Two Regional Discounters Improve Competitive Stance: turnaround team makes headway as Fred's finally sees black ink

Discount Store News, Sept 25, 1989 by Mary Ellen Kelly

Two Regional Discounters Improve Competitive Stance

Turnaround Team Makes Headway As Fred's Finally Sees Black Ink

MEMPHIS, Tenn. -- Fred's gives hope to all the small regional chains on the brink of disaster due to a combination of competition and poor management. In June, for the first time in two years, Fred's reported a monthly profit.

The 125-unit Fred's chain, owned by Baddour Inc., is in the middle of a metamorphosis after just six months of guidance from an outside crisis management team. The basic formula for success included, among other elements: "count up, clean up and speak up," according to Tim Finley, acting president of Fred's and president of Charlotte, N.C.-based The Finley Group, crisis management team.

The basic retailing formula of monitoring inventory and cash flow, keeping the stores clean and enforcing customer service has already paid off. Most of the chain is now showing improvement; same store sales were up about 4.5 percent during a 60-day period from June to July.

"Fred's had lost a significant amount of money in 1988 and into 1989," Finley said. "Customer counts were down, competitive pressures from Wal-Mart were high. We were brought in to stop these trends and return the company to profitability," he added.

The turnaround effort led to a new store layout, reduced administrative expenses, store level and buyer incentive programs, and a new advertising strategy.

Store layout was improved by creating wider aisles that are "almost like a grocery store," Finley said. A new apparel assortment was brought in and merchandised at the front of the store. More logical category adjacencies were established. Bargain tables with $1, $2 and $3 goods were positioned on main aisles. Endcaps and signing were given more attention.

Five of the 125 stores owned by the company (another 52 are franchised), were remodeled as of the end of July. "It takes about a week and $2,500 per store to remodel," Finley noted. He expects the chainwide remodeling to be completed before year-end.

Costs were reduced by $2 million per year due to layoffs of 60 headquarters personnel across all departments.

Store-level personnel are now encouraged to keep their store running smoothly through a new incentive program. Based on the individual contribution to profits made by each store, the monthly bonus program has been a factor in improving the business of 84 Fred's stores through the end of June; these figures are expected to continue a rapid rise.

The bonus is calculated by subtracting controllable expenses from store margins; a percentage of this figure qualifies for a bonus, as long as the store's overall performance improved during the period.

"This approach means the store-level employee will not be held responsible for headquarters decisions," Finley said. Buyers are also spurred to do a better job through their own incentive program.

A Hometown Story

Chain advertising has been greatly overhauled. Last year the chain ran 30 tabs; this year it's down to only 17. Television is now the retailer's major thrust. The backbone of Fred's advertising is now similar to other dollar store-type retailers: a hometown story that features a hometown boy.

The story starts by telling consumers about the experiences of a boy named Fred who started retailing with his first lemonade stand and ended up running a store. Each contains information on featured sales items, then shows Fred reflecting on his past successes with his wife on their front porch.

The total advertising budget has remained a fairly constant $2 million (net of co-op dollars), according to Finley.

What is the long-term prognosis for the ailing chain? "We're going to stay here as long as it takes," Finley said. "Another year or so and the company should be solidly on its feet. The chain has a lot going for it."