Kids’ Clothing Chief Exec Moves Into Teen Market

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Lisa Harper may have revived Gymboree Corp. But can she breathe life into Hot Topic Inc.?

The struggling City of Industry teen apparel and accessories chain named Harper chief executive last week, replacing Betsy McLaughlin, who’ll stay at the company for three months to assist in the transition.

Harper, a Hot Topic board member since June 2008, is credited with improving Gymboree’s clothing lineup and boosting sales from 2001 to 2006 as chief executive at the children’s apparel retailer.

Industry analysts expect Harper to take a similar approach at Hot Topic, revamping the chain’s merchandise mix, analyzing the appearance, size and location of its stores, and maybe shaking up corporate headquarters by bringing in executives who can execute such changes successfully.

“You have to establish a vision,” said Howard Davidowitz, chairman at New York retail consulting and investment banking firm Davidowitz & Associates Inc. “What are the stores going to stand for, what are the stores going to be? Once you establish a vision, then you have to say: What type of a team do you need who can execute the vision?”

Wall Street seems to approve, at least somewhat: Shares rose about 4 percent in the days after the company announced Harper’s appointment March 21.

Her taking of the CEO reins has come at the same time the company has brought in an outside consulting and financial advisory firm to review its operations and make recommendations regarding potential future improvements. The company announced late last year a plan to close stores and cut costs.

Indeed, Hot Topic, which has 653 Hot Topic stores and 151 plus-size Torrid clothing stores, is undergoing a tumultuous time in its two-decade history.

Once popular for its goth clothes and accessories, Hot Topic has reported declining sales as it has tried to sell shoppers on more pop culture-related merchandise such as Lady Gaga T-shirts and brightly colored skinny jeans.

The company reported earlier this month a net loss of $8.2 million for the 2010 fiscal year ended Jan. 29, compared with net income of $11.9 million for 2009. Meanwhile, same-store sales have declined for the previous 20 consecutive months.

Davidowitz said bringing Hot Topic back is going to be a tough test.

“This won’t be easy,” he said. “But I think they’ve hired a big talent and she’s coming in the right way: having a background in the company, confidence of the board and familiarity with the players. The challenge is going to be substantial.”

Another analyst is confident her experience at Gymboree has prepared Harper for the challenge.

“She’s very well-regarded,” said Jeff Van Sinderen, a senior analyst at West L.A. investment banking firm B. Riley & Co. LLC who continues to rate Hot Topic a “buy.” “She did a great job at Gymboree and Hot Topic is lucky to have her.”

The company has scheduled a conference call for this week to discuss her appointment, its fourth quarter and fiscal year 2010 results, and business trends. A company spokesman said no one could comment preceding the conference call.

‘Reluctant CEO’

Harper spent much of her apparel career in the design and merchandising divisions of major brands such as Levi Strauss & Co., Mervyns LLC and Gap Inc. She took the helm at Gymboree in 2001, when the San Francisco retailer was faced with dropping sales, trendy clothes that looked more appropriate for teenagers than toddlers and increasing competition from brands such as Baby Gap.

To get Gymboree in shape, Harper switched to basic designs for mix-and-match tops and bottoms, hired new executives, brought back Gymboree veterans, and invested in new warehousing and software to improve inventory management.

Harper told Fast Company magazine in 2002 that she was reluctant and naïve when she launched her turnaround effort. She described the company as near doom.

“I took the helm after Gymboree had taken a long walk through a dark forest,” she said.

At Hot Topic, Harper follows the 10 year-tenure of McLaughlin, who is seen as a talented but perhaps unlucky leader.

McLaughlin enjoyed some success at Hot Topic about three years ago when she focused on stocking the retailer’s shelves with more music-themed apparel and accessories, and inked deals to sell merchandise featuring the popular movie series “Twilight” and pop singer Michael Jackson. But sales of such movie and music tie-ins slowed.

“Betsy McLaughlin has been there a long time,” Davidowitz said. “She’s had ups and the last few years downs. This is very volatile and difficult business and very unpredictable.”

While Hot Topic has been posting weak sales since 2009, the company has been more aggressive in its approach to improving business during the past six months.

Activist shareholders Steven Becker and Matt Drapkin of Dallas-based Becker Drapkin Management joined the company’s board in September. Hot Topic then announced in November that it was closing 40 to 50 underperforming stores, cutting corporate and field management positions by 14 percent and reducing capital expenses by about 37 percent.

Now that Harper has slipped into the role as chief, industry analysts expect her to continue implementation of the cost-cutting plan and change a whole lot more.

“Cleary, she thinks there are some areas of opportunities,” Van Sinderen said. “I suspect that some of those will involve merchandising.”

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