Fred Meyer: new leader, new market, new plan - Discount Stores Annual report - company profile

Discount Store News, July 4, 1988

Fred Meyer: New Leader, New Market, New Plan

PORTLAND, Ore.--Fred Meyer's last 12 months have been punctuated by an increased expansion rate and the arrival of a new leader--former K mart executive vice president of specialty retailing Fred Stevens.

Shortly after resigning from K mart in April, Stevens joined Fred Meyer as chief executive officer and chairman, replacing now-retired Oran Robertson. Robertson is still on the board, and Cyril Green, president and chief operating officer, remains at that post.

Steven's experience in Fred Meyer's Pacific Northwest territory includes time spent in the Seattle area in the '70s and the overseeing of K mart's drug store chain, Pay Less NW, based in Wilsonville, Oregon.

An industry source said Stevens had been studying Fred Meyer's operation as part of the research for K mart's hypermarket venture, American Fare. Although Fred Meyer's stores are not visually similar to hypermarkets--more resembling a cross between a discounter, home center, department store and supermarket--its product base does have the diversity of a hypermarket and some of its newer sites are hypermarket-size at about 200,000 square feet.

Stevens joins a retailer that is dominant in its six states and is aggressively opening new stores, trying new concepts and remodeling existing stores. During the last five fiscal years, Fred Meyer's total store count has jumped from 68 to 99, while 36 stores were remodeled during this time.

In the most recently completed year, ended Jan. 30, 1988, Fred Meyer spent $79 million in capital expenditures to add 747,000 total retail square feet. While the current, multidepartment units average 112,200 square feet, new stores built over the last five years have averaged considerably higher at 146,400 square feet.

During 1987, the chain added four multidepartment units, started construction on two and remodeled four other stores. In the second half of the year, Fred Meyer introduced its first entirely soft goods freestanding store with the opening of a 25,000-square-foot site in Kenai, Alaska.

According to the company, the new venture--selling apparel, domestic products, and shoes--opened in September and exceeded its projected sales and income targets for 1987.

Shortly after this opening, Fred Meyer launched its 1,500-square-foot freestanding fine jewelry stores. Branching into specialty stores, like jewelry, has provided Fred Meyer with both greater flexibility and a chance to gain added name recognition. Since the chain is usually located in neighborhood centers, by placing the fine jewelry stores in large regional malls, Fred Meyer is able to expand its customer base.

The expansion pace will continue this year, with $100 million slotted for new stores and remodels (not including building and land costs). Current plans call for the opening of two, large multidepartment units in Oregon and Washington state, at least seven specialty stores--including a 33,000-square-foot five-department unit in Seattle--and several more fine jewelry stores.

Fred Meyer also confirmed in its annual report that: "An entrance into the Sacramento, Calif., market is high on our priority list for 1990."

The company currently has 100 stores, which combined for sales of $565 million and net earnings of $5.70 million in the first quarter ended May 21, 1988. While net sales during the period rose 7.3 percent, comparable store sales increased just 2.5 percent.

According to Stevens, the small gain was attributable to poor weather conditions this spring adversely affecting gardening, outdoor living and apparel sales, compared to favorable weather in the same period last year. This level falls sharply below the comp stores sales increase of 6.6 percent during 1987.

Net earnings increased 14.7 percent during the first period and income from operations grew 11.4 percent, primarily due to increased gross margins in higher-margin categories.

In the 1987 annual report. Fred Meyer pointed out that it has been able to increase gross margins by bringing its product mix toward more non-food items.