Value City expands its DC capacities - Value City Department Stores, distribution centers

Discount Store News, Dec 7, 1992 by Richard Halverson

COLUMBUS, Ohio -- Value City Department Stores is expanding distribution capacity to support its planned growth into a billion dollar chain.

Its first priority is completing new apparel and domestics distribution centers as this regional discounter grows to a chain of 100 stores, from 67, by the end of the decade. In embarking on such an aggressive growth program, Value City is demonstrating how a regional discounter can carve out a market niche that allows it to welcome Wal-Mart's expansion into its markets for the traffic the Bentonville, Ark.-based chain draws. And its operations show that a regional chain can teach national discounters a thing or two about merchandising every store to meet the needs of consumers in each market.

Distribution capacity suddenly reached the saturation point this fall when Value City acquired the 17-store Gee Bee chain, Johnstown, Pa., from its previous parent, Schottenstein Stores Inc. SSI took Value City public last year, retaining a controlling interest.

The initial public offering netted $73 million for store expansion, and Value City paid $23 million in cash and assumed debts for the money-losing Gee Bee chain.

Gee Bee, a hard lines discounter with a 65-to-35 ratio of hard to soft goods sales, stood in danger from Wal-Mart expansion into its Pennsylvania and Maryland operating territory. But Value City quickly converted nine of the Gee Bee stores to its off-price, closeout format which avoids head-to-head competition against Wal-Mart's strength, hard lines. It will convert four more next February, and has converted two others to its Super Gee Bee format.

The Super Gee Bee in Altoona and Johnstown, Pa., have been remerchandised so their product mix is about 50/50 soft lines and hard lines, including much of Value City's forte, closeouts of national brand apparel.

Value City is keeping the two Gee Bees because they successfully compete against nearby Value City units, said president and gmm George Iacono. The units generate $30 million in annual sales apiece.

The remaining two of the 17 Gee Bees are Gee Bee Jrs., featuring apparel only.

Value City ranks each of its stores A, B, C, D, according to the size of the market and income levels and assigns merchandise, all bought at close-out prices, to match the demographics of each store.

"A" store, such as the tour in Columbus that operate under the name Schottenstein Store, get such merchandise as $2,000 Armani suits, priced at $495 and $10,000 women's mink coats priced at $1,250.

In contrast, Value City sends none of that type of merchandise to its store in Vineland, N.J., located in a working class area. Instead, its men's apparel offerings lean toward a budget mix of casual clothing.

Value City stores generally offer three levels of merchandise--budget, good and best--Iacono said, in order to appeal to shoppers of all income levels.

Since all Value City merchandise is bought at closeout, reorders are impossible. Because of the hand sortation often necessary on closeouts of apparel and sometimes even for hard lines, Value City ships virtually all goods out of its central DCs in Columbus.

MIS systems allow buyers to keep track of daily sales at each store, and additional merchandise is shipped to stores where a particular item is selling well. Value City also transfers merchandise from stores where it is selling poorly to other stores.

"I get involved in all major deal," said Iacono, who rose to the post of general merchandise manager at Marshalls and who holds that same title at Value City, along with that of president.

Soft lines represents about 66% of revenues, and hard lines the balance. Housewares and toys are the strongest hard lines departments, while minimal offerings in automotives, hardware and sporting goods permit Value City to call itself a full-time discount department store.

The chain takes weekly markdowns to make sure goods are fresh. For better inventory control at the store level, the chain is rolling out hand-held scanners linked by radio frequencies to the store's computers. If a markdown is due, the unit can print out a new ticket on the spot.

Value City wants an orderly expansion of six to seven stores a year, Iacono said, rather than having to absorb another bulge in store count such as the 17 Gee Bees. Value City's focus is growth through improved comparable store gains, rather than new openings, he said.

Iacono defended the sale of Gee Bee to the public as a sound business move to salvage an asset that was losing money and convert it into a winner.

Capital from the IPO, along with a private stock placement of $50 million this fall with two insurance companies and internal operating profits in the 7% range, provide ample cash flow for such a measured growth, said chief financial officer Robert Wysinski.

Value City prefers an optimum size of 85,000 sq. ft., Iacono said, but has opened stores that range from 70,000 sq. ft. to 120,000 sq. ft.

New markets under consideration include Youngstown, Ohio Middletown, N.Y., and Washington, D.C.