Strouds throws back shroud, rolls out new small format

Discount Store News, Sept 6, 1999 by Robert Scally

THOUSAND OAKS, CALIF. -- Regaining its financial footing, Strouds is rolling out a compact new format and plans to open three new stores in the next year.

The regional linens specialty retailer currently operates 48 superstores in California, Nevada, Chicago and Minneapolis and 17 outlet stores in California.

Founded in Pasadena, Calif., in July 1979 with one 4,400-sq.-ft. store, Strouds built its reputation by selling fine linens using an every day low price strategy.

"Strouds needed to be updated a little bit," chairman, president and ceo Charles Chinni told DSN.

Expansion plans also call for five new Strouds Outlet stores in the next 12 months, in addition to the outlet stores the chain currently operates.

"Every one of our outlet stores makes money," Chinni told DSN.

Comps at Strouds' outlet stores increased 4.7%, and net sales gained 6.2% during fiscal 1998.

Chinni said he knows that Strouds can't play the same game as Bed Bath & Beyond and Linens 'n Things.

So he is taking Strouds into niches where his competitors aren't.

The new Strouds format prototype in Thousand Oaks, Calif., is a 9,900-sq.-ft. storefront located in a small but busy upscale strip mall.

The store's neighbors include a California Federal bank, a juice bar, a bagel shop, Starbucks and a men's clothing store.

The new Strouds features modified racetrack design, clipped corners in the rear of the store, improved lighting and upscale displays arranged on trendy nesting tables or light-colored wooden cubes.

Though it is 5,000 sq. ft. smaller than Strouds' superstores, the new store offers almost as many skus as the superstores.

"This is a much more efficient use of space," Chinni said.

An improved wrap counter, finished in the same light wood that many of the display fixtures are made from, is located at the front of the store. The cash wrap island includes five register stations and helps improve customer flow.

Gone from the mix are items such as housewares and most other non-linens merchandise.

The new store does retain a small picture and frame area as well as lines of seasonal custom plush, which this year is a teddy bear dubbed the "Millennium Bear."

The new non-outlet stores borrow some of the best attributes of the old Strouds--the chain organizes most of its merchandise by color and sells linens as open stock rather than in sets--with new upscale treatments.

With the new prototype, Strouds is aiming more upscale and is emphasizing a solution selling environment.

"We know we have to market that differentiation," Chinni said.

Chinni said that he wants Strouds to be the dominant retailer in its trading area in categories such as top-of-bed.

Displays featuring beds made up with coordinated sets are important and are rotated frequently to keep the store fresh.

Strouds is also striving to offer better service, Chinni said. All sales associates must take an annual linens knowledge test and have two opportunities to pass. If they fail twice, they will be fired.

"Going for the upscale market is probably the best idea for Strouds," George Whalin, president of Retail Management Consultants based in San Marco, Calif.

"They can't play the Bed Bath & Beyond game, so by differentiating themselves they have a fighting chance," he added.

A few years ago, Strouds was stuck, its growth stalled by a raft of problems.

In the late 1980s, Strouds changed the format of its linen specialty stores ranging in size from 5,000 sq. ft. to 10,000 sq. ft. into a chain of 17,500-sq.-ft. superstores.

The new Strouds superstores generated higher sales volume and had good merchandising presentations.

But higher occupancy and fixture costs, along with costs from converting the chain to the new format, lowered the chain's sales per square foot. Profits suffered and an expansion bid failed as its new competitors grew into national chains.

An attempt to expand into the Midwest and Northeast in the mid-1990s with larger superstores and an expanded product mix was unsuccessful, and the company retreated, leaving just seven stores outside of California.

Chinni, a former merchandising executive at Kmart and Macy's, came to Strouds in July 1997 to turn the company around.

Strouds lost nearly $22 million, $2.58 per share, in fiscal 1996 ended March 1, 1997, on sales of $209.7 million. In fiscal 1997 the loss was trimmed to $3.8 million, 44 cents per share, on sales of $221.8 million.

Comps growth in fiscal 1996 was 0.1% and 0.3% in fiscal 1997.

By the end of fiscal 1998 on Feb. 27, 1998, Strouds reported a net income of $214,000, 2 cents per share, on sales of $227.5 million. Comps grew 3.3% companywide.

Chinni said Strouds is now ready to resume expanding outside California into markets contiguous to the chain's base in the Golden State. At least one of the new-format conventional stores and two of the outlet stores opened this year will be outside of California.

The new Thousand Oaks prototype should be a good test of Strouds' competitiveness, since a Linens 'n Things is within walking distance and a Bed Bath & Beyond is located in a shopping center about two miles away.