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Discount Store News, July 22, 1991

Recession-Hit Shoppers Flock to Closeouters

Despite pressures on operating profits, sales of the closeout retailing niche rose a robust 12.9% in 1990--as recession-hit shoppers sought out especially sharp bargains.

Store count rose to 925 in 1990 from 826, and closeouters expect to be operating 1,095 stores by year-end.

Consolidated Stores is back on a modest expansion track, with plans to open 23 more units, for example, while Tuesday Morning intends to open 17 more.

The major news for the segment during the past 18 months was the takeover battle that Pic |N' Save, the second largest closeout chain, waged to remain independent. Based in Dominguez, Calif., Pic |N' Save underwent a costly proxy battle with David Batchelder, formerly a top aide to corporate raider T. Boone Pickens.

After a series of legal skirmishes that cost the company $19.2 million, Pic |N' Save made peace with Batchelder by granting him two seats on the board and agreeing to a corporate shake-up.

Gone was Lewis B. Merrifield III as chairman and chief executive officer. In his stead, an outside chairman, Peter S. Willmont, former chairman and chief executive officer of Carson Pirie Scott, was appointed, and Len Williams was hired as president and chief executive officer.

Williams previously was chairman and chief executive officer of Gold Circle and then president of Caldor. A Canadian exec, Williams came to his new post from New Zealand, where he was ceo of Lion-Nathan, a conglomerate with interests in supermarkets and Coca-Cola bottling.

The proxy battle cut into operating profits, which plunged $37.1 million from $55.4 million, although sales rose 11% to $529 million from $475 million. Operating profits last year are less than half the peak of $85.7 million reached in 1987 on sales of $361.7 million.

In a bid to shave expenses, Pic |N' Save sold the 14-unit Job Lot Pushcart division in August 1990. During the third quarter, it expects to open its new $60 million distribution center in New Orleans to support expansion into the Southeast. But it plans to add only four stores this year to its count of 191.

At the nation's largest closeout chain, Consolidated Stores saw operating results turn around as the chain ceased its flirtation with full-line discounting and returned to its closeout roots under a new ceo, William G. Kelley.

Sales rose 11.6% to $662 million from $594 million, and the chain showed an operating profit of $15.2 million, compared to an operating loss of $5.2 million in 1989. Same store sales rose 10%, a turn-around from an 11% decline in 1989.

Operating profits, however, remain far below the banner year of 1988, $41.6 million.

At Dallas-based Tuesday Morning, operating profits kept pace with a 10.3% sales increase to $107 million from $97 million. Tuesday Morning opened 18 units in 1990 and expects to open 17 more stores by year's end of 1991.

Its sales and profits continue their steady growth under Tuesday Morning's unique operating concept: its stores are open only during the four peak selling seasons each year, including Easter and Christmas.

New markets it entered last year include Cincinnati and Columbus, Ohio, and Charlotte and Raleigh, N.C. It now operates in 52 cities from Chicago south to Ohio and into North Carolina.

Specialty closeouting continues to flourish at two chains that specialize in goods that sell everything for a dollar. Everything's a $1.00, Milwaukee, is owned by Value Merchants, operators of the Toy Liquidators closeout chain. Its sales rose 55.3% in 1990 to $59 million from $38 million in 1989. It plans to open 75 more stores of about 3,000 square feet this year, which would bring year-end store count to 183.

Owned by K&K Toys, Dollar Tree, based in Norfolk, Va., also saw its sales jump more than 50% last year to $53 million from $35 million. The company expects to open 50 small stores for a year-end total of 180.