ATLANTA — There was a time when family-owned stores were as vital to small towns in the South as the Baptist church.

Early-20th-century peddlers, often immigrants, built general stores that were community centers or multistore businesses they passed down through generations. This was a time when several small town retailers coexisted and flourished.

That was then, before Wal-Mart infiltrated small-town USA, followed by Kohl’s, Goody’s, Target, Old Navy and a host of behemoth outlet malls that sprung up along interstate highways. Today, nearly all independent retailers are challenged by big department-store chains and the fierce competition from the mammoth discounters.

"When I was a boy, around eight family-owned stores were here," said Mark Cohen, a thirtysomething, third-generation owner of Cohen’s of Alma, a moderate apparel store in the southwest Georgia town of Alma, population 5,000. "Now there are two. We’re surrounded within 30 miles by Wal-Marts and other discounters. We have our loyal customers, but younger people will drive 28 miles for groceries. We’ve become the in-town 7-Eleven convenience store [for apparel], while the real shopping is done elsewhere."

Cohen, like many retail heirs, admits he’s an endangered species. He said he wouldn’t even consider going into business as an independent today, and he doesn’t expect his children to carry on the family business.

While the ranks have thinned, the picture for family-owned retailers has not faded completely. Many surviving stores are increasing volume and profit. New merchandising strategies, such as private-label programs and a new fashion focus with wide variety, distinguishes product. By cost-cutting and shrewd negotiating with manufacturers, some stores still compete on price, while others target niche markets and customers ignored by large stores.

One success story, Dawahare’s, a Lexington, Ky.-based department store chain with 27 stores in Kentucky and West Virginia. Dawahare’s had comp-store sales gains of 6 percent, and margins increased 2.5 points, for the year ended July 31, said Jimmy Dawahare, general merchandise manager, whose grandfather, a peddler from Syria, opened the first store 86 years ago in the eastern Kentucky coal fields. Today, 10 cousins, brothers and sisters help run the business.Dawahare attributes profit growth to a "private-label explosion" begun three years ago. Today, private label is 65 percent of the total women’s business, which is half of total sales, with the other half in men’s and children’s wear. He also dropped old standbys — Sag Harbor, Miss Erica and Bill Blass Jeans — and added RL Jeans, Tommy Hilfiger Jeans and Rafaella.

"We have to be different," said Dawahare. "Private label stretches us to the limit, as manufacturers need big quantities, but it’s worked."

Another distinguishing tactic, trends — lace-up shirts and bottoms, and novelty capris — set Dawahare’s apart from more basics-oriented discounters.

Maintaining sharp prices and targeting an older middle-class customer has been the strategy at Hamrick’s, a Gafney, S.C.-based moderate department store with 22 Southeast stores. The family-owned business began 50 years ago carrying groceries and piece goods and making pull-on pants.

Hamrick’s sells the same lines, like Alfred Dunner and Sag Harbor, that some big chains offer, but at prices 30 to 50 percent lower. Recently, a big-volume knit top on sale for $19.98 at a competitor sold at Hamrick’s for $9.98.

Chuck Lewis, general merchandise manager, won’t "give away all secrets," but inexpensive real estate, low operating expenses and a lean buying department help hold down overhead. Hamrick’s sells no irregulars or seconds, but they sometimes "pack and hold" basic items to sell the next year and always negotiate with vendors for the best deals.

"We have to discount more," said Lewis. "Everybody is a discounter, including department stores. We’ll beat anybody’s price — we’re less than a competitor’s "sale" price over 95 percent of the time, and customers know it. They still come to our stores in bus loads for bargains."

Hamrick’s caters to women over 40, a customer many department stores have abandoned, said Lewis, with stores in small communities and rural areas — towns with populations under 50,000 — with no major malls.

"Everybody’s trying to be hip and young, but we have a saying: ‘If you cater to the masses, you’ll eat with the classes,’" said Lewis.Stores range from 35,000 to 60,000 square feet. Hamrick’s carries a "tremendously wide selection" of product, said Lewis. With no matrix system, buying is flexible.

Although he wouldn’t release figures, Lewis said sales gained in the past year, margins have improved each of the last two years and inventories are lean.

Lewis, who came from Belk Stores to Hamrick’s five years ago, credits the Hamrick family, owner Barry Hamrick, and several brothers and sisters involved with the business, for building the stores’ reputation for value.

"I wouldn’t go into retail today, but the family’s successful foundation makes it work," he said.

For Fashion Shops of Kentucky, a Louisville-based moderate women’s apparel store with 11 units in Kentucky and Ohio, branching out into home accents and small furniture 18 months ago has boosted business. Apparel targets a contemporary misses’ customer — 30 to 50 years old. Stores range from 8,000 to 25,000 square feet.

"Fifteen years ago, when the department store was king, our goal was to carry the same brands at more promotional prices," said Benjamin Levine, vice president of the business begun by his grandfather in the Thirties. His brother, David, is president, and brother Larry is vice president. "Now we compete more with specialty and discount stores, as department stores have become less competitive in our area."

The days of buying lines in New York, such as Koret and Alfred Dunner, at regular price are over, said Benjamin Levine. Today, Fashion Shops scours markets looking for certain looks rather than specific brands. They might have Ellen Tracy, Dana Buchman or a hot junior line, depending on the best buyouts. To build a new private-label business, the store often piggybacks with others for clout with manufacturers.

"Customers don’t want the same old coordinate sportswear lines — the "misses’ geranimals" — anymore," said Debby Checinski, merchandise manager.

With annual sales of over $20 million, business has been flat for the past few years, and the goal is to maintain margins and steady profits.

"Every year is a struggle," Levine said. "We’ve held onto market share, which is a victory, considering all the new players. We’re competing with T.J. Maxx, Kohl’s, Old Navy and outlet malls everywhere."At Cohen’s of Alma, not a day goes by without a longtime customer mentioning shopping with owner Mark Cohen’s father or grandfather. Cohen contacts customers about new arrivals, tracks down requests — even at a competitor’s store — takes special orders and offers no-hassle returns.

The customer is queen at Deraney’s, a Jackson, Ga., department store. David Deraney, third-generation owner, inherited the 7,000-square-foot store from his grandfather, a Lebanese immigrant who came to Jackson by way of Atlanta and Ellis Island in 1908. His first store sold farmer’s work clothes, including Levi’s jeans at $3.99 a pair.

David, with wife Yvette, added women’s and children’s wear in the Sixties. For branded goods — Kasper suits, Koret, City Girl — Yvette shops wholesale houses for cheaper prices and buys from traveling salesmen. She shops for small, novelty lines at Pricebreakers, a warehouse in Atlanta with over 50 brands of suits and dresses. There, she buys lines such as Nicole Nites, Milano, Tango Nites and Ben Marc. She also shops AmericasMart for lines like City Girl, a San Francisco sportswear resource, and Karen Hart, a Herrin, Ill. sportswear line.

"I remember my grandmother wouldn’t leave home without hat and gloves," she said. "Times have changed, and so have we, but we still treat customers as our best friends. Wal-Mart can’t do that."

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