By Alexia Elejalde-Ruiz
HOFFMAN ESTATES, Ill.
Claire’s, the mall staple and prolific ear piercer, has in its sprawling suburban Chicago headquarters a “wall of fame” with the celebrities who have trusted it with their earlobes.
Brooke Shields, pierced in Scottsdale, Ariz., 1994. Jennifer Hudson, Calumet City, Ill., 2014. MC Hammer, Las Vegas, 2003.
So famous is Claire’s for its ear piercing that the accessories retailer historically hasn’t done much to promote the service, CEO Beatrice Lafon said, and that’s one of the things she’s changing as she works to right the company’s rocky fortunes.
“Usually people focus on what you’re not good at and try to fix it,” said Lafon, who has been called a turnaround specialist in the European trade press. “That’s not how I work. I look at what you’re good at to make it excellent.”
Since taking the helm of Claire’s 14 months ago, Lafon, previously president of Claire’s Europe, has tried to help Claire’s regain its footing as queen of tweens with a strategy that involves both a return to its core strengths and an embrace of the vastly changed ways girls shop.
Among her major initiatives: refocusing products to cater to the under-12 group that traditionally was a strong audience for Claire’s, and opening Claire’s-branded concession shops inside Toys R Us stores to reduce its reliance on mall traffic.
Lafon faces an uphill battle littered with challenges that have hurt many retailers that serve the young and fickle, including competition from popular fast-fashion chains and shifting priorities that have diverted teen dollars from sparkly bangles to sleek tech gadgets.
On top of that, Claire’s has a substantial debt load that makes it all the more pressing that it improve its performance.
Claire’s, which was taken private in a highly leveraged $3.1 billion buyout by private equity firm Apollo Global Management in 2007, has $2.4 billion in debt, with a maturity coming due in 2017.
Lafon said the 2017 maturities are small in the total debt structure and the company is profitable. The company, which in late 2013 had begun steps for an initial public offering, has put aside those ambitions for now while it focuses on improving its numbers.
Standard and Poor’s in April downgraded Claire’s corporate credit rating to CCC, meaning the company is vulnerable and dependent on favorable business conditions to meet its financial commitments. Claire’s should seek refinancing next year before the $259.6 million in senior secured notes become current, but it may have difficulty doing so if its performance doesn’t improve, said Mariola Borysiak, associate director at Standard and Poor’s. If it can’t refinance, she said, it may face restructuring. Her outlook is negative.
Claire’s, which reported revenues of $1.49 billion last year, earlier this month announced a disappointing quarter after a tough year. Its first-quarter revenues dropped 9.4 percent, while sales at existing stores, which excludes the effect of newly opened or closed locations, declined 1.9 percent in North America and 3.6 percent in Europe. Its net loss narrowed to $35.4 million from $38.1 million the prior year. Operating income improved.
Average transaction value declined. Claire’s juggles 8,500 SKUs, which stands for stock-keeping units (aka product) with an average price of $6.02. The average transaction value in fiscal 2014 was $15.53.
The financial difficulties have stemmed from a number of factors, including unfavorable foreign currency exchange rates in Europe, lost sales from inventory that got held up in the West Coast port slowdown and the unpredictable impact of crazes. Its European results, in particular, could not match the big sales boost last year from the mad rush for Fun Weevz, kits of colorful mini-rubber bands that weave together to make jewelry.
“We would have loved for it to become the Lego for little girls, but it did not,” Lafon said. “It might be another 10 years before another craze comes along.”
In addition, jewelry, which makes up more than half of Claire’s sales, hasn’t been in high demand since 2012, part of the nature of the fashion cycle. To offset the downtrends, Lafon is introducing new categories. A few that tested successfully in the first quarter, and that she plans to expand to more stores, include candy, bath and body, and room decor.
Lafon, who has launched new promotional strategies, refreshed product assortments and decluttered store presentations, said consumer signals in the last few months point to the business getting healthier.
“I can’t wait for the numbers to prove it,” she said.
Lafon, 55, talked in a conference room at Claire’s headquarters wearing an elegant Max Mara dress and a blonde ponytail of fake hair, so seamlessly blended into her own that you wouldn’t have known it if she hadn’t pointed it out.
“We have to wear our hair,” laughed Lafon, a native of southern France, who also wore chandelier earrings and a large flower-shaped ring from the company’s stores.
A petite woman with an easy smile, Lafon had been leading Claire’s Europe from its UK headquarters for three years when she was tapped to take over for former CEO James Fielding, who resigned after two years. The company did not give a reason for his departure.
Lafon said she hesitated “for maybe three seconds” before she made up her mind.
“I don’t take on a role if I don’t think I can make a success of it,” said Lafon, who counts among her proudest successes her short stint as CEO of discount British department store TJ Hughes, where she was brought on to sell the struggling company and did so in 12 weeks.
In addition, as a divorced mom of a young son, Lafon had to uproot from their home in England.
Lafon and her son, now 8, settled into a home with the two full-time nannies who have lived with them for five years. Lafon, who calls herself a high-energy and decisive person, described a work-packed schedule, leaving her with four hours of sleep a night, and frequent travel around the globe to visit stores and suppliers.
Claire’s, as of the start of May, had 2,983 company-owned stores and 443 franchises in 47 markets worldwide.
When she took the reins, Lafon said the most immediate challenge was consolidating the three business units, Claire’s North America, Claire’s Europe and Icing, the company’s brand for 20-something women.
“For me it was like Groundhog Day,” Lafon said. “I would have three meetings with three different teams, where two-thirds of what I was seeing or looking at was what I had just done in the previous meeting.” All of the senior management, buying and merchandising is now centralized in Hoffman Estates. More than 100 jobs were cut, she said.
With the realignment, Claire’s next year plans to launch four distinct collections for its four distinct target age groups: 3 to 6, 6 to 12, 12 to 18 and, at Icing, 18 to 35.
Also a priority was to open new sales channels. Claire’s has stores in 90 percent of U.S. malls, which have seen fewer footsteps as shoppers are pulled online.
Claire’s is on track to open 450 branded shop-in-shops this year, half of them in the U.S. in Toys R Us stores and the other half in Europe in several retail chains. It also is experimenting with selling its items wholesale to retailers and is investing in its e-commerce and mobile selling platforms, including developing an app, after being late to the online game.
Claire’s slow adoption of an e-commerce site, which didn’t launch in North America until 2011 and in Europe until 2013, stemmed from the thinking that their young customers don’t have credit cards and therefore don’t buy online, Lafon said. But what the company failed to appreciate is that online is where those young customers spend much of their time and it was necessary to be there and on social media to communicate with them, she said.
“We were failing to reinvent ourselves for the 21st century, failing to change with the times, and quite frankly got left behind by the customer,” she said.
As part of its efforts to be cool again, Claire’s recently announced a back-to-school campaign featuring YouTube stars Alli Simpson and Teala Dunn, who together have 2.5 million Instagram followers, in partnership with AwesomenessTV, a teen-focused media company majority owned by DreamWorks Animation. (Former CEO Fielding became head of retail at AwesomenessTV following his departure from Claire’s, which Lafon said is coincidence.)
Claire’s, which dates back 54 years to a Florida wig shop, for decades grew through acquisitions of other accessories companies in the U.S. and abroad, and by the ’90s its fluorescent scrunchies and body glitter were ingrained in the teen fashion conscience.
The recession that hit just after Claire’s purchase in 2007 by Apollo took its toll, and like many of its retail peers Claire’s saw sales slide during the economic downturn and slow recovery. But a few strategic missteps may have worsened the situation, Lafon said.
For example, the company shifted the focus away from the under-12 age group that had been Claire’s core audience and tried to appeal to an older teen market, Lafon said. It filled stores with more handbags and leather goods and fewer licensed products, candy, makeup kits and small novelties for little girls.
“It was a risky strategy,” Lafon said, “because it was moving away from our core and our heritage and moving into a space where there was a lot of competition. Who doesn’t service the 16- to 18-year-old today?”
In addition, Lafon said, Claire’s, whose tag line is “Where getting ready is half the fun,” had stopped having fun.
“We became very dry, very structured, not who we are,” she said.
Restoring Claire’s fun, through joyful employees and joyful products, is part of Lafon’s strategy to turn Claire’s around.
A successful product for Claire’s, which designs 90 percent of its merchandise in-house, has to have four factors, of which Lafon revealed one: “It makes me smile.”
Analysts who follow Claire’s hope Lafon’s strategies start to bear fruit so they can smile too. Evan Mann, an analyst at Gimme Credit who has been optimistic about its prospects, is watchful.
“If these things don’t gain traction in the second or third quarter,” Mann said, “I’m going to be worried.”