Strouds' new market strategy covers growth, multiconcept retailing - Company Profile - Statistical Data Included

Discount Store News,  March 20, 2000  by Mike Duff

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CITY OF INDUSTRY, CALIF. -- Despite financial ups and downs in fiscal 1999 Strouds wants to make it clear it is a growth company once again.

With a profitable 1998 behind the company and store-base growth in the latest fiscal year, the turnaround days are in the past, Charles Chinni, company chairman, president and ceo, told DSN.

Strouds is financing significant store growth out of revenues and is planning to launch a new concept that will complete a reorganization of Strouds as a multiconcept home fashion retailer.

Strouds has partnered with technology firm Guidance Solutions, based in Marina del Rey, Calif., to develop a 10-month-old Web business. The business has doubled sales every month since its inception and is on track to do a full store's worth of business in 2000, with 65% of sales coming from outside the company's California heartland.

The two partners will develop an independent Web company to maximize development flexibility, but it also will leverage Strouds' brand, product expertise and distribution fulfillment infrastructure.

Chinni said other home product e-tailers have approached Strouds about handling their merchandise and fulfillment needs. Strouds will test a new boutique format suitable for upscale malls and shopping areas dominated by service-oriented department stores, such as Nordstrom's. Debuting in May with the name Pure Linens, it will carry top-flight domestics and accessories.

The company also revamped its outlet division and started adding stores. Once a dumping ground for Strouds full-line stores, Strouds Linen Outlets got their own buyers and have been established as off-pricers serving bargain-hunting, brand-oriented consumers who might not be quite as affluent as shoppers of standard Strouds units. Three stores recently opened in the Phoenix area, and the store count will increase to 23 by July, from 17 at the start of December of 1999.

The company has developed a new prototype for its full-line Strouds stores that is better focused on the high-end domestics and bed-and-bath accessories to help Strouds differentiate itself from its competition. Among in-store initiatives is better coordination of accessories with domestics.

Bob Obernesser, an analyst with McMillan/Doolittle, said that while he feels Strouds could better communicate its value message, the company's initiatives had made a difference in its full-line stores.

"Strouds cleaned up their act in Chicago in particular," he said. "It's an easy-to-understand format. I think if it doesn't become confusing, then Strouds is better in its categories then Bed, Bath & Beyond."

Strouds prospects weren't always so good. Although the chain has stores in Arizona, Illinois, Minnesota and Nevada, only nine of 68 full-line stores and three out of 22 outlets currently operating are outside of California. The Mid-western stores are a remnant of what Chinni characterizes as a disappointing expansion strategy that predates his tenure at Strouds. The expansion took Strouds as far east as Maryland but, while the company continues to remain in the Midwest, it closed the last of two Maryland stores recently. A veteran of Macy's and Kmart, Chinni took on the ceo job at Strouds almost three years ago at a time when stores "were bleeding badly."

At the completion of the fiscal year ended March 1997, Strouds lost $22 million on sales of $209.8 million vs. year earlier earnings of $2.6 million on sales of $190.3.

In 1994, the company initiated an aggressive growth effort outside of California. The stores performed below expectations in terms of sales, and accrued high operating, administrative and advertising costs as compared to California stores.

Of course, expansion wasn't the only problem. Competition had arrived out West in the form of Linens 'n Things and Bed, Bath & Beyond. When Chinni arrived, he closed nine underperforming units, and began restructuring management and rethinking Strouds strategic positioning. Merchandise strategy was tightened to focus Strouds as a linens specialty store catering to better quality linens at value prices.

During this period, the company continued to expand under its superstore format, which featured stores that averaged 17,500 sq. ft. Previous to the superstore format's launching, Strouds ranged from 5,000 to 10,000 sq. ft. By then end of the fiscal year ended Feb. 27, 1999, the last fully reported, the company operated 48 superstores out of a total of 65 units. The company also converted some older stores to outlets and started six from scratch to fill out the total store count. Outlets averaged 8,100 sq. ft.

Superstores open for the full fiscal year ended Feb. 27, 1999, generated average sales of approximately $3.8 million and average sales per square foot of about $221. Those figures exempt the special-case Irvine, Calif., Strouds, which totals 50,000 sq. ft.

Outlet comp stores averaged about $2 million in sales and per-square-foot sales of about $252 in the period, again excluding the unique outlet store delivering sales of approximately $5.6 million and sales per square foot of approximately $552.