Struggling retailers seek survival in transformation - Brief Article

Home Channel News, Nov 6, 2000 by John Caulfield

The adage that a leopard can't change its spots apparently has never been heard in certain retail circles. In recent weeks, we've witnessed the ongoing transformation of at least three chain operators that have closed tired outlets and have opened stores sporting shiny new formats designed to lure more customers and, implicitly, to encourage shoppers to forget about what existed previously.

Frank's Nursery, Payless Cashways and HomeBase are among the latest group of dealers to test the theory that image" -- as in the market's perception of their operations -- is malleable. Each is looking to capitalize on growth segments within the market and is either approaching its customers from an entirely different marketing and merchandising angle, or going after entirely different customers with formats whose products and services play up its stores' presumed strengths.

At the same time, these dealers have or will shut unproductive stores almost as if they were shedding a layer of skin that had become less supple. This regeneration is part of a larger strategy by each company to rehabilitate its financial condition. But the changes are not without risk, as they attempt to cash in on the companies' already established "brand heritage" while trying to distance themselves from it.

After 51 years, Frank's, based in Troy, Mich., has become the industry's largest specialty retailer of lawn, garden and crafts products, with 263 stores in 15 states. Under the ownership of Cypress Group, Frank's has been searching for ways to stimulate more sales and plug leaks in its balance sheet, with fitful success. It lost more than $2 million through the first six months of its latest fiscal year, and has reported negative same-store sales for five consecutive quarters. Standard & Poor's has placed the company's debt on its Credit Watch.

Frank's will shed 42 of its weaker outlets, in part to be able to more fully develop its latest prototype (see story, page 5), of which it will have a dozen units opened by year's end. The retailer used that prototype to enter the Tidewater market in Virginia earlier this year.

For at least 10 years, Payless Cashways has been snuggling up to its professional customers. I would argue that, until recently, that embrace had been incremental to the point of being glacial. Nevertheless, the company's new management team seems more committed than ever to presenting Payless as a place where pros shop. The company's PCI Builders Resource format -- a pro-oriented lumberyard with interior office space -- is its boldest departure from the conventional retail building supply outlets Payless had been running since the 1930s. By closing another 22 stores (see story, page 1), and by dipping ever so gingerly into manufacturing, Payless is sending an unambiguous message that it won't allow its profitability to be jeopardized any longer by an outdated business strategy.

Profitability is also the goal for HomeBase, the 17-year-old company whose turbulent ownership and management history has militated against the kind of strategic consistency a retailer needs to connect with its customers. After seeing its net income plummet to $12.6 million in 1999 from $76.7 million in 1996 and reporting negative same-store sales three of the last four fiscal years, HomeBase -- whose extensive store-remodeling efforts of late had little impact on customers -- had to change course, and fast. As NHCN reported in its Oct. 23 issue, its new tack is House2Home, the home decor and outdoor living format that, at a cost of $8 million, has been installed into five HomeBase stores, and now looks to be the chain's format of the future.

All of these changes were necessary and make sense. I hope they succeed. And the determinism that underlies these retailers' attempted transformations -- which seems to indicate that, if these new formats don't work, what will? -- is going to be fascinating to track.