Byline: Vicki M. Young

NEW YORK — When Deb Shops Inc. reported a 63.8 percent jump in net income for the three-month period ended Oct. 31, it marked the 11th consecutive quarter of solid performance by a company that five years ago lost its focus on its core young customer.
Founded in 1932 as a value-priced specialty retailer targeting 12-to-19-year-olds, Deb Shops went public in 1983. But by 1994, the company’s troubles had piled up: loss of customer focus, 100 unprofitable store locations and a tough retail climate from 1994 through 1996.
Lewis Lyons, chief financial officer, remarked at a recent presentation here at XChange II, a youth market financial forum, “As the company and the customer aged, we aged with the customer. We were selling to the 35-year-old merchandise that didn’t work with the square footage of our stores. The teen customer likes us best, and in December 1995, we decided to refocus on the junior market, knowing that they will outgrow us.”
One of the first moves was to hire a new chief merchant, Allan Laufragben, who became senior vice president of merchandising in December 1995. He had been president and chief executive officer of Petrie Stores Corp.
The company has since embarked on a more fashion-forward merchandising strategy. In addition to stocking fashionable apparel and accessories, Deb Shops changed its visual displays by grouping complementary categories to incite multiple purchases and boost impulse buys.
Deb Shops also keeps its inventory fresh by replenishing the assortment twice a week. “Compared to retailers with greater depth and fewer number of styles, we offer the opposite: more styles, less depth,” Lyons noted.
The company’s approach, he explained, limits its exposure when an expected top seller turns into a dud. The company also moves quickly to mark down slower-selling merchandise to clear inventory and move in new items, he pointed out.
Ninety percent of the retailer’s merchandise is vendor label. The remaining 10 percent is branded apparel in the denim category, including Mudd Jeans, LEI and Paris Blues.
Also helping the retailer is the trend toward a more feminine look. “The problem in the 1980s and early 1990s was that there was no fashion for teens. The grunge look meant that teens [were raiding] their older sibling’s closet,” Lyons said.
Deb Shops’ operating turnaround — which showed signs of improvement in 1997 and gained momentum in 1998 — was aided by the closure of 100 unprofitable locations.
Those stores, Lyons noted, were opened because of pressures from Wall Street after the firm went public.
“Wall Street wants us to tell them how many more new stores will be opened. We did that for many years, but the problem is we became driven by unit growth and top-line growth. So as not to disappoint Wall Street, we opened units. Those were also the ones that didn’t do well, which we eventually closed,” Lyons said.
But the challenge from Wall Street continues, and Lyons refuses to disclose the number of projected new store sites for any given year. Even though Deb Shops has the ability to open 25 to 30 new stores a year, Lyons said he doesn’t want to be held to any promises.
“We want to open profitable stores, not open stores just to meet unit growth or top-line growth,” Lyons said. Its store model is between 5,000 and 6,000 square feet in enclosed malls, with a minimum of $1 million in volume.
Deb Shops operates 285 specialty apparel stores in 37 states under the Deb, Deb Plus and Tops ‘N Bottoms names. Deb Plus freestanding stores and in-store shops at Deb Shops target the junior plus-size customer.
For the third quarter ended Oct. 31, net income jumped 63.8 percent to $4.1 million, or 30 cents a share, from $2.5 million, or 19 cents, in the year-ago period. Total sales for the quarter increased 12.9 percent to $67.7 million from $60 million. Sales for just the apparel stores rose 14 percent in the quarter to $62.7 million from $55 million last year, while comparable store sales rose 11.3 percent. In addition to the apparel stores, the company operates the 18-unit Atlantic Book Shops chain.
Dressy pants, turtlenecks and hooded tops were big sellers in the quarter. Handbags were hot items in the accessories category, while anything with an animal print or fake fur also sold well, Lyons said.
For the nine-month period, net income skyrocketed 99.3 percent to $13.4 million, or 99 cents per share, from $6.7 million, or 51 cents, in the year-ago period. Total sales rose 15.3 percent to $194 million. Sales for just the apparel chains rose 16.4 percent to $181.1 million from $155.6 million last year. Comps for the period were 14.2 percent.

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