The Spiegel Group

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The Spiegel Group

founded: 1865 by joseph spiegel as j. spiegel andcompany

Contact Information:

headquarters: 3500 lacey rd.
downers grove, il 60515-5432 phone: (630)986-8800 fax: (630)769-3101 url: http://www.spiegel.com/

OVERVIEW

The Spiegel Group markets apparel, home furnishings, and other specialty goods, and provides credit through its First Consumers National Bank subsidiary. While Spiegel is largely known for its flagship catalog, the company also sells merchandise under its Newport News brand of moderately priced women's apparel. In addition, Spiegel operates its Eddie Bauer subsidiary in more than 500 stores throughout the United States and Canada. Eddie Bauer has its own mail-order catalogs of clothing, casual office apparel, and home furnishings, and the company has established joint ventures in Japan, Germany, and the United Kingdom.

COMPANY FINANCES

Net sales for the Spiegel Group remained flat from 1995 through 1997. The generally strong performance of the Eddie Bauer brand was offset by a decline in Spiegel Catalog sales, which fell 24 percent in 1997. The result was increasingly negative earnings per common share: ($0.09) in 1995, ($0.12) in 1996, and ($0.28) in 1997. This corresponded to losses of $13.4 million in 1996 and $33.0 million in 1997.

The disappointing results continued in the first half of 1998, when sales were down 5 percent from the same period the year before. By contrast to the previous few years, the Spiegel Catalog and Newport News businesses were improving, while Eddie Bauer retail sales decreased 9 percent due to discount promotions to clear excess inventory. However, catalog sales were on plan, and the performance of the company's credit operations was improving.

ANALYSTS' OPINIONS

The results of a major restructuring were beginning to be seen in the first quarter of 1998, and analysts were predicting a 16.5-percent annual increase in operating earnings over the next 3 to 5 years.

HISTORY

In 1865 Joseph Spiegel, having just been released from a Confederate prison, established a small home-furnishings store in Chicago. Successful in its early years, J. Spiegel and Company met with a major hurdle when the Great Chicago Fire of 1871 destroyed the store. Fortunately, much of its merchandise was stored in Spiegel's backyard, so by 1874 the company was back on its feet. It continued growing throughout the 1880s; in 1885 regular advertisements began running in several Chicago newspapers and in 1888, its first catalogs were issued. These catalogs were made available to potential customers living outside the city.

Debts mounted when customers were slow paying for purchases. By 1892 the company went bankrupt. In 1893 Modie Spiegel, Joseph's son, urged him to reinvent the company as Spiegel House Furnishings Company of Chicago. This new company, which sold on credit, was a success, and expansion began. In 1905, at the suggestion of another son, Arthur, Spiegel made the move into the mail-order business and became the first company to offer credit through the mail. By 1906 mail-order sales reached nearly $1 million, and a new firm—Spiegel, May, Stern and Company—was formed to handle the successful mail-order operation. Arthur took over as president of the new company in 1912. To diversify its product lines, the company began to sell women's clothing.

Spiegel was forced to sell its retail operations during the Great Depression, and the company's primary focus moved to its catalog business. Spiegel took this opportunity to expand its catalog and became the first company to use photographs and publish a Christmas catalog. A major selling point was Spiegel's "No Charge for Credit" policy.

Credit restrictions during World War II required a change in Spiegel's way of doing business, and the company began to open retail stores again. Although the stores' sales increased, their profits did not match those of the catalogs; by 1954 nearly all stores were sold off.

In 1965 Spiegel was purchased by Beneficial Corporation. By the mid-1970s the company was facing intense competition from four other catalog houses—Sears, Montgomery Ward, J.C. Penney, and Aldens. Spiegel decided to distinguish itself by marketing to more upscale customers. By 1985 it was selling clothing manufactured by Liz Claiborne, Calvin Klein, and Ralph Lauren. In 1982 Spiegel was sold to the European catalog company Otto Versand, whose chairman, Michael Otto, continued to control a voting bloc after the company went public in 1987.

In 1988 Spiegel purchased Eddie Bauer, an upmarket brand of outdoor and casual clothing sold via a chain of retail stores and mail-order catalogs. Spiegel expanded the Eddie Bauer name into new areas. Home furnishings are sold under the Eddie Bauer HOME concept, and AKA Eddie Bauer sells casual office apparel for men and women. In 1997 Spiegel had planned to boost Eddie Bauer profitability with more conservative inventory management and an updated store prototype intended to reduce operating costs.

STRATEGY

In 1997 Spiegel undertook a major restructuring in response to continued losses. The Spiegel Catalog business, which was the major cause of the disappointing results, was formalized as a subsidiary in parallel with Newport News, Eddie Bauer, and the First Consumers National Bank—a specialized financial institution that handles the Spiegel Group's credit-card holdings. The subsidiaries all function under the umbrella of the Spiegel Group. An unusual "Office of the President" management structure was set up, with a triumvirate of president/CEOs under Chairman Michael Otto. Otto plans the strategy of the Spiegel Group as a whole, and presidents of the individual subsidiaries are charged with improving the profitability of their domains.

INFLUENCES

In the 1980s Spiegel Catalog's sales were lagging. Consumer demand was low, and apparel sales, which accounted for 75 percent of total revenue, failed to meet expectations. The increased cost of postage and the price of paper also made matters difficult because Spiegel Catalog is marketing was based primarily on its mail-order business. The company took steps to address the problems by instituting new market-research programs and consolidating some functions (such as fulfillment and distribution).

CURRENT TRENDS

By 1997 management had identified a disparity between Spiegel's view of its catalog customers and those customers' actual needs. Lifestyles had changed greatly over the past 20 years, and the company hadn't kept up. In response, Spiegel Catalog changed its merchandising strategies and reduced mailings to marginal customers in an effort to improve profit performance.

While the majority of Spiegel Catalog's business is conducted through mail order, it also began offering an online version of its catalog. To appeal to the technically savvy consumer, it added a consumer electronics line called SpiegelTronics.

PRODUCTS

The Spiegel Group is a "lifestyle" retailer, selling apparel, home furnishings and other specialty products under its Spiegel Catalog, Newport News, and Eddie Bauer brand names, each targeted to different core markets.

FAST FACTS: About The Spiegel Group

Ownership: The Spiegel Group is a publicly owned company traded on NASDAQ.

Ticker symbol: SPGLA

Officers: Michael Otto, Chmn.; Harold S. Dahlstrand, Office of the Pres. & CEO; Michael R. Moran, Office of the Pres. & CEO; James W. Sievers, Office of the Pres. & CEO.

Employees: 13,400

Principal Subsidiary Companies: Subsidiaries of the Spiegel Group include: Spiegel Catalog, Newport News, Eddie Bauer, and First Consumers National Bank.

Chief Competitors: Spiegel competes with other purveyors of clothing and household goods, including: Blair; Brown Group; Dayton Hudson; Dillard; Edison Brothers; Federated; Fingerhut; The Gap; Hanover Direct; Home Shopping Network; J. Crew; J.C.Penney; Kmart; Lands' End; Lechters; The Limited; L.L. Bean; May; Mercantile Stores; Montgomery Wards; Neiman Marcus; Nordstrom; Ross Stores; Sears; Wal-Mart; and Woolworth.

GLOBAL PRESENCE

The Spiegel Group's international presence is concentrated in the successful Eddie Bauer subsidiary, which ended 1997 with 28 stores in Japan, 7 in Germany, and 2 in the United Kingdom. In 1998 it planned to add an additional 11 stores in these markets and continue increasing its international catalog business.

CHRONOLOGY: Key Dates for Spiegel Group

1865:: Joseph Spiegel establishes a home furnishings store in Chicago
1888:: The first catalog is issued
1892:: Spiegel goes bankrupt
1893:: Spiegel reinvents the store as Spiegel Home Furnishings Company of Chicago
1905:: Spiegel moves into the mail-order business
1906:: Spiegel, May, Stern & Company is formed to handle the mail-order operations
1912:: Offers apparel for the first time
1928:: The company goes public, with the Spiegel family retaining a controlling interest
1932:: The last Spiegel furniture store is sold
1944:: Begins opening apparel retail outlets
1954:: Most of the retail outlets are sold, and a few catalog shopping centers are retained
1965:: Spiegel is purchased by Beneficial Finance Company and becomes a wholly owned subsidiary
1971:: The company is charged by the Federal Trade Commission (FTC) for inadequately disclosing credit terms in its catalogues
1974:: The FTC again charges the company for allegedly unfair debt-collection processes
1981:: The last of the retail stores are closed
1982:: Spiegel is bought by Otto Versand
1987:: Spiegel goes public again
1988:: Purchases Eddie Bauer
1993:: Time Warner and Spiegel form a joint venture to create home shopping services for cable television
1997:: Spiegel restructures, putting the subsidiaries, including the catalog business, under the parent of Spiegel Group

EMPLOYMENT

Eligible employees of the Spiegel Group are offered a variety of benefits including pension plans and profit sharing. Special incentives include Eddie Bauer's "EBT IS Up To Me" program, which rewards employees for cost-saving ideas.