80s, we embraced technology and the 800 number and
became the premiere catalog company that we are now known as. Today we
have an equally exciting chance to embrace technology and the Internet
and emerge as a premiere e-commerce direct merchant. That is both our
opportunity and our challenge.
Thanks for spending this time with us. I hope you'll stay tuned.