By  on July 30, 2007

Allen Questrom has another project: Deb Shops Inc.

Questrom has been tapped as non-executive chairman of the 75-year-old Philadelphia-based juniors chain, which was acquired Friday by Lee Equity Partners for about $395 million. The announcement of the deal confirmed a WWD report July 3 that Deb Shops was up for sale.

And Questrom has big plans for the 337-store chain. He said Lee Equity, where he is a senior adviser, is eager to expand the company and also will be pursuing additional opportunities in retail as well as in the insurance, consumer goods, entertainment and health care sectors.

"I always loved the juniors business," said Questrom. "There is an opportunity to grow it because everybody is focusing on the contemporary business. Juniors is always unique and always changing."

Deb Shops operates specialty apparel stores under the Deb and Tops 'N Bottoms names. The chain posted $327 million in sales last year. The company has a strong balance sheet, is known for its high-low pricing and recently has boosted plus-size merchandise so that it's sold in about one-third of the stores.

Questrom said Deb Shops, which is concentrated in the Northeast but is spread across 42 states, has particularly good growth potential in Florida, Texas and California, where the brand has either a minor presence or no presence at all. In addition, Questrom noted a high percentage of those who shop Deb Shops are Hispanic, the fastest-growing demographic group in the U.S.

He characterized juniors as "a very competitive" apparel segment. "But Deb Shops is differentiated by its fashionable, value-oriented merchandise and strong positioning with junior regular and plus-size customers," added Questrom. "We look forward to growing the company's already-strong customer base and continuing to roll out its plus-size merchandise offering."

Nonetheless, the 67-year-old Questrom's new role at Deb Shops might raise some eyebrows, given that he's taken on much larger retail enterprises as the former chief executive of J.C. Penney, Federated Department Stores and Barneys New York. He's also on the Wal-Mart board, and his name perennially has surfaced when there has been speculation regarding major retail executive vacancies.

Deb Shops was 66 percent owned by insiders, including several senior executives who have been with the store for years and are of retirement age.Questrom said a new ceo to succeed Marvin Rounick will be sought. Questrom will be involved in the search, and the strategic direction of the business. "I will play an active role in the company, but not a daily operating role," Questrom said.

Rounick and his team ran the business "very efficiently and very effectively, but no longer want the obligation," Questrom said. "The best thing for them and their families was to sell the company."

Rounick is 67. Another top executive likely to be replaced is the 68-year-old Allan Laufgraben, senior vice president of merchandising.

Lee Equity, through its affiliate, DSI Holdings LLC, will acquire 100 percent of the outstanding shares of Deb Shops for $27.25 a common share, representing a small premium off the closing price Friday of $26.51 on Nasdaq. Shares dropped 17 cents on the day. The deal is expected to close in the third fiscal quarter of this year.

With Deb Shops, Lee Partners has a long-term interest that could extend for five to seven years before a decision is made to sell it, Questrom said.

Rounick and Warren Weiner, executive vice president, have entered into three-year consulting agreements. "We believe this transaction is in the best interests of all shareholders," Rounick said in a statement. "It serves as an important step in the growth of our business."

Thomas H. Lee, president of Lee Equity Partners, said in a statement, "The transaction with Deb Shops, a company which Messrs. Rounick and Weiner have guided to many years of successes, creates a terrific opportunity for our firm. Given our industry expertise in retail and our focus on post-investment operating improvement, we are excited to collaborate with Deb Shops' existing management to refresh the store operational model and to execute a new store-growth plan."

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