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CATO SET FOR EXPANSION

NEW YORK -- Cato Corp. is breaking out of its Southern small-town roots.<P>Emerging in the past year as one of the country's fastest growing specialty chains, yet still virtually unknown outside the South and lower Midwest, Cato closed at $25, down...

NEW YORK — Cato Corp. is breaking out of its Southern small-town roots.

Emerging in the past year as one of the country’s fastest growing specialty chains, yet still virtually unknown outside the South and lower Midwest, Cato closed at $25, down 47 cents, or 1.9 percent, in its first day of trading on the New York Stock Exchange Thursday. The Charlotte, N.C.-based retailer, previously listed on Nasdaq, is out to raise its profile — and its coffers — and increase its coverage by security analysts, in a bid to become a national retail force in 2005.

Executives hope to open 80 to 120 stores annually for the next few years, including 90 this year. Currently, there are about 950 stores, including about 800 called Cato. Aside from operating the core Cato division, which sells private label goods, the company operates It’s Fashion, with 3,000-to-4,000-square-foot stores selling off-price merchandise.

The company posted $705.7 million in revenues and just over $43 million in net income for 2001, after poor results in the late Nineties. Considered undervalued and a sleeper in the fashion industry, Cato has improved garment quality and remodeled stores, after a decade of lost focus and poor performance.

While there is still a long way to go before qualifying as a national chain, executives contend that Cato has the kind of broad appeal, with its low prices and convenient footprint (most stores have 4,000 to 6,000 square feet) for rapid expansion. Cato’s annual report says the stores require trading areas with populations of only 20,000, enabling the chain to move into most communities.

Raising the profile will be crucial. “There are many parts of the country where people don’t know who we are yet,” John P. Derham Cato, president, vice chairman and chief executive, said at a breakfast at the New York Stock Exchange Thursday, prior to the opening bell. “Our stores do take longer to come on stream.”

Asked how Cato largely promotes new stores, he replied, “Word of mouth.” Advertising costs, as well as occupancy costs, are kept low.

Cato, founded in 1946, could be America’s answer to Hennes & Mauritz, which recently cooled its expansion in the U.S. Both chains sell private label clothing at low to moderate prices, much of it considered “throw-away” fashion. Cato said that rather than having a design team, the company utilizes “technicians” that work with the market to develop a broad assortment of private label goods. He said that approach was different from Limited Inc., which focuses on developing key items for a narrow and deep presentation. To minimize fashion risks, Cato flows in new goods weekly to its stores and aggressively marks down slow-movers. Comp-store gains have recently been in the high-single-digit zone.

While H&M, which started its penetration in the U.S. in 2000 , is in urban areas and malls, Cato stores are in strip centers and a few dozen “B” malls, competing against big discounters, as well as Charming Shoppes and Dress Barn.