Barnes & Noble is deepening its embrace of Book magazine:

Book, a magazine filled with book reviews, author interviews and effusive features like "Anita Shreve's Secret Passions" and "Hype! Hype! Hype! Wild Publicity Stunts," grew so fast under Barnes & Noble's patronage that production costs soon overwhelmed any added revenues...

Now, Book and Barnes & Noble have restructured their partnership to cut costs and more closely integrate the magazine with the chain. Starting with the May/June issue, the magazine will be called Barnes & Noble Presents Book.

This diversification, like most moves by retailers to branch out into non-core businesses, is a questionable move. It's hard to see how the magazine can thrive if it is so closely tied to one book seller:

But Book's more public connection to Barnes & Noble is already having some unpleasant repercussions. Borders, the nation's second-largest chain bookseller, has decided not to carry Book after the current issue, and Mr. Gleason expects that independent booksellers will follow suit.

You can't have it both ways. If the magazine is little more than a mouthpiece for Barnes & Noble, its growth will be limited.

Gucci is faltering (WSJ: requires subscription) after being reinvented in the 1990s after being bought by the LVMH group:

The two rescued Gucci from near bankruptcy in the 1990s. They bought back thousands of product licenses from manufacturers who were sullying the brand by plastering its logo on key chains and umbrellas. They opened Gucci-owned stores, for which Mr. Ford created a common look, going so far as cutting decorative flowers to exactly the same height.

In 1995, Mr. Ford unveiled a breakthrough collection. Gone were Gucci's traditional loafers. The new Gucci woman wore tight-fitting, hip-riding pants and a peacock-colored shirt unbuttoned to the navel. The look catapulted Gucci back into the fashion columns.

But recently fewer customers have been splurging for their high-priced purses and loafers:

Gucci, one of fashion's biggest success stories in the 1990s, has hit a rough patch. Reduced global travel at a time of economic stagnation, terrorism and war talk has hammered an industry that counts on free-spending tourists for much of its sales.

Speaking of brand diversification, Liz Claiborne added to its string of acquisitions by buying Travis Jeans, a.k.a. Juicy Couture. Over that few years, Liz Claiborne has skillfully bought up clothing lines and chains of stores that are complementary and don't cannibalize each other's business, including: Sigrid Olsen, Lucky Brand jeans, Mexx shops and Ellen Tracy.

Brand out of focus? Sales of Tommy HiIfiger's line of clothing for plus-sized women have been growing while the brand has been losing ground among teenagers. I don't think the two trends are coincidental. The 18 year old gangster-wannabe wouldn't be happy to be spotted wearing the same jeans as his mother. This is a clear case of losing sight of who your customers are.

Tommy Hilfiger is closing 37 of its 44 specialty shops as it struggles to reinvent itself. Tommy Hilfiger has lost its grip on the hip-hop market:

Now the dreadlocks are gone from the advertisements-- and the big red, white and blue "Tommys" are pretty much gone from the streets. The Tommy Hilfiger Corporation has announced that it is moving away from its logo after many of the company's earlier urban constituencies abandoned Tommy for designers they call more "authentic": Fubu, Ecko, Phat Farm, J. Lo and Sean John...

"Tommy, Polo Jeans and Nautica are big losers," said Todd D. Slater, an analyst at Lazard, "but the biggest loser is Tommy; he's lost the most market share. Ralph has not lost his core customer the way Tommy has, he said, referring to Polo Ralph Lauren. "As a company, Tommy has to reinvent itself."

It looks like Tommy Hilfiger rode a fad very skillfully but has not been able to spot new fashion trends, much less create them. Tommy Hilfiger has also suffered from two problems I''ve discussed: excessive reliance on markdowns to move merchandise and depending to heavily on department stores for its sales. Department stores have been losing ground to big box discount retailers and upscale boutiques.

The New York Times has more on the Spiegel bankruptcy, citing a default rate of 17 - 20% among its credit card customers:

According to David Robertson, publisher of The Nilson Report, a trade journal that reports on the credit card industry, Spiegel had become, in effect, a subprime lender, offering credit to lower-income consumers who, in many cases, would not qualify for the more mainstream Visa or MasterCard...

When the economy started worsening, Visa and MasterCard started loosening their previously extremely tight standards across the country, Mr. Robertson said, ``casting a wider and wider net for customers.'' The retail companies, trying to compete for a share of the lucrative plastic business, had to lower their own standards even further.

As I said, leave the credit card business to Visa and Master Card. If the retail business is broken, looking for profits elsewhere is just postponing the inevitable day of reckoning.

Why are retailers trying to be banks? Spiegel, owner of the Eddie Bauer line of clothing, has filed for bankruptcy. Troubles at its credit card unit are to blame:

The company's troubles were largely linked to its credit card business, which it has been trying to sell for more than a year. To boost sales, the retailer extended credit to risky borrowers and the plan backfired, industry watchers said...

"By owning their own credit card company, they lost the discipline that is required in not extending credit to riskier borrowers," said Marty Zohn, a bankruptcy lawyer at Proskauer Rose LLP.

I hope Sears is paying attention.

More evidence that focused specialty realtors are thriving during a difficult retail season. Aeropostale and Urban Outfitters both reported strong sales growth. The key, as always, is knowing who your customer is and focusing on serving that customer''s needs in a way to no one else does:

"What they're demonstrating with these strong results is how successful a well-focused, differentiated retailer can be. Or in this case, two retailers: Urban Outfitters and Anthropologie. Both have shown a reason for being that consumers respond very favorably to," said UBS Warburg analyst Richard Jaffe.

The company you keep. This profile of shopping mall-developer Rouse Co. reveals how shopping destinations are increasingly becoming stratified:

Mall building is in turmoil. There are more malls than people want, which forces those of lesser quality to close. People with low to moderate income who used to shop at department stores such as J.C. Penney and Sears increasingly favor "big box" stores such as Target, Wal-Mart, and Kohl's.

"Wal-Mart will build 210 new super centers in 2003," said retail consultant John C. Melaniphy III. "Target's going to build 90 stores, Kohl's 80, but if you look at Federated [Department Stores], they'll open 11 stores. The growth just isn't there for department stores."

Rouse concluded that its best chance to make money on malls is in eschewing the middlebrow and making malls appeal to the upper-middle class. Company executives figure that the middle class may defect from such stores, but that the more affluent will not be nearly so tempted by the price advantages of the big-box stores.

The sheer size and power of Wal-Mart and similar low-cost retailers is eliminating the middle ground: you either sell based on low prices and limited service, or you target the affluent. It is getting increasingly uncomfortable for anyone trying to be in the middle. And, as this story shows, it's getting even harder because the physical middle is dissappearing too. So in the not too far future you may have to decide if you want have Wal-Mart and the dollar store as your neighbor or Saks Fifth Avenue and Louis Vuitton. Tell me who your neighbors are and I'll tell you who your customers are.

Need more proof you need to keep the right sizes in stock? Shares of Bebe, retailer of trendy women's apparel, plunged 20% when it announced it expected significantly lower earnings. One of the reasons analysts gave for Bebe's troubles:

"In essence, the company needs to carry significantly more sizing options to provide a full assortment for the customer. Additionally, the more sophisticated, higher-priced merchandise tends to turn more slowly in the stores," Tennant said.

Inventory Control is not just a "nice to have" or "one of the secrets of success". Inventory control is the engine of the retail company. If the inventory control is not working, nothing will move forward.