By  on September 21, 1994

HENDERSON, N.C. -- One year after filing Chapter 11, Rose's Stores Inc. is emerging from bankruptcy as a leaner operation with big plans to grow its fashion apparel business and a strategy to compete with Wal-Mart.

After scaling down to 113 stores in 10 Southeastern states from more than 200 this year, Rose's, a full-line regional mass merchant, filed a reorganization plan Aug. 1. The company should be out of Chapter 11 by April 30, 1995, according to its new president and chief executive officer, Edward Anderson.

"We have significant challenges ahead and plenty of work to do during the fourth quarter," he said. "But basically, our strategy is in place."

Anderson, Rose's former chief financial officer, succeeded George Jones as president and ceo on Aug. 22, when Jones resigned to become president of worldwide licensing with Warner Bros. consumer products. Anderson also assumed the position of chairman, succeeding Lucius Harvin, who resigned.

Sales for 1994 are projected at $800 million, with modest same-store sales growth in the mid-single-digit range over last year for the 113 surviving stores.

As an example of Rose's commitment to apparel growth, the company will convert one to three stores in 1995 into prototypes featuring 50 percent apparel and 50 percent home goods.

Anderson said the company is not planning to open or close stores.

"We're staying 95 percent on the status quo, consistent with the strategy we initiated in 1992," he said.

That strategy evolved from the company's struggles prior to filing for bankruptcy.

"The company wasn't prepared for competition with Wal-Mart. Sales slipped, and we didn't have adequate financing," said Rob Gruen, senior vice president of merchandising. "Our main task was to define and adequately address our customer."

Research revealed a mid-to-low-income customer base that was 73 percent female, living in rural areas and small towns, whose primary concern was value. Rose's, which had always offered a wide selection, cut down hard goods, such as certain hardware, paint and automotive parts, and increased apparel assortments. Apparel has grown from 25 to 30 percent of total inventory in the past two years, with a goal of 34 percent of total business within the next few years."Apparel has higher gross margins and it is an area that is not Wal-Mart's strength," said Gruen. Women's apparel, at one-third of total apparel sales, is Rose's fastest growing area, with sales increases of more than 10 percent this year.

Rose's revamped its apparel assortments, which consisted primarily of basic commodity items under private label import programs. Today, import programs have been reduced from 80 percent to 18 percent, in favor of domestic resources and more fashion merchandise bought closer to season.

"Our philosophy wasn't working. We learned that narrow and deep are not words for the Nineties," said Kathy Hurley, vice president and general merchandise manager of softlines. "We underestimated our customers. They watch TV and read the same magazines as everyone else. They want fashion, but they want it at a price."

Sticking to an average price range of $15.50 to $19.99, Rose's introduced fashion items, such as broomstick skirts, colored denim, bodysuits and silk blouses. Basic cotton day dresses have been replaced with more updated silhouettes, such as rayon rompers and slipdresses.

Many fashion items have been accepted by customers, though there is a limit. "While they understand suede vests, they didn't respond to palazzo pants," said Hurley. "So we have to test some things in small quantities."

With the exception of denim, where brands such as Chic, Rio, Bill Blass, Riders and Exam are well known, the Rose's customer is more interested in a value price than a brand name.

"We're loyal to resources rather than brands," said Hurley, citing Skiva, American Futex and Sherry as good vendors. "We look for strong partnerships with vendors, especially since we've been in a financial turnaround."

Tops, which have consisted of mostly knits in the past, are a major growth area, driven by new silk and woven introductions priced between $10 and $15. Vests, in tapestry, polar fleece and suede, have also been strong. Recently, cotton broomstick skirts had over a 40 percent sell-through, with 3,000 units sold in one week. Licensed products, such as Mickey Mouse chambray shirts, are Rose's most expensive item, at $29.99, and have had sell-throughs of 20 to 30 percent.Circulars, which come out 53 times a year in newspapers and via direct mail, feature promotional items at special prices. They are Rose's primary advertising vehicle. In-store presentation has been strengthened, with more lifestyle signage and displays that combine tops, bottoms and accessories to show the total outfit. Apparel is always prominently positioned at the front of the store.

In 1992, Rose's introduced a "greatest deals" women's apparel section for closeout and special-order merchandise at deep discounts. "Most of our towns, with 25,000 to 50,000 populations, don't have T.J. Maxx and Marshalls," said Gruen. "So this is a way to introduce this idea to our customers. It's a closeout store within our store."

The area allows Rose's to experiment with items not usually carried in the store, such as leather jackets and wool acrylic coats, bought through odd lots and sold for as little as $15, as well as assorted brand names.

Anderson feels that Rose's position as a regional general merchandise discounter provides opportunity to directly address its customer niche.

"As a regional operation, we are closer to our customers and more aware of their specific needs," said Anderson. "That's something Wal-Mart can't do."

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