Making Bath Time Cool

By Barbara Kiviat

The cafeteria at New York City's Hudson Hotel, where an old standard like macaroni and cheese is made with white-truffle oil and sells for $19 a plate, is an appropriate place to chat. Neil Fiske did, after all, write the book on America's newfound obsession with affordable luxury--literally. He co-wrote Trading Up and coined that term to explain why you now pay $4 for a cup of Starbucks or $4,000 for a Viking range even though you are (your tax returns show) solidly middle class. "There's a pretty significant shift in the social paradigm," says Fiske, an unassuming man in frameless glasses. And he knows exactly how to cash in.

When Fiske took over the struggling Bath & Body Works (BBW) retailer 21/2 years ago, he was a career consultant who had never held an operational gig in corporate America. The $2.2 billion company, a division of the Limited Brands, instantly became a real-time laboratory for Fiske's ideas. He set about morphing the shopping-mall staple of down-home goodness and gingham into an upscale yet affordable beauty boutique--a perfect example of a new category of consumer goods that falls somewhere between mass market and prestige. That's why Fiske, a boyish-looking 43-year-old in a dark suit, is at the Hudson Hotel: he has just launched a new line of skin-care products developed by dermatologist to the stars Patricia Wexler. "This," says the soft-spoken Fiske, "represents another step in the transformation of Bath & Body Works from raspberry shower gel to a modern apothecary of beauty and well-being."

Fiske's corporate face-lift fits into a grand plan hatched by Leslie Wexner, the iconic founder and CEO of the Limited Brands, who built the company into a $10 billion retailer largely on the premise that people are willing to pay more for perceived quality. In the 1960s, when middle America bought clothes at department stores, Wexner started a boutiquey chain of shops called the Limited. But now that competitors have flooded the specialty apparel scene and mall fashion has gone commodity, Wexner is changing his game, looking for growth from personal care at Bath & Body Works, from lingerie at Victoria's Secret--which is undergoing aggressive expansion of its own--and from accessories at Henri Bendel. (To understand the reason for this strategy, look no further than the Limited's second-quarter results: ongoing disarray at its Express clothing division dragged down the entire company's earnings.) Ten years ago, 80% of the Limited Brands' revenue came from apparel. Today only a third does.

So Wexner, the man who virtually invented the strategy of trading up, is now entrusting a big chunk of his business to the man who popularized the phrase. The trick, generally speaking, is to reposition things that are essentially commodities (coffee, sandwiches, vodka) by convincing the mass market that it needs a better version (Starbucks, Panera Bread, Grey Goose). Scarcity is stripped from the equation: in the new luxury math, there is a Starbucks on every corner and a Bath & Body Works in every suburban shopping mall.

But how, exactly, do you trade up an entire company? First, you stop the downward spiral. When Fiske took over Bath & Body Works in February 2003, same-store sales were skidding, having dropped 3% in 2002 and 11% the year before. Former CEO Beth Pritchard built the chain from nothing to 1,600 stores and $1.8 billion in revenue in just 10 years, but consumers were growing tired of folksy fare like Juniper Breeze shampoo gift baskets and were starting to find palatable alternatives in drugstores and discount chains, which had begun an upscale lurch of their own. Fiske came in, began renovating stores from pine-grove country to white-walled mod (a few hundred stores left to go) and started introducing more-expensive products that didn't carry the Bath & Body Works logo. Same-store sales rebounded, and last year the chain neared $2.2 billion in revenue, a 12% increase over the year before.

Today the company is in the midst of a full-scale makeover. To reach a broader customer base, Fiske has broken the chain into three tiers: starting at the bottom with the core Bath & Body Works store, moving up to the Bath & Body Works flagship store (which may also offer services like aesthetician consultations) and finally to top-of-the-line C.O. Bigelow--a retro "apothecary" meant to draw customers from competitors like Sephora and the Nordstrom cosmetics counter. "Segmentation unlocks growth potential," says Fiske. The underlying idea at all the stores is to stock products that don't just make you feel nice (Cucumber Melon bubble bath) but also make you look better (Goldie nail lacquer)--and in the process create a new sort of one-stop shop with a consumer-friendly atmosphere. "What they have recognized," says Donald Trott, specialty-retail analyst at stock-research outfit Jefferies & Co., "is that they have to take it out of the arena of competing with Procter & Gamble."

Doing that, Fiske thinks he can double sales in five years. To try to get there, he has stocked his executive suite with dealmakers from the world of luxury goods to give him talent on the inside and street cred on the outside, poaching from the likes of Neiman Marcus. Camille McDonald, whom Fiske wooed away from LVMH Moet Hennessy--Louis Vuitton to develop new brands and soup up the old ones, says the decision to leave the creme of the luxury-universe creme was "gut wrenching." But after reading Trading Up and having a lot of long talks with Fiske, she realized that a fundamental shift was under way and that she could choose to be a part of it--or not. "The face of luxury is changing," she says. "And here is a chance to dive in and be an agent of change."

One way Fiske and his team are pumping sales is by creating brands with buzz that customers have to trek to Bath & Body Works to find. In addition to making antiaging cleanser and lip plumper with Wexler, Fiske has paired up with L'Occitane to sell the new Le Couvent des Minimes line of bath salts and pillow mists and with the American Girl doll company to make body wash and hair gel aimed at tweens. Bath & Body Works has bought other brands outright. In late 2003 the company snapped up the C.O. Bigelow name and this June swallowed Slatkin & Co., a home-fragrances firm. "The consumer may want quality, but it's also about newness," says John D. Morris, a retail analyst at Harris Nesbitt. "They're rejuvenating the product launch cycle"--a pipeline that had languished pre-Fiske. Add in a catalog business (set to launch this fall), a website overhaul to let consumers buy direct (due in mid-October) and the possibility of expanding certain brands overseas, and Fiske's revenue projections, while far from certain, might just be attainable.

That would be no small accomplishment for a man whose first job inside corporate America started the day he showed up at the Limited's Columbus, Ohio, headquarters to take the reins as Bath & Body Works CEO. After a childhood in Denver and a double major in economics and political science at Williams College, Fiske went to work in Washington as a congressional speechwriter. After that was Harvard Business School, and then a job at the Boston Consulting Group (BCG), where he met Wexner, who was shopping around for consultants. Fiske spent his last six years at BCG working mainly with the Limited, and in 2003 he and co-author Michael Silverstein devoted a whole chapter of Trading Up to Wexner and Victoria's Secret. When Pritchard left Bath & Body Works in 2003, Fiske got the job despite the fact that it's unusual for a nonmerchant to run a big retailer.

And even though Fiske's years of consulting make him "the most inside outsider he could possibly be," in the words of COO and vice chairman Len Schlesinger, Fiske sees the fact that he didn't rise through the ranks of the Limited as a strength. "I'm not constrained by the way things have always been done," he says.

For example, C.O. Bigelow, the mortar-and-pestle-decorated shop that Fiske plans to expand to some 150 locations nationwide, is a radical departure from Bath & Body Works' traditional single-brand, single-price-point strategy. Judging from the reaction of Kayla Sharrock, 19, a sophomore at Capital University who went shopping at the Columbus Bigelow on a recent Thursday, the strategy may just be working. She used to go to Bath & Body Works all the time when it exuded heartland hominess. "I was a junkie since I was 12," says Sharrock. But over the years she got tired of products that barely changed from season to season, and she eventually drifted away. Bigelow has brought her back. "They have the stuff here that the fashion magazines talk about," says Sharrock, whose shopping bag is stocked with tiny glass jars of Frederic Fekkai protein conditioner and hair mask. And then she says the thing that must make Fiske's ears tingle: "I'm trading up." --With reporting by Christopher Maag/Columbus

With reporting by Christopher Maag/Columbus