July 7, 2015
Ashley Stewart: A Plus-Size Business That Can't Be Kept Down
By DAVID MOIN
At the Secaucus, N.J., headquarters of Ashley Stewart, executive chairman and chief executive officer James Rhee flaunts the brand's proprietary "butterfly bra."
"I call it the 'iron lung,'" Rhee said. "It's a big bra — an H cup with double straps. Sometimes it takes two people to put it on, but it really works. We have a patent on the construction."
It's a bestseller at the plus-size retail chain, one that Rhee believes exemplifies the renewed state of the company. After years of neglect, two bankruptcies in just over three years, and close to 100 store closings, Rhee told WWD that Ashley Stewart is on a growth path, making money and trying to innovate.
A week before, as a guest speaker at LIM College in Manhattan, he spoke openly to the students: "I'm not a merchandising expert," he said. "I never operated a retail company. I think I am the least qualified person to run the business."
Nevertheless, he invested in Ashley Stewart, explaining, "I really thought this business stood for something good. I wanted to be part of it. I was proud of it. It celebrates people's differences. It's a demographic that doesn't have as many advocates as it should. She wants fashion. She wants to look good." And a lot of times, he added, "Money comes from doing the right thing."
Rhee was born in New York City to parents who immigrated from Korea. He grew up in East Setauket, Long Island, went to Harvard College, taught at a boarding school in Springfield, Mass., and supervised a dormitory there, and later entered Harvard Law School. He passed the New York bar but never practiced law, though while in law school he took business courses. Later, he joined the mergers and acquisitions group at Merrill Lynch and then held senior level investment positions at J.W. Childs Associates. He left J.W. Childs to form his own investment firm, FirePine Group, when he was approached to help turn around the private equity efforts of GB Merchant Partners, the investment management affiliate of the Gordon Brothers Group liquidation firm. After he left GB Merchants Partners, Gordon Brothers approached Rhee to help salvage its Ashley Stewart holding.
"I came to Ashley Stewart in August 2013 and told everyone, 'I'm here to help you.' That's the teacher in me." He thought he would spend six months there, but it's already been two years. Rhee found himself getting attached to the employees and the brand. He works at a desk in the middle of an open floor space rather than in a private office, accessible to other senior executives who have desks next to his.
"I studied the brand, got to know the people and I always thought that plus-size was an untapped industry," Rhee said. "Ashley Stewart was a very old-school 'garmento' retail operation with a corporate office that was disconnected to the stores. I'm not sure the business ever made money. It was a failed business model. What they didn't mess up was the brand and the customer loyalty." Despite decades of operating losses, "I thought this brand had a real place in the world. The business, however, had to be reinvented."
And downsized. Rhee took Ashley Stewart into bankruptcy in August 2013, shut down close to 100 of the 186 stores and eliminated about a third of the corporate positions.
The company emerged from bankruptcy in April 2014, with Rhee's FirePine Group and certain members of Ashley Stewart management becoming significant minority owners. Clearlake Capital became the majority owner. "They backed my vision — it was a group that I had a long relationship with and knew my track record," Rhee said.
After the bankruptcy, he overhauled Ashley Stewart's senior management, recruited back chief merchant Kristen Gaskins from the now-defunct Loehmann's; relocated headquarters from a dingy warehouse to a 24,000-square-foot space in a tree-lined corporate park; outsourced distribution to a third party so the team could concentrate on what it knows better, and added the Demandware platform for e-commerce.
After studying customer behavior, Rhee said he rewrote algorithms for the underlying inventory planning and flow, and the promotional and floor set cadence. He established a digital marketing strategy with a focus on mobile-delivered, social media-driven e-commerce. Ashley Stewart's "Love Your Curves" campaign launched early this year, bringing stylists and model searches to stores around the country. Also this year, a sexy lingerie collection, Dare to Bare, was introduced.
Currently, iPads for store managers to view floor sets pre-arranged at headquarters and to conduct Web transactions are being tested, and bandwidth is being added to improve communications between managers and the central office. A store prototype with an updated, residential ambiance that accommodates new technology will be developed this year, and wholesaling the Ashley Stewart brand to department stores and international franchising are being considered.
"We are heavily investing in stores," though no new ones are planned, Rhee said. "We need to make sure the prototype is right. It's too soon to open any, but we will open stores again."
The company sells sizes 12 to 26, is sportswear-driven, and puts out a major floor set monthly occupying the front third of the stores (which range from 3,000 to 3,500 square feet) as part of the effort to turn merchandise quickly. Product isn't bought in depth, to support higher turns, and the company does not engage in high-low pricing, Rhee said. The majority of the assortment is moderate priced.
Of the stores closed, most were in malls. The remaining 89 are primarily in strip centers and on streets in ethnic, urban areas such as in Bedford Stuyvesant, Brooklyn, at 1222 Fulton Street. It's the chain's original store. Ashley Stewart was launched 24 years ago by developer Joseph Sitt, who needed to fill some space in his urban properties and saw plus sizes as an undeveloped niche. Zitt came up with the Ashley Stewart name by dropping the first names of Laura Ashley and Martha Stewart. Ashley Stewart at one time had 380 stores in about 100 cities. Sitt divested his interest in 2000 to concentrate on urban real estate through his company Thor Equities.
Total company sales are expected to exceed $140 million by yearend, with e-commerce representing 33 percent of the volume and growing rapidly, according to Rhee. Many plus-size women feel self-conscious in stores and prefer to shop at home and are fed up with how retailers typically relegate plus sizes to remote corners of their stores. Eighty-five percent of the clientele in the stores is African-American; online it's 55 to 60 percent African-American. "The brand lends itself to social media and digital," Rhee said. "Customers want to talk about products and get support and affirmation about how they look."
He said operating profit is in the "double-digit millions" and that Ashley Stewart is "very comfortably net income positive." The company is debt free, has "a war chest of cash" and an undrawn revolving line of credit, Rhee added. Though he feels connected to the brand and its employees, as an investor, one day he'll put the company up for sale. "If and when it is sold, I want it to be put into good hands."
Despite formidable competition from Lane Bryant, Catherines, Macy's and Target, Rhee says Ashley Stewart has its own niche. "We're a fashion business. Our DNA is about empowering women, and providing bold, sexy fashion. A lot of these other companies cover up [women] and are more basic. We're fashion," with Rhee citing boot-cut, five-pocket and skinny jeans, belted dresses with slits, and linen rompers among the store's bestsellers. "We say, 'Look at me.' Our store has chutzpah and I like saying it."