ShopKo's 'vision' upscale, expanding - Shopko Stores Inc

Discount Store News, July 5, 1993 by Dawn Wilensky

GREEN BAY, Wis. -- Before an enthusiastic crowd of stockholders and employees, president and chief executive officer Dale Kramer announced that ShopKo will embark on its most aggressive expansion plan in years. The regional discounter, which has grown by about 7 stores a year since 1988, plans to build 37 stores over the next three years.

Describing ShopKo as "The Hometown Department Store," Kramer said the discounter must further distinguish itself as upscale by strengthening its commitment to quality and seeking out vendors who will bring a new level of fashion to the stores.

This commitment to fashion is found at the chain's Vision 2000 prototype, a merchandising concept the chain rolled out in November 1991, which will serve as the model for all future store openings.

"We are very pleased with the initial results of Vision 2000, and we are excited about bringing it to the entire ShopKo chain," said Kramer.

By 1994, the chain expects to build 10 new stores and remodel 31 others, which will bring the number of Vision 2000 stores to 79, representing 61% of the total chain.

Most of the new stores, which will fit into either the 74,000-sq.-ft., 88,000-sq.-ft. or 99,000-sq.-ft. standard-size prototypes, will be built in ShopKo's current geographic regions in upper Midwestern, Mountain and Pacific Northwestern states, in addition to two new markets, Illinois and Colorado.

Currently, the chain has eight stores under construction, including six new stores that will open this year in Dixon, Ill.; Duluth, Minn.; Sheboygan, Wis.; Loveland and Longmont, Colo.; and Lacey, Wash. Two others are being relocated in Mitchell, S.D. and Marshall, Minn.

In addition, during the past year, ShopKo completed a $34 million expansion of its distribution centers located in DePere, Wis.; Omaha, Neb., and Boise, Idaho.

Besides its Vision 2000 prototype and expansion and remodeling, the chain is pursuing improvements in health care services, distribution and replenishment logistics, and customer satisfaction.

Perhaps the strategy that has received the most attention is health care services, with the chain making a true commitment to both its pharmacy and optical centers--areas that have been exceptional performers.

The chain is making a multi-million dollar investment in new pharmacy and optical software systems and in-store processors. This will enable it to pursue third-party contracts with large employee groups and insurance companies, an increasingly important part of the pharmacy business.

Kramer illustrated the importance of this segment by pointing out that at its pharmacies, ShopKo fills nearly 8 million prescriptions and sells almost 350,000 pairs of glasses and contact lenses at its optical centers. Industry statistics indicate that ShopKo pharmacies fill 58% more prescriptions than the traditional chain drug store.

To better facilitate its growth, ShopKo plans to improve efficiency in distribution and replenishment. Besides expanding its three DCs, the chain brought online a state-of-the-art warehouse management system. Kramer feels the new system will help reduce merchandise acquisition costs, improve store delivery frequency and in-stock position.

In achieving its other strategy--customer satisfaction--ShopKo has asked The Gallup Organization to conduct consumer research by store each month. This will allow the chain to better determine what its customers like and what needs to be changed.

Mark Kennedy, executive vice president, gave shareholders a look at ShopKo's financial performance. For the year ended Feb. 27, 1993, its fiscal 1993, the chain recorded sales of $1.7 billion and net earnings of $50 million, the 12th consecutive year of increased sales and profits.

Kennedy expressed mixed emotions about the results as the discounter did not achieve its planned results due to lower inflation, a soft economy, a cool spring/summer selling season and a mediocre Christmas selling season.

Looking toward the future, value, not price, is what Kramer feels will drive the chain and keep it competitive against the powerful national chains which share many of the same markets.

"This year ShopKo will compete directly with Wal-Mart in 58% of our locations, against Target in 50% of our locations, and Kmart exists in virtually all markets where we do business," said Kramer.