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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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(Mark one) |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended January 29, 2005 |
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
from to |
Commission file number 000-21543
Wilsons The Leather Experts Inc.
(Exact name of registrant as specified in its charter)
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Minnesota |
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41-1839933 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
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7401 Boone Ave. N., Brooklyn Park, MN
(Address of principal executive offices) |
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55428
(Zip Code) |
Registrants telephone number, including area code:
(763) 391-4000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark if the disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of the
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. o
Indicate by check mark whether registrant is an accelerated
filer (as defined in Rule 12b-2 of the
Act.) Yes þ No o
The aggregate market value of the voting common equity held by
non-affiliates of the registrant was $87,273,366 based on the
closing sale price for the common stock on the last business day
of the registrants most recently completed second fiscal
quarter as reported by the Nasdaq National Market. For purposes
of determining such aggregate market value, all executive
officers and directors of the registrant are considered to be
affiliates of the registrant. This number is provided only for
the purpose of this report on Form 10-K and does not
represent an admission by either the registrant or any such
person as to the status of such person.
The number of shares outstanding of the registrants common
stock, $.01 par value, was 38,895,464 at April 4, 2005.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement of Wilsons The
Leather Experts Inc. for the Annual Meeting of Shareholders to
be held on June 2, 2005 (the Proxy Statement),
which will be filed within 120 days after the
registrants fiscal year ended January 29, 2005, are
incorporated by reference into Part III of this Annual
Report on Form 10-K (Form 10-K). The
Compensation Committee Report, the Audit Committee Report, and
the stock performance graph contained in the registrants
Proxy Statement are expressly not incorporated by reference in
this Form 10-K.
WILSONS THE LEATHER EXPERTS INC.
FORM 10-K
For the fiscal year ended January 29, 2005
TABLE OF CONTENTS
PART I
When we refer to we, our,
us or Wilsons Leather, we mean Wilsons
The Leather Experts Inc. and its subsidiaries, including its
predecessor companies. Unless otherwise indicated, references to
our fiscal year mean the year ended on the Saturday closest to
January 31. The periods that will end or have ended on
January 28, 2006, January 29, 2005, January 31,
2004, February 1, 2003, February 2, 2002, and
February 3, 2001, are referred to herein as 2005, 2004,
2003, 2002, 2001, and 2000, respectively. The year ended
February 3, 2001, consisted of 53 weeks as compared to
52 weeks for all other years presented in this
Form 10-K.
Disclosure Regarding Forward-Looking Statements
The information presented in this Form 10-K under the
headings Item 1. Business and
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations contains
certain forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as
amended (the Exchange Act). Such forward-looking
statements are based on the beliefs of our management as well as
on assumptions made by and information currently available to us
at the time such statements were made and relate to, among other
things, expected demand for our products, financing
requirements, merchandising strategy, capital expenditures,
store operations, new store internal rate of return and
competition. Although we believe these statements are
reasonable, readers of this Form 10-K should be aware that
actual results could differ materially from those projected by
such forward-looking statements as a result of a number of
factors, many of which are outside of our control, including
those set forth under Risk Factors, beginning
on page 11 of this Form 10-K. Readers of this
Form 10-K should consider carefully the factors listed
under Risk Factors, as well as the other
information and data contained in this Form 10-K. All
forward-looking statements attributable to us or persons acting
on our behalf are expressly qualified in their entirety by the
cautionary statements set forth under Risk
Factors in this section. The words anticipate,
believe, estimate, expect,
intend, plan, target,
may, will, project,
should, continue and similar expressions
or the negative thereof, as they relate to us, are intended to
identify such forward-looking statements. The Company undertakes
no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future
events or otherwise.
Overview
We are the leading specialty retailer of quality leather
outerwear, accessories and apparel in the United States. Our
multi-channel store locations are designed to target a broad
customer base with a superior level of customer service. Through
our worldwide leather sourcing network and in-house design
capabilities, we are able to consistently provide our customers
with quality, fashionable merchandise at attractive prices. Our
business structure results in shorter lead times, allowing us to
react quickly to popular and emerging fashion trends and
customer preferences, rapidly replenish fast-selling merchandise
and minimize fashion risk.
As of January 29, 2005, we operated a total of
436 stores located in 45 states, including 311 mall
stores, 109 outlet stores and 16 airport locations. Each year we
supplement our permanent stores with temporary seasonal stores
during our peak selling season, which totaled 102 in 2004. Our
mall stores average approximately 2,600 total leased square feet
and feature a large assortment of classic and contemporary
leather outerwear, accessories and apparel. Our outlet stores
operated primarily under the Wilsons Leather
Outlettm
name, average approximately 4,000 total leased square feet and
offer a combination of clearance merchandise from our mall
stores, special outlet-only merchandise and key in-season goods.
Our airport stores average approximately 700 total leased square
feet, feature travel-related products as well as leather
accessories and provide us the opportunity to showcase our
products and the Wilsons Leather brand to millions of
potential customers each year in some of the busiest airports in
the United States.
1
Financial Strategy
Our financial strategy for the next year is to increase sales
and margins by enhancing the productivity of our existing store
base, to continue to strengthen our overall capital position by
reducing our costs and working capital needs and to maintain an
appropriate financial structure, which was established in 2004.
Key elements of implementing this strategy include:
Increase Sales and Margins. We are employing aggressive
marketing strategies and targeted advertising to build customer
urgency, drive foot traffic into our stores, generate sales and
establish Wilsons Leather as a shopping destination. We believe
that reinvigorating our mall store business remains both our
biggest near-term challenge and our best opportunity to maximize
profitability. Additionally, we are implementing targeted
promotional activities to ensure our pricing is competitive,
while maintaining acceptable margin levels through obtaining
lower initial product costs, increasing opportunistic purchases,
and selectively increasing average unit retail prices where and
when appropriate. Finally, we will continue to focus our efforts
on increasing our growing accessories business and ensuring our
mens and womens garments appeal to our targeted
customer base.
Improve Balance Sheet and Enhance Cash Position. We are
focused on conserving cash through tight expense controls
throughout the organization, maintaining a lean corporate
headquarters organization, improving inventory management and
limiting new store growth until we improve the profitability of
our existing store base. Capital expenditures for 2005 are
capped at $10.0 million, with the majority of the funds
being allocated to certain lease-required store remodels and
investments in fixtures to further drive our accessories
business.
Maintain Rational Store Count. We had a net reduction of
24 stores in 2004, following a net reduction of 158 stores in
2003, including the 111 liquidation stores discussed in
Reorganization and Partial Store Liquidation
below. In 2005, we plan to open five stores (primarily outlets)
where we have pre-existing commitments and close approximately
15 additional locations (primarily related to natural lease
terminations) for a net reduction of 10 stores. In 2005 and
beyond, we will continue to analyze our store profitability on a
market-by-market basis and work to close underperforming stores
to minimize our financial risk.
During the last three years, in support of our overall financial
strategy, the following three major actions were taken:
1) we discontinued operations for the Travel Subsidiaries,
2) we conducted a reorganization and partial store
liquidation, and 3) we obtained additional financing.
Discontinued Operations
In October 2000, we acquired the El Portal Group, Inc. (El
Portal), a specialty retailer of premium travel products
and accessories with 38 stores based in Las Vegas, Nevada. In
April 2001, we acquired Bentleys Luggage Corp., including
its subsidiary, Florida Luggage Corp. (collectively
Bentleys), a specialty retailer of travel
products with 106 stores based in Miami, Florida. We operated
these two chains for 24 and 19 months, respectively, with
unsatisfactory financial results and, as a result, on
November 19, 2002, we announced the liquidation of all 135
stores operated by El Portal and Bentleys (the
Travel Subsidiaries). The Travel Subsidiaries
business is classified as discontinued operations in our
consolidated financial statements and in Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations. Fiscal years 2001 and 2000 were
reclassified to present discontinued operations for the Travel
Subsidiaries.
Reorganization and Partial Store Liquidation
On January 22, 2004, we announced that we would liquidate
up to 100 underperforming mall and outlet stores (subsequently
revised to 111 stores the liquidation stores)
and eliminate approximately 950 store-related positions. We
retained a third party liquidator and real estate firm to assist
in this process. The liquidation stores were selected based on
strategic criteria, including negative sales and earnings
trends, projected real estate costs, location, and financial
conditions within the market. In addition, we announced the
2
elimination of approximately 70 positions at our corporate
headquarters in Brooklyn Park, Minnesota and our distribution
center in Las Vegas, Nevada and the closure of our distribution
center in Las Vegas, Nevada.
For these actions we incurred charges related to the
restructuring and partial store liquidation of
$27.4 million and $8.6 million, during 2004 and 2003,
respectively. These charges were primarily related to the
transfer of inventory to an independent liquidator in
conjunction with the closing of the liquidation stores, lease
termination costs, accelerated depreciation, asset write-offs
related to store closings, severance, including payments under
our agreements with David L. Rogers and Joel N. Waller,
performance bonuses due former officers of the Company,
retention bonuses, and other restructuring costs. In 2004,
$17.4 million of these charges were recorded in selling,
general and administrative expenses and $13.8 million of
these charges were recorded in depreciation and amortization,
and were partially offset by $3.8 million of gross margin
earned on the liquidation sales. In 2003, $2.8 million of
these charges were recorded in selling, general and
administrative expenses and $2.3 million of these charges
were recorded in depreciation and amortization, in addition to
the $3.5 million gross margin loss realized on the
liquidation sales. The liquidation sales were completed in April
2004, and as of May 1, 2004, all the liquidation stores had
been closed. As of October 30, 2004, we had successfully
negotiated all of the lease terminations. The overall net cash
outlay for the restructuring costs was slightly negative.
Additional Financing
On April 25, 2004, we entered into an agreement to issue
17,948,718 shares of our common stock (the Equity
Financing) to three institutional investors at a price of
$1.95 per share. The transaction closed on July 2,
2004, with gross proceeds before offering expenses of
$35.0 million. As additional consideration for the
investors commitment, on April 25, 2004, we issued
two million warrants exercisable for five years to the investors
upon signing the Equity Financing agreement, and at closing
issued an additional two million warrants exercisable for five
years, all at an exercise price of $3.00 per share of
common stock. On July 9, 2004, we repurchased
$22.0 million of the
111/4% Senior
Notes due August 15, 2004 (the
111/4% Senior
Notes) with proceeds from the Equity Financing and used
$8.6 million of the proceeds from the Equity Financing to
repay the balance of the
111/4% Senior
Notes at maturity. The balance of the proceeds has been used for
general working capital purposes.
General Electric Capital Corporation and a syndicate of banks
have provided us with a senior credit facility, which was
amended on November 1, 2002, January 31, 2003,
April 11, 2003, January 21, 2004, April 15, 2004,
April 27, 2004, March 2, 2005, and April 4, 2005,
that provides for borrowings of up to $150.0 million in
aggregate principal amount, including a $25.0 million
Term B promissory note and a $75.0 million letter of
credit subfacility. We prepaid $5.0 million of the
Term B promissory note with no pre-payment penalty on
March 3, 2005. With the completion of the Equity Financing
described above, and the subsequent repayment of the
111/4% Senior
Notes in full at maturity, the senior credit facility expiration
date was extended to June 28, 2008, at which time all
borrowings, including the Term B promissory note, will become
due and payable.
Merchandise Strategy
The elements of our merchandise strategy combine to create an
assortment of products that appeal to consumers from a broad
range of socio-economic, demographic and cultural profiles. We
perform internal market research at least annually, and we will
continue to survey our current and potential customers each year
to update our customer demographics. We believe that our
strategy will continue to position us as the leading specialty
retailer of quality leather outerwear, accessories and apparel
and strengthen our brand position. The principal elements of our
merchandise strategy include:
Increase the Merchandising of Accessories. We are focused
on continuing to increase the penetration of our accessories
business within our retail concepts with an added emphasis on
handbags. To support our objective of generating demand and
sales throughout the year, we have expanded the accessories
assortment in our stores. Through the development of new product
styles and other merchandising activities, we plan to utilize
accessories as an additional way of attracting more female
customers into our stores. These products
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complement our outerwear and apparel selection and lead to
higher add-on sales. Our accessories business has
proven to be less seasonal and has grown into the largest
segment of our business. We believe that further increasing our
accessories business will offer us an opportunity to limit the
risk inherent in our business and reduce our seasonality.
Grow Brand Recognition. Our goal is to promote the
Wilsons Leather brand through a variety of in-store
visual presentations at our national network of stores,
newspaper advertising, direct mail promotions and our e-commerce
site. Reflecting our strength as a mass-market retailer, we are
expanding the power of the Wilsons Leather brand by
focusing our marketing and merchandising on both classic and
colorful fashion-forward styles designed to reach a much broader
market. We will continue to market to our customers ethnic
backgrounds, ages, income levels and fashion requirements.
Optimize Merchandise Assortment. We are currently
evaluating our merchandise assortment to optimize our mix and
price points. We continue to utilize our outlet channel to more
effectively clear mall merchandise in order to keep our mall
stores fresh and up to date. We will rebalance our focus on
fashion versus basic. During 2004, we over-responded to trends
in color and fashion during the fourth quarter holiday selling
season. We have learned that we have different customers during
different times of the year (with the holiday selling season
tending to be more basic) and we will plan and execute
accordingly.
Target Core Customer Base. Our primary focus this past
year was to tailor our price points and varieties of merchandise
to grow with customers throughout their lives. We target
customers ages 18 to 37, and we are working to ensure that
our stores are assorted with the products they want. Our market
research indicated that the median age of our high-potential,
high-volume core customer is 28 years of age. We are
intensifying our efforts to improve our customer focus and
rebuild consumer loyalty by delivering fashion-right leather
merchandise that fits the lifestyle needs of our customers at
prices they find attractive.
Capitalize on Worldwide Sourcing Network. We are able to
leverage our worldwide sourcing network to benefit our stores.
Our staff of in-house designers combines industry experience
with the latest fashion trends to produce product lines that are
both classic and fashion-forward. We have established strong
relationships with suppliers globally and our design team works
closely with our suppliers to ensure seamless development of
leather styles, colors and finishes. We have a staff of 45
professionals in Asia and the sub-continent, South America, and
Europe to ensure that our designs are manufactured quickly with
consistent, quality standards. We believe that our control of
design and sourcing results in shorter lead times than our
competitors, reducing inventory requirements and fashion
risk and permitting in-season reorders.
Pursue Multiple Store Formats. Our distribution network
of multiple store formats allows us to specifically tailor our
stores with a wide selection of merchandise at multiple price
points and to optimize raw materials usage, inventory flow and
sales across all channels. We operate our stores in malls,
outlet centers, airports, and on an e-commerce site. We believe
we are creating a new level of excitement throughout our mall
stores, creatively using marketing and promotions, and making
sure that we have the optimal leather merchandise assortment in
our mall stores. Our outlet stores enable us to effectively
manage inventories, drive year-round sales, extend our brand and
build our customer base. We also operate temporary seasonal
stores in malls during our peak selling season to complement our
existing store base. These seasonal stores provide us with
opportunities to drive incremental sales, test new markets and
further strengthen the Wilsons Leather brand nationally.
In the future, we plan to evaluate and test new growth vehicles,
compatible new store concepts and new product offerings.
Product Design and Merchandising
Our mission is to tailor our merchandising to a targeted
customer base by offering a broad selection of quality
merchandise at attractive prices. We offer approximately 3,400
styles of leather outerwear, accessories, and apparel throughout
our stores. The accessories consist primarily of gloves,
handbags, wallets, briefcases, computer cases, planners and
belts. Our merchandising staff, including buyers and designers,
continually monitors emerging trends and changing consumer
preferences and utilizes information provided by our customers
to ensure that we maintain a consistent and up-to-date selection
of products. To further minimize our inventory risk and maximize
our sales performance, our merchandising team utilizes our
flexible
4
merchandise management information system to test new
merchandise in many of our stores before making large
commitments and purchase orders with our suppliers.
We believe that our integrated worldwide sourcing and in-house
design capabilities enable us to gain numerous competitive
advantages. As new market trends are identified, we make
merchandise design decisions to ensure that key features of
fashion merchandise are incorporated in future designs. Our
in-house design staff will create and develop designs to ensure
a consistent quality, theme and image. As part of the design
process, we also consider the anticipated retail prices and
profit margins of the merchandise, the availability of leather
and raw materials and the capabilities of the factories that
will manufacture the merchandise.
Some key elements for merchandising our stores include:
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identifying customer lifestyle segments based on demographic
factors such as age, fashion awareness, purchasing behavior,
income, location and ethnicity; |
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building strong brand recognition and utilizing our proprietary
labels to target customer lifestyle segments; |
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driving accessories growth through new styles designed to
attract customers into our stores; and |
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actively managing pricing to maintain value for the largest
possible customer base. |
We believe that the name and reputation of the Wilsons
Leather brand assures customers they are purchasing quality
and fashionable merchandise. Approximately 90.0% of the
merchandise in our stores is designed and sold under our
proprietary labels: M. Julian®, Maxima®, Pelle
Studio® and Wilsons
Leathertm.
We additionally offer a limited selection of other designer
brands such as Kenneth Cole® and Andrew Marc® in our
stores to highlight the value of our proprietary labels.
The following table sets forth the percentages of net sales by
major merchandise category from 2002 to 2004:
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2004 | |
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2003 | |
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2002 | |
| Merchandise Category |
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Accessories
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35.6 |
% |
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33.6 |
% |
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31.6 |
% |
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Womens apparel
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32.1 |
% |
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33.1 |
% |
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35.0 |
% |
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Mens apparel
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32.3 |
% |
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33.3 |
% |
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33.4 |
% |
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Total
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100.0 |
% |
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100.0 |
% |
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100.0 |
% |
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Sourcing and Quality Assurance
We have developed strong and long-standing relationships with
our manufacturers and tanneries. In 2004, approximately 84.0% of
our leather garments and accessories were manufactured by over
70 independently owned manufacturing facilities throughout Asia
and India. Our relationships, coupled with our significant
purchasing power, enable us to achieve economies of scale and
ensure that we can consistently maintain our quality and obtain
sufficient manufacturing capacity when needed.
We believe that our extensive knowledge of the worlds
leather markets is critical in mitigating price fluctuations in
the cost of raw leather during times of high volatility. While
we do not normally obtain possession of a significant level of
raw material, we assist tanneries and factories in sourcing raw
material from all over the world, ensuring broad access to the
marketplace. However, from time to time we purchase supplies of
leather to take advantage of market opportunities to ensure
reserves of quality materials at acceptable prices. Raw leather
is primarily sourced in Italy and South Korea, with additional
product sourced from South America, Australia, China and New
Zealand. Our buying strategies, coupled with our expertise in
leather development, enable us to purchase entire lots of raw
leather and use varying grades of raw leather in different
products, providing us with significant price advantages.
5
Our sourcing infrastructure and strong relationships with our
suppliers allow us to effectively control merchandise production
without owning manufacturing facilities. Our designers and
buyers work closely with our sourcing team to identify and
develop leather styles, colors and finishes. We have a staff of
45 professionals located in China, India, Hong Kong, South
Korea, and South America who are primarily responsible for
overseeing the production and quality assurance process in
overseas factories and are supervised by the sourcing team at
our corporate headquarters. Their responsibilities include
inspecting leather at the tanneries, coordinating the production
capacity, matching product samples to our technical
specifications, and providing technical assistance and quality
assurance through inspection in the factories.
Our merchandising department works closely with our overseas
personnel to coordinate order fulfillment. We have consistently
maintained our merchandise production cycle at approximately
90 days. We believe this production cycle is shorter than
that of our competitors and allows us to better control our
production needs and reorder faster-selling merchandise during
our peak selling season. We believe that this strategy results
in more effective and efficient inventory management and gives
us the ability to manage production as the business climate
changes, thus reducing our need for markdowns on merchandise at
the end of our peak selling season.
Store Formats and Locations
As of January 29, 2005, we operated 436 retail stores
located in 45 states, including 311 mall stores, 109 outlet
stores and 16 airport locations. We regularly supplement our
permanent mall stores with temporary seasonal stores during our
peak selling season. Between October 2004 and January 2005, we
operated 102 seasonal stores.
Our e-commerce site at www.wilsonsleather.com offers
leather outerwear, accessories and apparel, as well as company
background and financial information.
Store Locations as of January 29, 2005:
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| State |
|
Mall | |
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Outlets | |
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Airport | |
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Total | |
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Alabama
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2 |
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2 |
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4 |
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Arkansas
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1 |
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1 |
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Arizona
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2 |
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1 |
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3 |
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California
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25 |
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13 |
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1 |
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39 |
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Colorado
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7 |
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3 |
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10 |
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Connecticut
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5 |
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1 |
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6 |
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Delaware
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3 |
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1 |
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4 |
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Florida
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8 |
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7 |
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1 |
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16 |
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Georgia
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11 |
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5 |
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3 |
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19 |
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Iowa
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5 |
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1 |
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6 |
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Idaho
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1 |
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1 |
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Illinois
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24 |
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4 |
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5 |
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33 |
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Indiana
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8 |
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2 |
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10 |
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Kansas
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2 |
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2 |
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Kentucky
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4 |
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4 |
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Louisiana
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2 |
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1 |
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3 |
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Massachusetts
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10 |
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2 |
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12 |
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Maryland
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7 |
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4 |
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11 |
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Maine
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3 |
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2 |
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5 |
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Michigan
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17 |
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3 |
|
|
|
|
|
|
|
20 |
|
|
Minnesota
|
|
|
14 |
|
|
|
3 |
|
|
|
1 |
|
|
|
18 |
|
|
Missouri
|
|
|
4 |
|
|
|
3 |
|
|
|
|
|
|
|
7 |
|
|
Mississippi
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
|
North Carolina
|
|
|
7 |
|
|
|
3 |
|
|
|
|
|
|
|
10 |
|
|
North Dakota
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
Nebraska
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
New Hampshire
|
|
|
4 |
|
|
|
2 |
|
|
|
|
|
|
|
6 |
|
|
New Jersey
|
|
|
9 |
|
|
|
3 |
|
|
|
|
|
|
|
12 |
|
|
New Mexico
|
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
3 |
|
|
Nevada
|
|
|
2 |
|
|
|
3 |
|
|
|
|
|
|
|
5 |
|
|
New York
|
|
|
20 |
|
|
|
5 |
|
|
|
|
|
|
|
25 |
|
|
Ohio
|
|
|
15 |
|
|
|
4 |
|
|
|
|
|
|
|
19 |
|
|
Oklahoma
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
Oregon
|
|
|
5 |
|
|
|
1 |
|
|
|
|
|
|
|
6 |
|
|
Pennsylvania
|
|
|
17 |
|
|
|
4 |
|
|
|
2 |
|
|
|
23 |
|
|
Rhode Island
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
2 |
|
|
South Carolina
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
4 |
|
|
South Dakota
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
Tennessee
|
|
|
7 |
|
|
|
4 |
|
|
|
|
|
|
|
11 |
|
|
Texas
|
|
|
16 |
|
|
|
5 |
|
|
|
1 |
|
|
|
22 |
|
|
Utah
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
3 |
|
|
Virginia
|
|
|
6 |
|
|
|
3 |
|
|
|
1 |
|
|
|
10 |
|
|
Washington
|
|
|
10 |
|
|
|
2 |
|
|
|
|
|
|
|
12 |
|
|
Wisconsin
|
|
|
13 |
|
|
|
3 |
|
|
|
|
|
|
|
16 |
|
|
West Virginia
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
GRAND TOTAL
|
|
|
311 |
|
|
|
109 |
|
|
|
16 |
|
|
|
436 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Site Selection for Store Openings and Closings. We use a
detailed process to identify favorable store locations in
existing or new markets. Within each targeted market, we
identify potential sites for new and replacement stores by
evaluating market dynamics. Our site selection criteria include:
|
|
|
| |
|
customer segment and demographic data derived from our
point-of-sale network and outside sources; |
6
|
|
|
| |
|
information relating to population density in concentric circles
surrounding the mall; |
| |
| |
|
the performance of past seasonal stores within the mall; |
| |
| |
|
the proposed location within the mall; and |
| |
| |
|
projected profitability, cost, return on investment and
cash-flow objectives. |
Our cross-functional review committee approves proposed store
projects, including new sites and lease renewals. We
periodically evaluate our stores to assess the needs for
remodeling or the timing of possible closure based on economic
factors. We use our knowledge of market areas and rely upon the
familiarity of our name and our national reputation with
landlords to enhance our ability to obtain prime store locations
and negotiate favorable lease terms. In 2005, we plan to open
five stores (primarily outlets) and close approximately 15
stores (primarily related to natural lease terminations).
We maintain a dedicated staff with extensive experience in
opening and closing our temporary seasonal stores, which we
leverage in our other concepts. Once a seasonal store site is
selected and the lease is executed, we are usually able to open
a store within three days.
Our real estate, store planning and executive management teams
analyze the performance and profitability of our stores and
markets to assess the potential for new and replacement stores
and to identify underperforming stores. We estimate that our
average net investment in our permanent mall stores is
approximately $378,000 and approximately $355,000 for our outlet
stores, including inventory and capital investment and excluding
any landlord compensation, which is recorded as deferred rent.
In 2005, we expect new stores to generate a three-year internal
rate of return of approximately 15% and have an average
discounted cash payback period of two to three years. We cannot
ensure that our future store openings will meet these
expectations.
The following chart highlights the number of stores, by format,
opened or closed in each of the last three years:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Mall | |
|
Outlet | |
|
Airport | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
Store count as of February 2, 2002
|
|
|
492 |
|
|
|
94 |
|
|
|
33 |
|
|
|
619 |
|
| |
|
Fiscal year ended February 1, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Stores opened
|
|
|
12 |
|
|
|
22 |
|
|
|
|
|
|
|
34 |
|
| |
Stores closed
|
|
|
(21 |
) |
|
|
(6 |
) |
|
|
(8 |
) |
|
|
(35 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
End of year count
|
|
|
483 |
|
|
|
110 |
|
|
|
25 |
|
|
|
618 |
|
| |
|
Fiscal year ended January 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Stores opened
|
|
|
6 |
|
|
|
11 |
|
|
|
|
|
|
|
17 |
|
| |
Stores closed
|
|
|
(50 |
) |
|
|
(8 |
) |
|
|
(6 |
) |
|
|
(64 |
) |
| |
Stores in liquidation
|
|
|
(105 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
(111 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
End of year count
|
|
|
334 |
|
|
|
107 |
|
|
|
19 |
|
|
|
460 |
|
| |
|
Fiscal year ended January 29, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Stores opened
|
|
|
3 |
|
|
|
2 |
|
|
|
|
|
|
|
5 |
|
| |
Stores closed
|
|
|
(26 |
) |
|
|
|
|
|
|
(3 |
) |
|
|
(29 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
End of year count
|
|
|
311 |
|
|
|
109 |
|
|
|
16 |
|
|
|
436 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Mall Stores. We operated 311 permanent mall stores as of
January 29, 2005, in 43 states. Our mall stores
showcase a full range of leather outerwear, accessories and
apparel primarily under our proprietary labels. These stores
average approximately 2,600 total leased square feet and are
located in all types of
7
shopping malls, serving diverse demographics. A typical mall
store will carry a selection of approximately 1,400 different
styles of our merchandise.
We further supplement our permanent mall stores with temporary
seasonal stores to better capitalize on our peak selling season.
In 2004, we operated 101 seasonal mall stores. We plan to
operate approximately 125 seasonal mall stores in 2005. Our
temporary seasonal stores provide us the opportunity to test
prospective mall locations and are generally located in malls
where there is not a permanent store. A typical seasonal store
will carry approximately 1,800 styles of our merchandise.
Outlet Stores. Our 109 outlet stores are located in
36 states and operate under the names Wilsons Leather
Outlettm
and The Wallet
Workstm.
To maintain brand image, we generally locate outlet stores in
large outlet centers in areas away from our permanent mall
stores. Our Wilsons Leather Outlet stores offer clearance items
and special outlet-only merchandise as well as certain key
in-season products. Wilsons Leather Outlet stores average
approximately 4,000 total leased square feet and generally carry
approximately 2,600 styles of merchandise. Our Wallet Works
stores average 1,400 square feet and carry mainly
accessories. We currently operate two Wallet Works stores. We
operated one seasonal outlet store during 2004 and do not plan
to operate any seasonal outlet stores in 2005.
Airport Stores. We launched our airport stores in an
effort to showcase our Wilsons Leather brand and
accessories. Our 16 airport stores play an instrumental role in
growing brand awareness and showcasing our products to millions
of travelers who pass by our airport stores each year. These
stores average approximately 700 total leased square feet and
carry approximately 950 of our best-selling styles, primarily
accessories.
e-commerce. Our e-commerce site
www.wilsonsleather.com offers an extension of
our store experience and is intended to increase brand
awareness, strengthen the relationship with our customers, make
our merchandise more accessible to our customers and facilitate
cross-marketing with our stores. We are also using e-mail as a
means of reaching out to our customers. The e-commerce site
features key in-season merchandise as well as promotional
merchandise and has been revamped to decrease the cost structure
and improve customer service. In 2004, we had 3.1 million
visitors at our www.wilsonsleather.com e-commerce site,
compared to 2.5 million in 2003, and we achieved
$4.2 million in on-line sales, which equates to an
essentially flat year-over-year comparison. We plan to continue
to invest prudently in the development and maintenance of our
on-line presence, with the Internet serving as an additional
shopping format for our customers, as well as a vehicle for
building brand awareness. During 2004, we out-sourced the
administration and marketing of our e-commerce site to a third
party vendor who performs similar services for other specialty
retailers.
Store Operations. Our store operations are organized by
region. The mall, outlet and airport stores are divided into
four regions, with each region subdivided into districts. Each
district manager is responsible for anywhere from 8 to
17 stores. Individual stores are staffed by a manager, an
assistant manager, and a complement of full- and part-time sales
associates whose numbers fluctuate based upon expected and
actual sales. A typical store manager has an average of four
years experience with our company. Store managers are
responsible for sales and other operations including hiring and
associate training, visual display and inventory control. All
other aspects of store operations are administered centrally by
our corporate offices. Temporary seasonal stores have a
dedicated staff with the same responsibilities as the staff of
our permanent stores. Temporary seasonal stores also provide an
opportunity to develop and assess the skills of associates being
considered for future permanent store management positions.
A core aspect of our corporate culture is to focus on employee
training and customer service. We emphasize sales associate
training to ensure each associate has knowledge of our
merchandise and the customer segments that the various labels
are designed to serve. Our associates receive ongoing training
in the unique properties of leather, the appropriate methods of
care for the various leather finishes and the product
specifications and details of our merchandise. In addition, we
train associates to perform minor repairs in the store for
customers free of charge.
W