Avenue’s Long Road To Success
Avenue has reformatted its strategy to appeal to customers. Now, with a new way of doing business and plenty of cash, the company plans to open 30 to 50 stores per year.
Randall Shearin

Avenue is a growing retail chain that is embarking on an aggressive store-opening program. By opening approximately 30 to 50 stores per year over the next few years, Chairman and CEO Raphael Benaroya and Senior Vice President of Real Estate Aaron Fleishaker have their work cut out for them.

Shopping Center Business recently met with Benaroya and Fleishaker at the headquarters of United Retail Group, parent company of Avenue, in Rochelle Park, New Jersey, about 15 miles from Manhattan. While there, SCB also toured the company’s offices and got a feel for how Avenue has changed its way of thinking.

A Limited Concept

Avenue prefers to locate in strip shopping centers in trade areas that have 150,000 people or more.

Avenue was started as a retail chain under the umbrella of the Limited. In 1989, Benaroya was running several of the Limited’s businesses, including Avenue, Lerner Woman and Sizes Unlimited. A strategic decision was made to do a leverage buyout of the group. The Limited, Lazard Freres and the company’s management purchased the concepts in late 1989, and began operating the stores under the name United Retail Group. For several years, the company operated as it had under the Limited umbrella, but more independently guided from management. In 1992, United Retail Group went public, creating an excellent return for the three original investment parties. In 1993, a secondary offering cleared out all debt from the company’s books and started its growth. Management made a decision to reinvest any profits into the company’s growth agenda, and has done so ever since. Over the next few years, as it expanded, the company blended all of its concepts into one store, Avenue.

“We did that to make the Avenue a powerhouse in its customer niche and category,” says Benaroya.

Turning Around

Inside an Avenue store. The company plans to open 30 to 50 new stores per year.

By the late 1990s, Avenue had hit a plateau. Its leadership made several long-range decisions that would eventually turn the company into a new retailer. By the late 1990s, the company realized that rather than creating a specialized retailer, Avenue had built a network of stores that were competing with Kohl’s, Target and the big department stores.

One of the customer’s issues with the store was that, in order to create an outfit, she had to coordinate together a number of separate pieces in the store. Most customers weren’t willing or didn’t have time to do that.

Rather than outsource design, Benaroya made the decision to bring it in house in 1998 and create color palettes and pieces that could be worn separately or as an ensemble so that shoppers could get an entire outfit for one price, or buy the pieces separately. Walking in the store and seeing the slacks, blouse, blazer and sweater that were coordinated, was a distinguishing characteristic from the department store.

Avenue looks for population growth when looking at new markets. The company is boosting its presence in Washington, D.C., Texas, Florida and California, as well as other growing markets.

Another issue was infrastructure. Avenue had continued to open stores from 1999 to 2003, even when the company felt it was competing against the big boxes. The shift in merchandise helped to set the company’s stores apart. The company’s distribution center — built to service 1,000 stores in 1993 — got new product lines to stores quickly.

Customers began to take notice — and began shopping. The company also closed some underperforming stores. From 2003 to 2006, the company’s comp store sales have risen.

Over the last few years, the company has begun a new era. Avenue is investing all of its efforts into growth and expansion of the business and the brand. The change evolves around the company’s decision to create proprietary products branded with the Avenue name. The company’s clothes are now focused to serve several lifestyles of the customers. As a result, its clothing has changed to be more aspirational and its stores have changed to be more customer focused. The company, meanwhile, has developed more capabilities to understand the motivations and needs of its customers.

Expanding Stores

Avenue currently has about 500 stores in 37 states. In late November 2006, Fleishaker joined the company as senior vice president of real estate. His background includes stints at DJM Asset Management, where he dealt with portfolios of distressed real estate; Kimco, where he served as the head of leasing, and 11 years at Modell’s Sporting Goods, where he served as general counsel and director of real estate. His mission at Avenue is to grow the company at between 30 and 50 stores per year for the foreseeable future.

“I love to be a tenant,” says Fleishaker. “I love being a retailer.”

All clothing design is handled in house at Avenue. Clothes are designed in lines that can be paired and matched to create outfits.

Avenue plans to open at least 30 to 50 stores in the next year. For 2008 and beyond, the company sees potential for 900 to 1,100 stores.

“The limitation for us is not money, instead it is finding the right locations,” says Benaroya. “We will not compromise the location quality for the number of locations. We want to grow. We don’t want to swell.”

The prototype store for Avenue is 5,000 square feet. The company prefers to locate in strip shopping centers, anchored by Target or Kohl’s, T.J. Maxx, Marshalls, and Ross Dress For Less. Population density is a key criterium for the company. It looks for trade areas that have 150,000 people or more. It also needs a number of the women within that trade area to be within ages 25 to 54. Moderate income customers, from $40,000 to $70,000, make up most of its customer base. The company also wants high visibility in the center.

“The Avenue brand is still fairly new, so exposure is very important,” says Fleishaker.

Aaron Fleishaker, senior vice president of real estate of Avenue.

The company has recently completed an expansion in Texas. The company opened new stores in Dallas and Houston. It has been looking closely at population growth in determining new store locations. Washington, D.C., is a market where the company is expanding, as is Florida. The west coast, particularly California, has been identified as a growth market for the company. Avenue is also looking at markets where it just has existing stores and tries to locate additional units there. The economies of scale — especially with its marketing and distribution plans — come into play when there are more stores.

In addition to Fleishaker, there are two additional in-house real estate site selectors. Avenue employs a preferred broker in every market where it is active to seek out locations. The parent company, United Retail Group, signs all the leases, and the company has a good credit rating.

Other Avenues of Sales

Avenue has created a number of new ways to increase sales through its existing customer base, and through new customers. It has expanded its proprietary credit card operation, and the number of cardholders has increased steadily over the past 2 years, as has the frequency of usage. Avenue has also begun to capture its customers’ names and e-mail addresses at purchase, creating a huge database with which it can directly communicate with customers.

Benaroya says that Avenue is on the eve of the most aggressive expansion in the company’s history. By getting all of the internal systems ready, including merchandising, quality, distribution and design, the company is now ready to expand its market by increasing sales in four areas.

The first is that the company will increase productivity in its existing stores. It will continue to improve merchandising to drive customers to the stores. It will also remodel a number of its existing 500 stores.

The company also plans to open new stores, a second way to expand. Thirdly, Avenue will expand its shop-at-home Internet business. In 2006, the company’s Internet business grew by 55 percent. It is making changes to drive double-digit growth in that channel of its business in the future. The company is using its database to drive its customers to the web site between store visits.

When combined with the new stores and the way that the company now merchandises its clothes, there has been a complete change at Avenue.

Raphael Benaroya, chairman and CEO of Avenue.

“These efforts required that we change practically every facet of the business in terms of processes, organization, interaction within the company, as well as the way we think,” says Benaroya. “Consumer quality, for instance, is a new department for us. We have had excellent results with customer perception and acceptance of the products from a fashion and quality point of view.”

Another avenue of growth for the company will add emphasis on a new line of intimate apparel, called Avenue Body, to create new sales. At first, the company will use a portion of its existing stores to have a store-within-a-store. Eventually, though, Benaroya believes the concept will stand on its own in separate stores.

“Within the next 12 months, we will open some pilot stores for the Avenue Body concept,” says Benaroya. “This will be a store that will primarily sell intimate apparel. Initially, we would like for it to be next to an Avenue store, since we’ll be addressing the same customer base.”

The company also has a shoe line, Cloudwalkers, that it has begun selling in its stores and on a web site called cloudwalkers.com. The shoes are designed with a special padded insert that increases comfort. There may be a possible store in the works for that brand, though the company won’t discuss that yet.

“While we have our growth agenda set, we are not adverse to acquiring other chains for real estate purposes or for a concept that compliments Avenue’s business,” says Benaroya.

One important facet of Avenue to note: all of the company’s expansion is done through internal capital. It has $35 million in cash on its balance sheet.

Customer Care

Avenue currently has about 500 stores in 37 states.

By staying in constant contact with its customers, Avenue hopes to listen to them. By listening, it can develop stores and products that they want to buy.

“Our customer is America,” says Benaroya. “The customer is the people who make up this country at its core. Our customer is very aspirational. They want to get ahead, in career and socially. They strive to be better. They work hard, they raise a family, and they want to look good. She is involved and engaged, and fairly independent minded. Our customer happens to be large size, but that is not a determining factor. The niche that we are addressing is the aspirational part of their personality. As a brand, we want to create a bridge for the confidence and style that the customer is seeking.”

Avenue’s advertising and photos depict a persona that is able to achieve and independent. The Avenue brand is not limited by demographics. It is more concentrated on attitude than economics.

“The gap between where the customer is and where she wants to be is not that far, that’s what we want to show her,” says Benaroya.

Avenue has invested a lot of money to be able to communicate to its customers. It spends money on direct marketing pieces that are mailed to customers’ homes. The company’s customer database contains several million names.

“We believe that the direct mail piece — and whatever offer we have attached to it — will catch the customer’s attention and create destination traffic to the store,” says Benaroya.

The company has also been capturing its customers’ e-mail addresses at a high rate. It uses a combination of e-mail and direct mail campaigns to find the method most relevant to the offer it is creating and to the customer.

“We invest a lot in creating a destination relationship with the customer,” says Benaroya. “That relationship is expanded once they get in the store through our customer service, and through the merchandise. It is our goal to provide certain quality and fashion so that our customers have a consistent experience that satisfies them every time they shop. Avenue becomes their brand of choice and their destination when they go shopping.”

How Clothing Equates To The Store

Avenue has a design and production services department on staff that creates all of its clothing lines from scratch. The department is in charge of creating a proprietary line of clothing that is not duplicated or replicated. Avenue’s clothing is manufactured in 20 countries around the globe. The company has stringent requirements for its manufacturers regarding labor laws. Many of its requirements are above and beyond the requirements of the countries where the factories are located.

“We have very high standards for the manufacturing environments for our clothing,” says Benaroya. “We are very careful that our vendors comply with our guiding principles, including labor laws and environmental laws. In places where the laws are not as stringent, we may demand requirements more than the law. We have insisted on items like better lighting, better hygiene, services and benefits for employees.”

Avenue’s clothes are designed in lines so that they can be displayed in the stores based on the aspect of life that they are appealing to. Clothes for career are grouped together; clothes for weekends are grouped together. The company’s merchandising and design departments work together to place the lines correctly in the stores with each season. However, they do allow the managers to have some play, based on the individual store’s layout. Often, ideas are brought from the stores to the home office to incorporate in others stores.

Avenue spends time on store design. The company uses good lighting so the merchandise and store is well-lit. Materials like wood, ceramic tile and carpet are incorporated to get a high-end feel, even though the merchandise price is low.

“We try to build the stores so that our customers absorb the message of our brand in the environment,” says Benaroya. “The stores are consistent with our brand image. They are modern, well-lit, airy, and contemporary. We like the store to display merchandise that makes it easy for the customer to understand the design intent behind the line and behind the store.”

Living By The Word The man behind Avenue’s success since its beginning is Raphael Benaroya. There is not a piece of clothing that the company sells that Benaroya hasn’t approved. He sits in the line revues for all of the company’s products, he feels the fabrics, and asks questions about colors. He also puts his mark on real estate. The day after SCB visited, Benaroya and Fleishaker set off to visit stores in Maryland, Georgia, Florida and Texas — all in two days. “He is the driving force behind this company,” says Fleishaker. “He is a true visionary.” Before joining Avenue, Benaroya turned around the Lacoste brand in the 1970s, then joined the Limited in the 1980s. At the Limited, everything he touched was successful. When Avenue spun off from Limited in 1992, Benaroya took that opportunity to run the company. Since the company went public in 1992, Benaroya has been writing the chairman’s letter of the company’s annual report. While the message’s intended audience is Wall Street analysts and the company’s stockholders, Benaroya says he has the company’s employees and associates in mind when he writes it. “By the time the annual report comes out, Wall Street has done its analysis,” says Benaroya. “The associates are one of the most important audiences that we have. I dedicate half of my report to our cultural and management philosophy.” Benaroya says he may have put his foot in his mouth by his writing. Employees took excerpts from the annual reports over the last 15 years and posted them on a web site, which has turned into the company’s mission statement and a credo for the way that the company does business. This has built a profile of what the company believes in and what its mission are. “The mission really is nothing more than what I’ve said over the last 15 years,” says Benaroya. “But it has become part of our cultural DNA.” — Randall Shearin

©2007 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.