Zayre launches 7-step plan to get back on track - Discount Stores Annual report - company profile

Discount Store News, July 4, 1988

Zayre Launches 7-Step Plan to Get Back on Track

FRAMINGHAM, Mass. -- 1987 was a tough year for Zayre Stores, the discount store arm of $6 billion retailer Zayre Corp.

The year saw a $40 million writedown, high-level executive resignations, takeover rumors and, ultimately, a $13.9 million net loss. Overall, the company made a respectable $143.3 million profit, but much of that profit was due to the sale last summer of a minority interest in its highly profitable TJX division.

Most of the action took place late last summer. As sales lagged, Zayre Corp. chairman Maurice Segall took dramatic action, slashing prices on slow-moving merchandise and writing off millions of dollars worth of obsolete goods. This announcement came on the heels of the resignation of Zayre Stores chairman Malcom Sherman, after which Segall named himself acting chairman of the division. (Home-Club president Herbert Zarkin, a lifelong Zayre employee, was recently named chairman of Zayre Stores.) Almost simultaneously, the $89 million sale of TJX stock was announced, offsetting the eventual second quarter loss that resulted, in part, from the write-downs.

At the time, Segall noted that Zayre Stores had to become more competitive on "certain brand name items," and prices were slashed on 300 hard goods products, mostly staple items like deodorant and toothpaste. He also announced the impending introduction of "several new and exciting (but unspecified) marketing programs."

Segall was evidently referring to the debut of Zayre's frequent shopper bonus program, Frequent Z, and the introduction of brand name, fashion clothing to the company's languishing apparel departments, among others. Less than a year later, Frequent Z has already been discontinued after meeting with consumer apathy and fashion apparel has, at best, trickled into Zayre apparel racks.

In the company's annual report, Segall announced a seven-step program to return the discount store division to profitability. The steps include a major review of merchandise assortments (due for completion this month), better margin planning, upgraded employee training, better targeting of black and Hispanic shoppers, improved distribution (with an 800,000-square-foot DC in Plant City, Fla., expected to open this month) and upgraded open-to-buy, POS and unit control systems.

Additionally, the company seems to have committed itself to chopping prices on traffic-building staples like cleaning products and paper goods. Cut-case merchandising of these products has been stepped up dramatically in many stores, particularly, it seems, in inner-city and ethnic areas. This fits in with Zayre's apparent strategy of targeting the lower end of the market as competitors upscale to appeal to the more affluent consumer.

Zayre is virtually the last major discounter to have significant operations in inner-city neighborhoods, which have been almost totally abandoned by discounters. Zayre's thinking, evidently, is that these consumers are as much in need of basic discounter products as are their wealthier counterparts in the suburbs, and given the traffic in many of the company's urban locations, it seems to have analyzed the situation well.

However, the company has not, as yet, executed. Inner-city consumers are extremely brand conscious. Zayre has attempted to address this by adding, for example, Nike and other name brand sneakers and Spalding and other fashion sportswear. However, in most cases, the products are "salted," with little depth.

If the fashion forward trend is continued, however, it could be very successful. Zayre operates T.J. Maxx, the ultra-successful off-price fashion apparel chain, so the fashion know-how is evidently available within the organization.

Cash Flow Shortage

There seems to be a shortage of cash at the discount level, however. According to one store manager, a large part of Zayre's store remodeling program has been suspended due to that shortage, and many Zayre stores are in a state of disrepair. While the company seems to be positioning itself to become the "no-frills" leader of the industry, some remodeling is vital.

Only time will tell if the extensive overhaul the company has hinted at will be enough to keep Zayre competitive. Last year, its same store sales rose only 1.5 percent and were particularly lackluster during the crucial Christmas selling season, Segall noted. So far this year, no noticeable improvements have been observed and Moody's recently downgraded the company's debt rating, citing expectations for very slow improvement of the company's financial position.

However, the elements blamed by Moody's (poor distribution and merchandising and unsuccessful promotion strategies) are the very elements Zayre has identified for crash improvements, so it appears that the industry's fourth largest retailer may be back on track.

PHOTO : Zayre as attempted to upscale its apparel presentation with name brands and new fixtures

PHOTO : aimed at establishing a more fashion-forward image.