Grocery-aisle glamour

Knock-offs of couture designs play well to today's recessionista, and the upstart apparel line has also cashed in on growing demand for yoga and athletic wear, a move that appeals to both Loblaws' core suburban customer and its sophisticated city shopper (Lululemon-like yoga pants: $24, a quarter of the price of the real thing).

Still, with less than $400 million in sales in 2007, Joe Fresh is a drop in Loblaw Co.'s annual $30.8 billion of revenues. And the apparel line likely won't hit the company's ambitious sales target of $1 billion by 2010, acknowledges creative director Joe Mimran. "I wouldn't say it's not realistic," says Mimran, who co-founded the stylish Club Monaco fashion chain before moving on to the eponymous Joe Fresh. (Polo Ralph Lauren, an iconic brand in its own right, acquired Club Monaco in 1999.) "But it's a tough number. You don't want to throw a number out there and achieve it at any price."

It's also a tough year. Here's a look at five issues Mimran will be dealing with as he prepares for the fall season—and aims for that elusive $1-billion target.

ONE SIZE DOESN'T FIT ALL
At its few stores in urban centres, Joe Fresh sells out of small sizes almost as soon as they hit the shelves. But at its more numerous suburban outlets, particularly in Western Canada, the smaller sizes can languish while extra-larges are snapped up. In B.C., smaller sizes are popular because of large numbers of Asian-Canadians, who tend to be diminutively built.

But the chain doesn't have a sophisticated forecasting system to gauge individual store demand—or a customized inventory system that can select different mixes of sizes for individual stores. For now, each store gets the same assortment of smalls, mediums, larges and extra-larges, meaning some sizes are often unavailable, while others have to be marked down at the end of the season, which slices profit.

Loblaws needs to get the right systems in place to properly predict demand and serve the needs of each location, Mimran says. "We can only move as fast as the whole company moves on certain things. We still don't have all the tools in our bag."

THE GLOBAL SOURCING DILEMMA
Joe Fresh relies on overseas sourcing to keep its costs low. But these days, the economics of global shipments are tricky. The rapid drop in the value of the Canadian dollar against U.S. currency can boost sourcing expenses, since overseas purchases are made in greenbacks. And the Chinese market isn't as stable as it once was—some suppliers have gone out of business, or are on the brink.

Already, about 5% of the Joe Fresh overseas orders aren't making it to Canada, or are arriving late, Mimran says. "We started to see it in the fall. We've got to be vigilant to ensure we don't have too many gaps occurring in our production."

To shield himself from currency fluctuations, he's looking at a hedging program to lock in the value of the dollar for a set time. "You've got to protect yourself and ensure you have the margins necessary so that you won't get caught flat-footed." As well, staff constantly use their purchasing clout to renegotiate prices.

THE HIGH COST OF WOOL
Mimran likes wool for some fall items, but the relatively high cost of the textile is stretching his budget. What's more, sweater styles have gotten bigger and chunkier, requiring even more of the pricey commodity. Where he can, he's switching to cotton blends, rayon or viscose. "Even Prada will use 100% viscose, so I'm now on equal footing," he says.

Still, he'll continue to carry wool sweaters, and will probably raise their prices by $10, to between $39 and $49, this fall. He'll scale back on wool coats, which he says he would have done anyway because they are too edgy for many suburban consumers. But he draws the line at tinkering with his popular wool duffle and peacoats. Their prices will remain at about $80 or $90, he says.

THE MEN'S WEAR RISK
Most Loblaws shoppers are women, who focus mainly on themselves or their kids. "Men always come last," Mimran says, which makes men's wear a tougher sell. And Joe Fresh is only in 13th place among men's wear brands in Canada, according to market researcher NPD Group.

The chain has been experimenting with men's wear and has tried out some formal pieces such as pleated pants, but sales fell flat. Mimran is still working to get the mix right, and now plans to pare down the number of men's items by about half, focusing on casual clothing and the basics that have fared well: socks, underwear, pyjama bottoms, T-shirts. "We're really figuring it out."

BACKLOGGED BACKROOMS
In some ways, Joe Fresh's backroom operation is run more like a grocer's than an apparel retailer's. Mimran thinks that with some changes, he can raise sales productivity by up to 15%.

The garments arrive in the store's stockroom in boxes, which are loaded on skids, wheeled out onto the floor and then unpacked—much like cereal boxes are. Mimran wants to organize the backroom and unpack boxes there, so that if a size is missing, floor staff can go to the back and easily locate it for a customer.