Garden Ridge: the serious business of casual

Discount Store News, March 23, 1998 by Mike Duff

The casual approach has taken Garden Ridge, a Houston-based chain of home decoration and crafts warehouse stores, from near bankruptcy in the early 1990s to the verge of breaking its traditional Southern boundaries and expanding into new markets.

The 22-store chain is predicting 30% growth for the near term, which in five years could position Garden Ridge as a 100-store chain generating annual sales of more than $1 billion.

"We plan on being national," said Jack Lewis, president and chief operating officer. "We will expand regionally, and it will be supported with regional distribution depending upon how we back-fill markets."

Lewis is also part of the management team that helped bring Garden Ridge out of near-bankruptcy troubles.

Casual describes the lifestyle of the chain's core clientele, and thus defines the chain's central merchandising focus. On the other hand, Garden Ridge's business philosophy is anything but casual.

Bright colors and simple patterns highlight Garden Ridge's 10 distinct departments that are merchandised as separate category killer areas. They are: housewares; crafts; home accent; candle and scent; silk floral; pottery; basket; picture and frame; holiday decoration; and party supply. Each department is segregated by color to make the store easier to shop.

Things were neither bright nor simple for Armond Shapiro, who became chief executive officer of the then three-store chain in 1990. At that time, inventories were bulging, sales were in steep decline, and finances were heavily leveraged. Worst of all, steadfast core customers were met with the kind of confusion and inconvenience that eventually could undermine anyone's enthusiasm. Still, loyal customers spent an average of more than two hours perusing the stores 80,000 skus.

The chain's turnaround has been dramatic. Garden Ridge now has 22 outlets in 10 Southern states. This year, it plans to add six new stores. The new stores will be in Fort Worth, Texas; Greensboro, N.C.; Lexington, Ky.; Nashville, Tenn.; and St. Louis (two stores).

Garden Ridge currently operates stores in the following markets: San Antonio, Houston, Dallas/Fort Worth and Austin, Texas; Oklahoma City and Tulsa, Okla.; Norcross and Kennesaw, Ga.; Jeffersontown, Ky.; Memphis, Tenn.; Pineville, N.C.; Greenville, S.C.; Richmond. Va.; Jacksonville, Fla.; and St. Louis.

Garden Ridge stores range from 120,000 sq. ft. to 140,000 sq. ft.

For the first three quarters of fiscal 1998, which ended Oct. 28, 1997, sales were $194.3 million, an increase of 38.8% from $140 million from the first three quarters of fiscal 1997. For the first three quarters of fiscal 1998, earnings were about $2.2 million, an increase of 13% from $1.94 million from the first three quarters of fiscal 1997.

Among those results, Lewis distinguished one improvement as particularly significant.

"This past year, our comparable stores had the highest growth rate in the company's history," he said.

Garden Ridge reported a 9% growth in comparable store sales for the first three quarters of fiscal 1998 from the same period in fiscal 1997.

Sales for all four quarters of fiscal 1997, ended Jan. 26, 1997, were $225.3 million vs. $148.1 million in 1996.

Based on the 1997 annual report. Robinson-Humphrey, an Atlanta-based research firm, upgraded its rating for Garden Ridge stock to "buy," despite what it characterized as growing pains associated with opening new units and a higher shrink, which resulted in gross margins falling from 37.3% to 36.1%. The vote of confidence was cast because of the company's strong cash flow and the early success of initiatives. These initiatives were instituted to change the advertising mix; enhance instore excitement; increase the chain's buying staff; install an experienced head of store operations; and upgrade planning through systems and personnel.

Wall Street seems to have made a positive appraisal of Garden Ridge's performance. At the end of February, the company's stock was trading at $!7.38 per share, which was close to the company's 52-week high of $18.13.

Among the operational upgrades instituted by the company to manage its geographically dispersed stores. Garden Ridge has developed advanced data generation systems and elaborate logistics.

"Sophisticated technology gives its a competitive advantage over most retailers," Lewis said. "All of our merchandise is UPCed and tracked from the day it bought until it is sold. That lets us maximize our return on inventory investment an store profitability. The merchandise is tracked ever way imaginable---both in our distribution center an at the score when we're scanning merchandise. We use the information to long-term planning, as well as managing business on a short-term basis."

Thus far, Garden Ridge ships from one Dallas distribution, center, although a great deal of product goes directly from the factory to the stores. The distribution center handles import merchandise and goods subject to cross-docking procedures. Imports comprise a little more than 20% of Garden Ridge's volume, with 80% shipped directly from the factory.