Big shakeouts continue to reshape retailing - Discount Store News Annual Discount Industry Report; Part 1: Chain Analysis

Discount Store News, July 5, 1993

The sporting goods segment dominated the retail restructuring that took place since January 1992, accounting for four initial public offerings of megastore chains and the fire sale of four money-losing conventional chains that sold more than $1 billion in sporting goods equipment and apparel last year.

But the liquidations of Child World and Lionel Leisure (Kiddie City) also cut a wide swath through the toys segment, leaving the field largely to Toys "R" Us and Kay-Bee.

And the disintegration of the catalog showroom industry continued apace. Three smaller catalog showroom chains liquidated. Two others dropped their catalogs--then slipped into Chapter 11 bankruptcy and closed stores.

Thanks to the boom in initial public offerings in 1992, a number of smaller specialty retailers were able to go public to finance expansion, pay down debt or reward founding stockholders with handsome profits.

From July 1992 through June 1993, nine discounters went public, ranging from Amber's, a craft chain that raised $8 million, to Sports & Recreation, which sold $88 million worth of stock.

In contrast, only two IPOs topped $100 million since Stop & Shop Cos. spun off Bradlees in May 1992. Those companies are PETsMART and Bed, Bath & Beyond. The Bradlees deal, the largest at $176 million, led the way. PETsMART was next at $126 million, and Bed, Bath & Beyond followed with $104 million.

PETsMART filed its IPO in June. Bed, Bath & Beyond's $104 million IPO was completed last April.

Over the past 18 months, a total of 18 chains went public. As a restructuring tactic, leveraged buy-outs are dead.

Of the total, sporting goods chains represented the largest number: Sports & Recreation; Sports Chalet, Sportmart and SportsTown.

Automotives and dollar closeout chains each accounted for two: O'Reilly Automotives and Discount Auto Parts, and All For A Dollar and Odds N' End's.

In mergers and acquisitions, sporting goods also dominated, accounting for the two largest deals, at least in number of stores acquired and sales volume. The owners of Herman's, 253 stores, and of the Thrifty Corp. chains--Big 5, Gart Bros., and MC Sporting Goods, totaling 264 units--sold them at distress prices. Even though Herman's and the Thrifty chains were losing money, they accounted for more than $1 billion in sales.

Herman's new owners declared Chapter 11 bankruptcy the chain. Last month Herman's closed 132 stores, reducing the store count by more than half the original number in order to retrench to a Boston-to-Washington core market.

To the contrary, the former Thrifty sporting goods chains are expanding by buying 20 of the store Herman's closed.

Kmart took a quantum leap in the office products field when it acquired the BizMart chain of 105 stores for $275 million and converted them to OfficeMax units. Prior to that, OfficeMax acquired OW Office Warehouse. These purchases position OfficeMax as one of the top three players in the office supplies industry.

A major deal involving dollar discount store chains remains pending at press time: Fred's, about 130 stores, has agreed to acquire the 530 stores of Bill's Dollar Stores.

In further signs of distress for the catalog showroom industry, two chains, Dahlkemper's and Brendle's, dropped their catalogs and switched to jewelry and hardlines merchandising programs. Both also declared Chapter 11 bankruptcy.

Three other catalogers folded--The Present Co., E.H. Tepe and Foland's.

But liquidations most affected the toys segment. Now that Lionel Leisure--operator of Kiddie City--and Child World have faded away, Toys "R" Us holds a virtual monopoly on the toys superstore market, while Kay-Bee largely has the malls to itself.

The most sensational bankruptcy of the period was that of Phar-Mor, which declared Chapter 11 shortly after accusations of fraud on the part of top executives broke into the news. In two waves of closings, Phar-Mor slashed its 306 store count by about half.

Ames finally emerged from Chapter 11, with 309 units left out of more than 700, including its ill-fated Zayre acquisition.

Hills filed its reorganization plan in June and hopes to emerge from Chapter 11 by mid-September. Meanwhile, it is closing three more stores, reducing its store count to 151. The company's store remodeling program is continuing.