Variety chain retailers redefine store image - Discount Store News Annual Discount Industry Report; Part 1: Chain Analysis - Industry Overview

Discount Store News, July 5, 1993

Variety store retailers are struggling to meet the challenge of oppressive competition by redefining what it means to be a variety store chain.

In the case of McCrory, last year it began a rollout of a 2,000-sq.-ft. to 3,000-sq.-ft. department dedicated to 99-cent merchandise. Sales from this department--which was only installed in about a third of its stores at year-end--accounted for 3.3% of total sales in 1992. The company has said one of its goals is "Becoming one of the market leaders in the retailing of 99-cent merchandise . . ." [TABULAR DATA OMITTED]

Other objectives include expanding concession operations. In addition, 30% of all merchandise is being targeted for everyday low pricing. The chain is still in Chapter 11.

Ben Franklin, wholesaler to its store franchisers, and Winn's have found the most effective way to redefine their variety stores to be competitive is not to be variety stores at all.

Ben Franklin and Winn's variety stores continue to be repositioned as craft stores. Ben Franklin expects the number of its variety stores to steadily decline as owners opt to convert their units to Ben Franklin Craft stores.

This year's census report lists Ben Franklin Craft stores separately, with estimated sales throught these two different formats.

At Sprouse, 1993 will be a year of redefining major merchandise categories to focus on variety, stationery, crafts & fabric, apparel, home and seasonal. During fiscal 1992, the company had converted four of its stores to full-line craft outlets, generating higher sales per square foot and higher gross margins than they did as variety stores. But it might be a case of too little, too late. Despite its efforts, sales have continued to slide. Comparable store sales in May of this year plummeted 12.5%.

While these chains worked to strengthen their sales and bottom lines with new strategies, Fred's stuck to its basic approach and had a phenomenal year.

Fred's, which filed an initial public offering in March 1992, blazed a trail of profits in the variety store segment, reporting a 154% increase in net earnings for the first quarter of 1992. During the first half, sales were up 8.2% and net earnings blossomed to $5.4 million compared to $1.2 million during the period the previous year.

The performance was certainly aided by its IPO, an offering of 3.6 million shares which raised $48 million, enabling Fred's to repay existing bank debt and to negotiate a new $12 million credit facility with better terms.

In December of 1992 the company was named as one of the best stocks to own in 1993 by Individual Investor magazine. It was one of the publication's "Magic 25" for 1993.

Fred's reached an agreement in principle to acquire Bill's earlier this year, but at press time, the deal had not been inked. The acquisition would catapult the size of Fred's store base, putting its store count in the ranks of Ben Franklin and Woolworth. The market overlap between Fred's and Bill's is minimal.

At Woolworth's, its U.S. general merchandise sales fell in the past two years due primarily to store closings, including the elimination of 8% of Woolworth and Woolworth Express stores during 1992 as part of the parent company's redeployment program. The redeployment resulted in the closing, conversion or sale of 900 stores among Woolworth's nine retail formats.