Salvatore Ferragamo in Bal Harbour, FL

Guest: Tom Costello
Topics: Salvatore Ferragamo, real estate

Transcript:

Chris Ressa 0:00
This is retail retold the story of how that store ended up in your neighborhood. I’m your host, Chris ReSSA. And I invite you to join my conversation with some of the retail industry’s biggest influencers. This podcast is brought to you by DLC management.

Welcome to retail retold everyone. Today I am joined by Tom Costello. Tom is a retail real estate veteran. He’s been in the industry for over 40 years. I am excited for him to be here. Welcome to the show, Tom.

Tom Costello 0:33
Thank you. Thank you for having me. And happy and nervous to be here.

Ressa 0:37
Oh, don’t be nervous. Tom, you’ve been in the industry for a long time. Tell us a little bit how you got in the industry and what your career path has been.

Costello 0:45
Okay, my my first real job out of school was at Macy’s, Macy’s in New York, and I was invited to join their executive training program, which at the time, back then was they were receiving about 10,000 resumes for 200

executive training positions, wow. And it was also stated that if you could get to be a buyer at Macy’s, it was like the Harvard of you know, the Harvard of retail, like getting an MBA at Harvard for retail, and ethical Steen and art Reiner, we’re running the show back then. And it was a very high performance time for Macy’s. They took them out of the bargain basement, they created all sorts of new concepts like the seller, and retail was theater. And that was their whole premise. And they they were, you know, a retail disruptor if you would, back then. And it was a it was a very interesting place to be at a very interesting time.

Ressa 2:02
And how long were you at Macy’s?

Costello 2:04
I was at Macy’s for 10 years. Okay. And I will tell you one of the things that I did there that might be interesting to you because I saw I saw some of your background on LinkedIn. And you know, as a kid growing up, sports, sports comm competitive and you know, everything in me anything. So at the time, I was doing a lot of weightlifting. In college and after college and I did some bodybuilding as well. And we had we had a concept at Macy’s accent shop, we were going to have a California conceptual season, right. So all these things like Pacific Coast Highway and all things done in fun and my thing was, I love this little t shirt that I had little muscle shirt, that old guy on it said Gold’s Gym, okay, the only place you could get that stuff was out of the back of Muscle and Fitness magazine. And what I did with permission from my boss and his boss was reach out to goals and told told them that we were interested in doing a shop and shop concept. Long story short. They agreed. We set up shop in shops and stick in the 16 Macy’s New York division stores at the time. And and I had dentist in Reno and devastated Reno and Baldwin kowski. Dennis was a Mr. Universe winner and Hallgren kowski I think was Mr. USA. And I had them come into two of our stores and do seminars, one in White Plains, and one in Stanford. And you know, we had a big crowd of people come in and bought lots of merchandise. And it was it was just a really fun thing. As an adult, they used to like to say that I took them or I helped get them out of the back of the magazine to you know, the world of retail, very cool. We taught them some things along the way because they were using blanks, which is just playing T shirts from all of these different brands. So every every shirt, every sweatshirt, every pair of sweats had a different label in it, you know, one might be Hanes one might be you know, VTS or all of these different labels, so we got them to standardize everything got them to put stuff on the shelf so that they can replenish us. And it was, you know, it was a big feather in my cap too, and a lot of a lot of fun.

Ressa 4:51
So you went for Macy’s. What happened next one, too.

Costello 4:54
Next stop was Brooks Brothers, which was a a very We all mine all the retail store in America actually 1818. And they were in the midst of they had been recently bought by Marks and Spencer, which was an English company who actually thought that America was still a colony. And so there was a lot of interesting stuff. And interactions going on there, they had a whole different approach to the business. They, they had really taken a lot of creativity out of the way they ran their business, and everything was about numbers, and, you know, being counting and no creativity with with the product. So that was that was a little bit of a different spin because Macy’s was the complete antithesis of that. It was it was about everything was about the product, everything was about believing in what you were doing, and and buying and putting it out there for the customer. And that that worked for a long time.

Ressa 6:04
And and what were you doing at Brooks Brothers

Costello 6:07
had Brooks Brothers, I was divisional Merchandise Manager. But shortly after I got there another quick, I tried to make this story quicker. It was it was just about the time, or just after the time that outlets were coming out of the pipe rack experience in the side of the warehouse or the side of the manufacturing facility and becoming mainstream. So I was myself and another gentleman were pulled out of our our mainline jobs for about two months. And we did a deep dive into why Brooks Brothers always had so much merchandise left over at the end of the season. Number one and number two, what could we do? What were the alternatives to liquidate that merchandise because we at the time we were filings basements, number one vendor and their most profitable vendor. So and we were just feeding it to them. And so two things came out of this eight week assignment, I wrote a white paper I co authored the right white paper that recommended an outlet strategy, which coincided with like I said, with an emerging, emerging emerging new spin for the retail industry. And guys like Chelsea Property Group, we’re just starting to come alive. Anyway. We we opened three test stores Kittery, Maine, another one in Maine and Manchester, Vermont. And the rule was these things had to be at least 75 miles away from any full price proline Brooks Brothers store and an over and then in addition to that, we’ve we had a recommendation for best buying practices, a whole blueprint of what the business was to focus on for the next two years. Long story short, again, Brooks Brothers ended up having the outlet constant drove the business for years, as their main business had had sort of leveled off and faltered their stores, oversize, they had too many of them they overlapped in markets. So there was there was a whole production plan going on the full price side of the business, but the outlet business was exploding. We hit it exactly at the right time. How long we are Brooks Brothers for a little over five years. And then what’s next? Next is Hugo books. Okay, and I was I was brought in to Hugo Boss as the director of retail operations. And what they wanted to do was create a franchise system. Hugo Boss wanted to be in retail but they didn’t want to sell funded. So we were looking for other people’s money of course, so I have had no experience in it, but I sat down, found a franchise lawyer. We put together a whole franchise system. All of the registrations, the modeling. And I then took that and did a dog and pony show to our best wholesale customers and to see who would have an interest in becoming a opening franchise full line franchise Hugo Boss stores ended up with about What one other thing when I got there, when I got to Hugo Boss, they had one license store. And so that I had to convert to a franchise once I got that system up, and then I got to about 12 stores in the franchise system. And we all decided that we’re not really a franchise, we’re not really franchising, okay. And we, we converted everything over to licensing or back to a licensing system because we weren’t charging a royalty sheet. We were we had a system, we had a trademark, but we weren’t charging a fee. And we weren’t marking anything up other than what we did in the typical retail world. So wholesale to retail world. So anyway, we back that off, I got up to about 30 franchise stores. We had 10, I did 10 with the Harry Rosen group out of Canada, so

Ressa 11:06
and for the audience. So if you’re a if you’re a business, and I franchise to you, as a franchisor the real way I’m making the money is through the royalty fees. And if I license to you, I’m making money through the product I’m distributing through to you.

Costello 11:28
There’s three things that constitute a franchise, right? There has to be trademarks involved. Yeah, they own the shop, they own the fixtures, they own everything. I’m just not charging. I’m charging it. I can’t do it in a license agreement. You’re not charging a royalty okay, there’s no fees there’s no there’s no there’s nothing that could be construed as a fee being charged to the licensing. And that’s the distinction. There’s there’s no there’s no money involved. And but but the way we were running our system anyway, the way we made our money was through the wholesale that we were selling the wholesale products that we were selling the franchisee so it was really a fine distinction between the two and they decided to roll it back because, you know, I was one guy trying to run the system. And there’s registrations involved there’s, you know, different things by the states.

Ressa 12:31
Both you guys found were inefficient and decided to go to Company owned stores.

Costello 12:37
Well, what what what the impetus was that as a brand, you have a vision for your brand. And in order to control that vision and the brand experience from start to finish. You need to have ownership. Okay, I became like it at about six months after I got there, they promoted me to Vice President of store design, construction, and retail. And I became like a psychiatrist, and every one of my life my licensees had a different idea of how to merchandise what they wanted to buy, what products they wanted to present. And it was it was it was very difficult to control. And it was also difficult to control the experience that was occurring in the store with with the with each shop, even though we had training programs and things like that for all of their associates. But they still kind of you know, like to do what they like to do.

Ressa 13:43
Yep. Okay. And so you spent some time at Hugo Boss Boss, where do you go next?

Costello 13:51
Salvatore Ferragamo.

Ressa 13:53
Okay,

Costello 13:54
I was I was five for about six years at Hugo Boss and then Ferragamo I arrived in 2004. And it was it was a good time because Ferragamo had had been riding a crest for a while but they got a little fat and happy. And they didn’t change with the times when I got there. People referred to it as Thera grandma was like the big joke in the industry. And so our our goal was to get for control purposes, focus them on become a retail focus company as opposed to a wholesale focus company. They had stores but the majority of their business was wholesale. That was the driver of the business and stores were like a sideshow. Almost, you know, they were there. They weren’t really focused on they weren’t kept up the right way. So we came in and A guy who I had worked for a Hugo Boss came in as the CFO there. And about a year later, he got promoted to CEO, President and CEO. And he brought me in as the VP of real estate and construction. And about eight months after I got there, they promoted me to Senior VP of operations. And I, I was running, you know, everything’s from the distribution center and warehousing to the legal, the store planning and design, travel, purchasing, everything that nobody else wanted to do all of the unglamorous stuff, which is, you know, that’s that’s what I like, I don’t like to be I’m a I’m a great second in commands kind of thing. I don’t mind being, you know, in the background, making things happen.

Ressa 15:59
And then the your most recent stop after that was at David Yurman. David Yurman. And what did you do there?

Costello 16:08
Well, David Yurman, had been trying to get into Paris parents for 10 years, I was helping. And every time they found a great location, and they were on it in at the last minute, one of the big guys like LVMH, or caring swooped in and, and cherry pick cap location from them. And they were down the road many, many times. So what I had, what I did was I worked with Cushman and Wakefield was the broker we were using Anton Antoine. And what I had him do was to go knocking on doors find out we targeted the area that we wanted, where we wanted to be generally, and we focused in on certain parts, certain streets, and locations, and then he kind of went knocking on doors to find out if we could get an off market deal. We wanted to force an off market deal. And we were looking at stores that were underperforming, and maybe they wanted out. And it took it took about a year. But we ended up getting the location. It was the location that we wanted, it was completely under the radar, nobody knew that the place was even in play. And because of COVID Everything got we have a signed lease, but everything got delayed. So I think they’re opening sometime this thing, finally.

Ressa 17:50
Okay. Thank you for the story. I thought it was important because you had so many unique experiences to go through what you’ve done in retail, because it’s quite remarkable. And I want to take us to a part of the show we call clear the air. Okay. We’re going to take a quick break here. And now a word from one of our sponsors.

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Ressa 19:01
I’ve got three questions for you. Question one. What is the last time you did something for the first time?

Costello 19:09
I’m doing it right now. That literally and you know, this is definitely something that’s out of my comfort zone.

Ressa 19:20
So you’re doing excellent.

Costello 19:23
Thank you. You’re very kind.

Ressa 19:25
Okay, question two. What is one skill you don’t possess but what you did

Costello 19:30
this ties back to your previous question. Okay. I would love to be a better extemporaneous speaker and storyteller. I on a hard skill side, I would like to be an Excel Power User. And I’m teaching myself now that I have Some more free time on taking some XML courses to beef up. Of course I can use it but I would love to be a power user.

Ressa 20:08
Yeah, that’s, that’s a big one for a lot of people. I’m with you there. Last question. What is one thing most people agree with but you do not.

Costello 20:17
I’m not going to say there’s one thing but what I will say is my philosophy is to avoid the herd mentality. Okay? And that’s with anything I do, whether it’s in my personal life, my family life or my business life. I think that you have to look through the lens of whatever it is you’re you’re doing, whether it’s a brand or for your family or for yourself and say what is the right thing to do for me? So I don’t necessarily follow the herd, but and I think it engenders creative thinking as well by not doing what everybody else is doing.

Ressa 21:05
some sage advice. I agree with you there. You actually have told us many stories but you have an interesting story about a Salvatore Ferragamo. Why don’t you tell that story about Bal harbor. Okay.

Costello 21:22
What? Not Not too long after I got the Ferragamo. We had a new store manager down at belle harbor. He was a very experienced guy that I knew from from my Hugo Boss days, he was actually the president of a company that’s escaping me in Hawaii. And he had come to Ferragamo as and he was running the San Francisco store. And belle harbor was underperforming significant significantly. And he he was interested in coming to to Florida, and relocating from San Francisco. So he came in and took over it. Shortly thereafter, we came down to visit him, myself and my boss. And we went through the store and we started analyzing and you walked into the store, it was about 4000 square feet. It had a mezzanine that we didn’t pay rent on. And you look at the store, all you see is women’s wear, we’ll choose women’s belts, women’s, this women’s that. And then over here, there’s a little corner. And there’s a couple of men’s things, right. The store was doing about 4 million a year, men’s was doing 65% of the business. Wow. It had it had 15% of the floor space. So so the first thing that we did was we determined we’re going to reset the store and we’re going to rebalance the allocation of the real estate between men’s and women’s no brainer, right. And we were we were bursting at the seams we had we had we couldn’t keep merchandise in stock, we had no place to put it. The turtle was way, way, way above the company average, we were over the the square foot average productivity for the center. Now, we were doing probably 4000 A foot when they were doing 3000 A foot good problem to have. But they belle harbor had been working for years on trying to expand the center. And nothing was going to be happening anytime soon. This is probably back in like 2011 2012. And they had they’re like we’d love to make you bigger. We’d love to do this. And over us was this bookstore that they loved. They sell books and magazines. And the guy had been in the center for so long. He was you know, like a fixture there. And I said, Well why don’t and no no other store habits in the center. Why don’t we go up? Let us take over this is bookstore space. Go up put in an elevator we’ll put in us there and no other tenant except the two actors Saks and Neiman’s had two wells in the in the entire center. That includes Louis Vuitton, Gucci, Chanel, everybody. So they thought about it. And they greenlighted. So once they did that now we had not we had a big challenge. So you take in a very old building, and we have a mezzanine in between the two floor on part of it. We have a mezzanine between the two floors. We got to figure out where all the mechanicals going to go and cuz it was it was a challenge, but it was fun. And when we were done, we had a beautiful two level store the only one in the center besides the anchors. There’s more now Chanel actually ended up doing a two level store as well. And now they have their they’ve accomplished their expansion. So there’s more room to breathe now. But we were the first week that it and it was it was a was a good thing that we were a favored tenant. They liked us because we had been very loyal to belle harbor. I don’t know, you know, there’s there was what was going on at Aventura, and people were were going into Aventura, from belle harbor. And then there was the design district which every budgetary brand jumped on. Except for me. I had lots of fights about that, Senator, I never, I never believed in it. I said there there, I don’t know, seven years, seven to 10 years ahead of their time. And that I think that turned out to be true. And I think third domino now went there. It So

Ressa 26:19
an interesting, really interesting story. You have a lot of questions, because when you first took over, he was doing $4 million, then it went to six then it went to $8 million. With this new manager. What did the new manager do?

Costello 26:35
He just did all the basic blocking and tackling yet he that he had relationships with his personality. He was like the mayor. So every customer loved him. And then everybody in the corporate office loved him. He developed relationships with all of the buyers, and merchandisers and you know, he could pick up the phone and say, I’m selling this we had we had shearling coats, okay. He said I can sell these and they’re like in Florida. I can sell ship them down. He sold for years, he sold more shearling coats than New York. Okay. And he was selling them to all the South Americans, you know, because they have a winter

Ressa 27:21
down there. Right? Make sense

Costello 27:25
that a lot of Brazilian customers.

Ressa 27:28
What I assume one of the reasons that sales moved is because one of the first things you did was the existing real estate allocation. You change that up to bring more menswear into the store. So that obviously had an impact.

Costello 27:42
Huge impact. We had we had ended up having a belt fixture we originally had a belt picture that had like you could have four styles of belts on it. We put in one that was about 4042 inches wide, maybe four feet wide, four feet wide. Let’s call it we were doing over a million dollars a year on that belt fixture. Wow. That was mind blowing. Wow. And it’s it’s all about teamwork and collaboration and listening to your customer but listening to your internal customer as well. Meaning meaning the offices and the stores.

Ressa 28:26
Yeah. So you do this real estate Alex, you know, existing real estate allocation of merchandise. You get a new new manager Luigi in there, and then you decide you’re gonna go upstairs.

Costello 28:40
And

Ressa 28:43
you mentioned a couple of things that always scare me, which is elevators and stairwells because they cause because it’s not just the cost of those it costs a lot of money to go vertical. How big of $1 value was this project?

Costello 28:59
We built this for $7.2 million

Ressa 29:07
for an extra 4000 feet.

Costello 29:09
Yeah. And well, we did we did redid the whole ground store. We did a gut renovation of everything.

Ressa 29:16
And so you had to Right. Was it? Was it 8000 feet total? Is that what it was? Yeah, yeah. Wow. And you do 8000 feet $7.2 million. Unbelievable. And you have you mentioned this you’ve got the whole store did you shut down because I know that scary to retailers to shut down the store.

Costello 29:38
We We were fortunate enough to get a timespace so we attempt out and actually we we really didn’t lose very much business at all. I think we lost 5% When we tapped out.

Ressa 29:55
Wow. So you tapped out? How long did This project take,

Costello 30:01
I think it was 2021 or 22 weeks because of the because of the elevator and the stair. Wow, typical were typically we were an 18 week construction period.

Ressa 30:14
So the elevator and stairs now you have a $7.2 million store, how much did sales increase?

Costello 30:22
Well, the first year they increased a couple million dollars and then, you know, the whole economy took a bit of a dive. So it was it was we were we were initially we were very happy. And then eventually we were disappointed because the the South American stop coming. The Russians stopped coming. It was something that was out of our control. But I’m sure I don’t I don’t know. And then not too long after is when when I last

Ressa 31:00
what a what an amazing story, though to, you know to? If you get if you spend 7.2 million and you get an incremental revenue lift of a couple million dollars, then it’s worth it as it made sense.

Costello 31:15
We did we did a similar thing. Well, not similar. But we had a similar challenge on Rodeo Drive where we had Bill snowfield, who’s a starchitect redesign a new concept store from the ground up for Ferragamo different than anything they ever had done before. But time back to that glamorous time, kind of art deco week time of the 40s and Hollywood glamour. And he did an amazing job. The big challenge there was our store was in the bottom of what originally was a parking lot and parking deck. And they carved out the bottom piece of that parking area as stores, retail stores and we had we had the majority of it. And that parking deck, that whole building moves, okay, because of the load and the way it was originally constructed and because of probably earthquake codes and things like that. So it was a big challenge. And we had a lot of a lot of chrome and a lot of mirrors in that store. That was another $8 million project. Wow.

Ressa 32:34
The i What time period did you do the Bal Harbour expansion?

Costello 32:40
belle harbor was around 2013 2014.

Ressa 32:48
I cringe to think what the construction cost might be today to do that roof.

Costello 32:52
I’ll tell you, I’ll tell you that the construction costs in Florida were much lower than any of the other major markets that we built it like Chicago, or like San Francisco, San Francisco was a killer. La was not so bad. But But compared to those Bell heart and Bell heart harbor. Miami was a bargain.

Ressa 33:21
Unbelievable. Well, this was great. Thanks for sharing that story. I had no idea. That’s how Bal harbor got a two story store in our half Ferragamo got a two story story about harbor. Well, listen, you’ve given us a ton of insight today. Thank you so much for coming. I want to take us to the final part of the show we call retail wisdom. I’ve got three quick questions for you. Are you ready? I’m ready. All right. Question one. What extinct retailer Do you wish would come back from the dead Tom?

Costello 33:50
Sears. All right. Sears. out of college. My first credit card is yours.

Ressa 33:58
Hi, there you go. Question two. What is the last item over $20 You bought in a store?

Costello 34:05
Don’t laugh. It was last week. And I my wife is very particular. She has a very sensitive nose and there’s only one one brand with one cent of laundry detergent that we are allowed to purchase in this household. So I bought 238 ounce bottles or containers of tide. Clean breeze from Lowe’s. Okay. And I found out you know I’ve been I’ve been buying it there. It’s the only place I’ve been able to find it and unlike I can’t find it in BJs. I can’t find it in the grocery store. And I was like I’m going online. I want to see where I can get this and actually target cells and I can get it for about 10% less. So the next time I’m going to target All right,

Ressa 35:00
I like it. Last question. If you would, I was shopping at Target and I lost you what I owe when I find you when

Costello 35:09
you find me in the electronics department.

Ressa 35:13
Okay. Very cool. Well, Tom, this was great. Thank you so much for coming on. You are a wealth of knowledge and great stories.

Costello 35:22
Thank you for having me.

Ressa 35:24
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