Bebe Stores, Inc.

views updated

Bebe Stores, Inc.

380 Valley Drive
Brisbane, California 94005
Telephone: (415) 715-3900
Fax: (415) 715-3939
Web site:

Public Company
Employees: 1,101
Sales: $201.3 million (1999)
Stock Exchanges: New York
Ticker Symbol: BEBE
NAIC: 563100 Womens Specialty Stores

The company bebe stores, inc. designs, manufactures, and sells fashionable womenswear and accessories. Named by Business Week Magazine as one of the fastest growing small companies in the United States in the late 1990s, bebe operates a chain of 101 boutiques in 22 states, the vast majority of which are located within upscale malls, and has as its primary customer base trend-conscious women between the ages of 18 and 35. The company offers form-fitting suits, dresses, and separates at prices competitive with such stores as Guess?, Express, and Banana Republic and presents itself as a viable option to consumers unable to afford the hefty price tag of couture. The success of bebe is due not only to its cost-effective management and production techniques, but to the entertainment industry as well; the companys designs appear regularly on such popular television shows as Ally McBeal, Friends, and Beverly Hills 90210. Clothing from bebe is also seen frequently on such film and television stars as Alicia Silverstone, Jennifer Lopez, and Drew Barrymore.

The Early Years: 1976 through the 1980s

The bebe concept was founded by Manny Mashouf, a former entertainment executive who specialized in restaurant and arena management. In the mid-1970s Mashouf saw an opportunity to profit from the growing niche market of womenswear designed specifically for the younger, trend-conscious consumer, and so in 1976 he opened the first bebe store in the center of San Francisco. Mashouf chose the name bebe for his store because it encapsulated many of the images he wanted the clothing to project; the name is a play on Hamlets famous phrase to be or not to be and is also Turkish for woman and French for baby, which to Mashouf symbolized growth. The name (pronounced bee-bee) was also unique for its pithy sound, representing to the customer the same sharp and youthful originality with which the company wished the clothes themselves to appear.

The store was an initial success, focusing primarily on suits for the younger, urban working woman. For its first several years, bebe remained a single boutique, only branching out in the northern California area after several years in business. Mashouf, as director of the company, was at first conservative in his approach to expansion, choosing to focus on the financial health of a handful of stores before opening new locations. The strategy worked, and the company grew slowly but steadily in the Northwest throughout the 1980s.

Part of what made bebe profitable was the companys tight control over its design and production costs; bebe manufactured all of its own products, using primarily domestically made materials and, therefore, kept its overhead lower than companies that imported wares. By designing, manufacturing, and marketing its clothing in-house, bebe benefitted not only from saving on costs, but by maintaining a firm control over the companys overall image as well. Mashouf and his design team were able to see a product through from its incipient stage of being a sketch on paper to its actual presentation on the floor, and hence gave the bebe label consistency in both quality and style. As the companys popularity grew during the 1980s so did its products, and by decades end bebe was expanding its focus from daytime suits and other form-fitting career wear to overtly sexy cocktail dresses and separates.

National Growth: The Early 1990s

By the end of the 1980s bebes popularity was such that the company was ready to begin competing with national chains. The stores had developed a loyal customer base who could find trendy looks at a fraction of the cost of more expensive lines such as Donna Karan and Ralph Lauren, and, unlike other chains such as the Gap and Banana Republic, the company made no secret of its dedication to a single niche market, that of the young, stylish woman. As the countrys overall economy began to pick up and large, exclusive malls developed at a faster pace nationwide, the company had its first opportunity to grow from a successful regional chain to a nationally recognized label.

In 1994 bebe began an aggressive campaign of expansion and within a year and a half had opened 38 stores in strategically located malls across the nation. The company presented its new stores as catering directly to youthful, sexy women, with prices ranging from $30 for a simple, tight t-shirt to $150 for a flashy, short cocktail dress. The companys advertising campaign in national magazines such as Vogue and Bazaar reflected bebes vampy, trendy image, depicting models dressed in sheer gowns and feather boas draped in seductive poses. The unique, highly sexualized image worked, and bebes profits and name recognition soared.

The Mid-1990s: The Marriage of Fashion and Fame

One of the most important developments in the fashion industry, particularly in high fashion, was the increasingly involved relationship between individual celebrities and clothing labels in the 1990s. In couture, a celebrity could make a certain name a household word almost overnight, particularly if she wore the label to a highly publicized event such as the Academy Awards or Emmy Awards ceremonies. (Film star Michelle Pfeiffer wearing Armani to the Academy Awards ceremony is one of many examples.) For less expensive brands, which relied primarily on a mass consumer market, such exposure was considered desirable, but not entirely necessary, for increased sales. As opposed to courting celebrities with deep pockets, chain stores focused more on well-designed advertising campaigns that could reach and identify with as many consumers as possible.

In 1995, after its initial national growth, bebe took the unusual step of actively seeking out name recognition through not only its print advertising campaigns, but through celebrity exposure as well. The reasoning behind taking such a step was simple: if the label was seen on the same stars with whom bebes primary targeted customer base could identify, the label itself would become associated with those stars, and the glamorous image those celebrities symbolized. Such an association would make the companys name almost automatically more appealing to a huge consumer base, with sales reflecting that appeal. In 1995 a phenomenally successful television show called Melrose Place showcased several young, attractive television stars whose distinctive wardrobes were being mimicked across the nation. In one of the shows episodes that year, its main star, Heather Locklear, wore an outfit by bebe, and thus began an indirect but potent advertising campaign for the company that was, in the long run, to prove more powerful for bebes sales than the most artfully constructed traditional ads could ever have achieved.

After bebes appearance on Melrose Place the label began showing up on other celebrities, all of whom appealed to the same sort of customer the company was trying to attract. Among them were Drew Barrymore, Alicia Silverstone, and Brooke Shields (who wore bebe on her television show Suddenly Susan), the models Cindy Crawford and Christy Turlington, as well as Jennifer Lopez, Madonna, and Julia Roberts. The trend of presenting labels on specific television shows continued as well, with bebes wares making regular appearances on such shows as Party of Five, Beverly Hills 90210, The Practice, and Ally McBeal. Indeed, the relationship between clothes and entertainment in the late 1990s proved to be an increasingly vital element to a shows success: in one episode of Ally McBeal, the entire plot line revolved around the controversial length of the skirt worn by the shows star. The skirt was by bebe, and orders for it went up around the country immediately after the program was aired.

Like any advertising campaign, the courting of a star by a clothing company had to be strategic and shrewdly planned. Bebe, in other words, was not about to send shipments to Roseanne; the young and fashionable Halle Berry, however, could have free choice of the companys inventory. This sort of planning forced bebe to know not only the sartorial preferences of its customers, but also the stars, films, and television shows they admired and wished to imitate. No longer was bebe confined to considerations specific only to the retail industry; the company had become by the late 1990s an active part of the entertainment industry as well.

Further Expansion: The Late 1990s

Unlike high fashion and bridge labels like Donna Karan or Ralph Lauren, bebe was not an innovator when it came to designs and trends. Instead, the key to the companys success was found in its ability to quickly and accurately mimic and expand upon key styles from season to season. When Karan came out with sheer, wispy dresses for one season, for instance, bebe followed with similar designs within a matter of weeks. By following up a design or trend so quickly, bebe allowed its fashion-conscious customers to keep up with the dizzying vicissitudes of the retail trade. Through imitating high fashion labels and offering its merchandise at usually less than half of what a customer would pay for more upscale names, bebe by the late 1990s had carved out an important place for itself in the growing niche market of trendy womenswear. The company had managed to make its products appealing to both the label-obsessed celebrity and the image-obsessed consumer without sacrificing quality for cost, or affordability for quality.

Company Perspectives:

The bebe look, with the unmistakable hint of sensuality, appeals to the hip, sophisticated, and body-conscious woman who takes pride in her appearance. The bebe customer is a discriminating consumer who demands value in the form of quality at a competitive price.

Another important factor in the companys growth was its test and reorder method, which allowed bebe to move inventory at a pace much faster than that of its competitors. According to this method, the company would at the beginning of a season ship a limited amount of a certain product to its stores.

If the product sold exceptionally well, the company would alter its inventory by changing its factory orders to accommodate customer demand. Bebe could do this quickly because the company, unlike many of its competitors, produced its own merchandise and thus had firmer control over both the speed with which a product was produced and the amount of product created. Considering the pace at which the trendier end of the retail market moved, the companys test and reorder philosophy became a vitally important aspect of the companys fiscal health. This process also ensured that bebes merchandise would be constantly changing, revolving around the capricious demands of the fashion-conscious consumer, and enabled the company to keep up with trends from season to season and, in some cases, from region to region. A distinctive part of bebes image, then, paradoxically became its chameleon-like ability to change, and change quickly, although the company never strayed far from its core devotion to snugly fitting, sexy apparel.

By the late 1990s bebe had evolved dramatically from the single, career suit-oriented boutique it had been less than two decades previously, with the company gaining enough fiscal strength from its expansion to go public in June of 1998. The company had an initial public offering of $11 a share, with 2.5 million shares sold. After the companys appearance on the stock exchange, Mashouf maintained 88 percent ownership of bebe and continued to play an active role in the companys designs and expansion as its CEO.

Bebe had always marketed itself to younger women, primarily in their twenties, but after its tremendous expansion in the 1990s the company began an attempt to appeal to an even younger age group, primarily through its offering of less expensive, logo-emblazoned shirts, sweaters, and jackets. The introduction of such merchandise not only brought in an expanded customer base, but made the companys name more visible as well. By 1998 the company was focusing on suits and dresses as its primary inventory, but also had added lingerie and more casual wear to its collections. After proving its success with a variety of apparel products, the company was noticed by several retail insiders, and thus became partners in a couple of important licensing agreements that promised to be quite lucrative for the company.

In September of 1998 bebe signed a licensing agreement with Genender International Incorporated to produce a collection of inexpensively priced but fashionable watches. Later that year the company made a similar agreement with Titan Industries to design an expansive footwear collection, which was slated to be sold in both bebe stores and upscale department stores. That year, too, bebe contracted with the well-respected eyewear company California Design Studio to produce a series of optical frames and sunglasses, with prices ranging from $50 to $150. In addition, 1998 saw bebe introduce its first on-line boutique, which proved to be an important step for the company in an increasingly technological retail trade.

By May 1999 bebe had opened 11 stores in as many weeks, and by the end of that month the company had reached a milestone of successfully operating 100 stores. Two of those stores bore international addresses, with one in Kent, England and the other in Vancouver, and the popularity of those locations inspired the company to make plans to expand into regions such as Greece, southeast Asia, and Israel.

Bebes almost fairy tale-like success was not without risk, however: unlike the more democratic Gap or Banana Republic, bebe appealed to a highly limited customer base and frequently was criticized for its small sizing, as well as for creating clothes into which only a tiny percent of the American female population could fit. Bebes expansion plans came off better than planned, however, and in 1999 the company had skyrocketing sales, so seeming to beat the odds against it.

Principal Competitors

Donna Karan; The Limited; Liz Claiborne.

Key Dates:

Manny Mashouf opens the first bebe boutique in San Francisco.
38 new bebe stores are opened across the United States.
The company goes public on the NASDAQ exchange.

Further Reading

Bebe Coining to Singapore Via SSS Holding, Womens Wear Daily, August 23, 1999, p. 2.

Bebe Stores, Inc. Enters the Eyewear Business, Business Wire, July 29, 1998, p. 07290128.

Maxwell, Alison, Retailers Dress TV Stars To Woo Teens, Womens Wear Daily, August 19, 1999, p. 10.

Ryan, Thomas, Bebe Files IPO for 2.5 Million Shares, Womens Wear Daily, April 23, 1998, p. 8.

Solnik, Claude, Bebe Launching New Footwear Business, Footwear News, February 1, 1999, p. 108.

Rachel H. Martin