Payless facilities to include manufacturing capabilities

Home Channel News, July 3, 2000 by Sean Sexton

Building materials retailer also enters into marketing deal with ComerHardware.com

LEE'S SUMMIT, Mo. -- As part of its shift to become a full-fledged pro dealer, Payless Cashways is in the process of developing distribution centers that would include component manufacturing and assembly.

Millard Barron, Payless' president and CEO, told NHCN in a recent interview that the first of these facilities would open in early August. He declined to identify where the sites would be located.

The DCs, Barron said, will have the capacity to manufacture wall panels and roof trusses, and would fill out the retailer's offering as it moves closer toward servicing builders and remodelers.

"We are the one company that can provide all the materials needed to build a home, from the basement to the roof," Barron said.

The idea for the DC was developed by Frank Chambers, Payless' executive vp-professional business development, and Ken Kuehn, vp-professional sales. Payless recently hired Kuehn from Wickes, which also has DCs and manufacturing facilities.

On an entirely different front, Payless has entered into a marketing agreement with CornerHardware.com. The agreement is designed to give Payless' customers benefits such as discounts on merchandise they purchase online. Though Payless won't supply any of the products that CornerHardware is selling, the deal was designed so Payless won't lose its relationship with its customers.

"The reality is that Web sites are always going to be out there; [so] if we bring them to our customers, by promoting them in stores and in advertising, we can influence the site operators to better focus on our customers," Barron explained. The deal leaves open the possibility for future experiments in joint marketing strategies.

These developments come on the heels of a difficult second quarter for Payless. In the three months ended May 27, sales were down 14 percent to $421.7 million, same-store sales were off 12.2 percent and net income fell 56 percent to $1.2 million. Through the first six months of its fiscal year, Payless reported a $4 million loss. But that was a significant improvement over the $7.1 million loss in the first half of 1999. However, the company continues to struggle in its efforts to improve sales: first-half revenue was off 13 percent to $769 million, and same-store sales fell 10.6 percent.

Barron was optimistic because his company's quarterly earnings before interest, taxes, depreciation and amortization were up 18.6 percent to $21.4 million. "While we don't like declining sales, we are very pleased with our developing business and profit model' he said.