Discounters Boosting California Stores
With the direction of the economy a crapshoot for most industry observers, saving money has never been a better idea. And, discount retailers, who often weather the fiscal storm better than their higher-priced contemporaries, are aligning their strategies with the frugal mind-set in California.
Along with announced plans by discount department store Kohl’s Corp. to open about 28 stores in Southern California by March 2003, discounters such as the 1,355-store chain of Big Lots Inc. are planting stakes beside their rivals.
About 113 stores are planned for the next five years, according to Kent Larsson, Big Lots’ executive vice president of merchandising and sales.
“We have 187 stores in California and it’s a huge growth market for us,” he said. “We’ve been very pleased with our performance there.”
With $3.4 billion in 2001 sales and 13 consecutive months of same-store sales increases, Columbus, Ohio–based Big Lots is the broad-line close-out king, stocking items in home furnishings, food, toys, household goods and seasonal products. It acquires leftover and discontinued items from about 3,000 vendors, including Procter & Gamble, Mattel and apparel makers. Items can range from Palm Pilots and Schwinn scooters to wedding gowns and Barbie dolls.
Big Lots derives 5 to 10 percent of its sales from apparel, and hopes to build on that base by expanding its close-out apparel business. Ties to local vendors have led to purchases of Hang Ten, Lee and Rampage clothing.
“Our first priority is to chase down brand names, which are what our customers want,” Larsson said.
Under the leadership of chief executive officer Michael Potter, the company formerly known as Consolidated Stores Inc. transformed the way it did business two years ago by focusing on its image. Its stores—a hodgepodge of Big Lots, Odd Lots, MacFrugal’s and Pic ’N’ Save— began operating under the Big Lots name.
Fixing up its stores was another top priority. Dim lighting, cracked floors and a lackluster interior were key reasons not to shop at Big Lots, so Potter has refurbished each store with new paint, light fixtures, signs, floors and bathrooms at a unit cost of $25,000 to $80,000. Larsson said the investments are translating into sales gains approximating 7 percent.
The success has surprised some analysts who questioned the move of dumping the locally well-known Pic ’N’ Save name.
“Pic ’N’ Save had a strong presence as a brand in Southern California and we were concerned about the change, but it looks like the stores are doing fine under the Big Lots banner,” said David Mann, senior retail analyst at Johnson Rice & Co. LLC.
Another emerging player on the discount scene is Jacksonville, Fla.–based Stein Mart Inc. In the past few years, the retailer that sells clothes 25 to 60 percent below retail price has opened 17 stores in California with more to come, according to spokesperson Susan Edelman. The 263-store chain expects to open up to 30 units next year nationwide, with a number planned in California.
“We’ve ratcheted up the pace of store openings in California as people have responded favorably to our product,” Edelman said.
Most recently, Stein Mart opened three stores in Southern California. Along with bowing units in Irvine and Granada Hills, the retailer has launched a concept store called Collections of Stein Mart. The 15,000- square-foot prototype, a smaller store geared to resort communities, opened at the Peninsula Center in Palos Verdes in October, featuring a more edited assortment of apparel for women and men, as well as accessories, gifts and ladies’ shoes. Liz Claiborne, Jones New York, Polo Ralph Lauren and Evan-Picone are among the brand names often found at Stein Mart stores.
It’s the caliber of such labels that pits Stein Mart against Kohl’s, say analysts, but Edelman noted that rivals are “part of the business.”
Not all discounters are faring as well.
Struggling San Diego–based Factory 2-U Stores is in the midst of a restructuring plan. The off-price retailer has planned to close about 28 under-performing stores and six other units due to either non-renewable leases or relocation opportunities.
On a brighter note, the 225-store chain received a lift earlier this month when it announced the hiring of William Fields, the former chief executive of the Wal-Mart Stores retail division. Fields replaces Mike Searles, who resigned in August amid the company’s mounting losses.
Analysts praised the move, buoyed that someone with a strong retail and operating background has confirmed the concept of the company.
