PROFFITT’S POWER PLAY
Byline: Georgia Lee
KNOXVILLE, Tenn. — With over $2 billion in sales, can Proffitt’s Inc. maintain its small-town philosophy and regional focus as it brings a string of acquisitions into the fold?
R. Brad Martin, chairman and chief executive officer, is convinced his company can do it. “Our economics will be similar to other major chain stores, but our assortments will have a regional accent,” said Martin, during an interview.
“We’re committed to the idea of a friendly store and workplace and the small company culture.”
Retail experts say Martin is not just making overblown promises and that the company does seem to have a gentler approach to integrating new divisions attained through takeovers, compared with the slash-and-burn tactics of other aggressive, acquiring retailers.
“Proffitt’s has done an excellent job in making the takeovers smooth and painless,” said Jan Martinez, president, Ashford Management, an Atlanta executive search firm. “They’re going about this in a refreshing way, leaving the companies basically intact and keeping the focus on the customer. Let’s just hope the bean counters and consultants don’t get control.”
Indeed, Proffitt’s, based in Alcoa, Tenn., is combining back-office functions, thereby eliminating millions of dollars in annual costs. But the process is leading to fewer layoffs than might have been expected and allowing divisions to continue to merchandise independently. This way, assortments can still be tailored to the different regions where Proffitt’s operates. Lightweight, lacy Easter dresses continue to make their way to stores in the South, where social-occasion is a big category, and wool coats and darker-colored items are heavily stocked in the colder northern Midwest.
In addition, Proffitt’s executives say there will be no changes in any of the nameplates of stores that in the past four years have become part of the Proffitt’s empire.
The Proffitt’s charge began in 1992, when 18 stores were bought from the former Hess’s Department Stores. Two years later, the 28-unit McRae’s based in Jackson, Miss., was purchased, and in 1995, three Parks-Belk stores were added.
In February 1996, Proffitt’s bought Younkers, a Des Moines, Iowa-based chain with 49 stores primarily in the Midwest. In October, Parisian’s, a Birmingham, Ala.-based chain with 38 stores in the South and Midwest, was bought. And Herberger’s, a 40-unit chain based in St. Cloud, Minn., was acquired in November.
In addition, the company plans to open four stores this year.
“We see more opportunities now than five years ago,” said Martin. He declined to name possible takeover targets, but said the company is looking for strong, regional department stores that are good performers in smaller markets and fashion-oriented.
At a time when many regional department stores are struggling to stay alive, Proffitt’s has grown from 25 stores and sales of $201 million in 1993 to 141 stores and revenues of $2.3 billion today.
Before special items involving acquisitions and property sales, Proffitt’s Inc. reported 1996 third-quarter earnings jumped to $10.1 million, or 44 cents, from $7.5 million, or 36 cents, a year ago.
After a $400,000 charge for the merger and integration of Younkers, $600,000 in expenses from the attempted takeover of Younkers by Carson Pirie Scott and a gain of $200,000 for the sale of property, income was $9.9 million, or 43 cents a share.
In the year-ago quarter, after special items, net income came to $6.9 million, or 33 cents.
Sales in the quarter ended Nov. 2 rose 14 percent to $368.3 million from $323 million, and same-store sales increased 4 percent.
In the nine months, income before special items was $21.1 million, or 97 cents, compared with $14.8 million, or 69 cents.
Sales rose 5 percent to $936.6 million from $888.9 million, and same-store sales advanced 4 percent.
Proffitt’s positions itself in smaller markets, where it can corner the better branded business. It’s a strategy being carried to Herberger’s, McRae’s, Parisian’s and Younkers.
“In many of our rural markets, we’re the only place to go for brands like Liz Claiborne or better cosmetics lines,” said Linda Kerr, vice president and general merchandise manager of ready-to-wear for the Proffitt’s division. She cited Morristown, Tenn., as an example, where the competition is limited to J.C. Penney, Wal-Mart and Goody’s.
Better sportswear represents 45 percent of women’s apparel sales, and this year’s volume in the category is running 19 percent over last year. Liz Claiborne and Eileen Fisher are key resources, and new introductions such as Lauren by Ralph Lauren, Polo Jeans and Tommy Hilfiger have been a shot in the arm.
This spring, Proffitt’s will add in-store shops for Lauren and Hilfiger in six doors.
Typical of Proffitt’s regional focus is its “Better Country” department, which includes traditional resources such as Susan Bristol, Eagle’s Eye and Marissa Christina, which will be emphasized with in-store shops this spring.
Special occasion is another key category for Southern customers, who dress to the hilt for weddings, proms and other social events, said Kerr.
“The Southern customer wants more novelty items, year-round fabrics, and they want to see color,” she said. “We tailor our assortments according to weather, income and whether a region leans toward traditional or more updated merchandise.”
Proffitt’s is moving the opening price points of its moderate sportswear up a notch and increased the category’s volume by 8 percent in 1996, said Rick Thomas, divisional merchandise manager of moderate and juniors.
Core moderate resources include Sag Harbor, Counterparts, Koret and Norton McNaughton.
In juniors, the company relies on such lines as CK Calvin Klein, Guess and Esprit.
In addition, Proffitt’s hopes to increase its private label from 8 percent of total women’s apparel sales to 10 percent in the next three years. Proffitt’s plans to expand its private label Danielle Martin collection with styling that will be similar to bridge resources such as Dana Buchman and Ellen Tracy.
As the merchandise gets upgraded, with new private label and heavy hitting national brands, Martin insists that Proffitt’s will allow each division to maintain much of its character and autonomy.
The company has left most of the merchandising teams in place and gives buyers the authority to make decisions at the local level. However, a newly created merchandising group in Birmingham, Ala., will oversee private label development and negotiate deals with vendors on behalf of all the divisions.
“Martin’s strategy of keeping a regional focus and separate identities for the divisions has been brilliant,” said Harry A. Ikenson, a senior director of Rodman & Renshaw. “It sets Proffitt’s apart from other department stores in that they can stay closer to the local consumer.”
Ikenson said consolidation will come primarily in back office functions, such as credit, finance and systems, with the goal of cutting costs by $10 million a year. Proffitt’s recently sold seven less-profitable Virginia stores to Dillard’s.
Although some layoffs in consolidated areas have occurred, Martin said, “We’ve been a net job creator.” He said the company has grown from 4,000 employees five years ago to 25,000 employees today.
Martin described each Proffitt’s acquisition as “healthy and highly regarded in their communities.” Each company will maintain its name, management and merchandising philosophy, he added, but will share “best practices” when applicable.
Younkers, described by Martin as a “fashion-driven” business, has well-developed special-sizes areas. In August, Proffitt’s converted Younkers’s shoe departments from a leased to an in-house business and has grown the category. He said there are also opportunities to grow cosmetics and accessories.
As for Parisian, Martin said, “We see it as the premier specialty store, with many resources that aren’t in traditional department stores.” Parisian will edit down moderate lines, add more better resources, with smaller, regional resources, particularly in jewelry and accessories, and grow the private-label side of the business.
McRae’s, a 28-store Jackson, Miss.-based chain acquired in 1994, is strong in home accessories, men’s apparel and cosmetics. Since buying McRae’s, Proffitt’s has expanded the cosmetics business. Better women’s apparel is a growth opportunity, Martin said.
The purchase of G.R. Herberger’s extends Proffitt’s reach deeper into the Midwest and into the Great Plains.
The chain has strong women’s, children’s and moderate men’s apparel businesses and, under Proffitt’s, has begun to develop shoes and cosmetics.
Martin said Herberger’s will focus on branded businesses, adding lines such as Nautica, Ralph Lauren and Tommy Hilfiger in a limited number of doors.
On Friday, Herberger’s shareholders officially approved the store’s merger with Proffitt’s. Each outstanding share of Herberger’s common stock will be converted to 1/2 share of Proffitt’s stock. There are about eight million Herberger’s shares outstanding.
A key factor behind Proffitt’s unconventional growth strategy is the company’s unconventional ceo. Martin, 44, was elected at the age of 21 to the Tennessee state legislature, where he served five terms and flirted with the idea of running for governor. He then became a real estate developer. He had no retail experience when Proffitt’s presented itself as an investment opportunity in 1987. He took the helm as ceo in 1989, taking the company public that year and steering it through its acquisitions course.
“[Martin] is uniquely talented,” said an executive with Tommy Hilfiger, who requested anonymity. “With no background in fashion or retail, he became an astute student and hammered out a niche.”
The Hilfiger executive added that Martin’s people-oriented philosophies are a rarity in the cutthroat culture of department store retail. Martin is known to walk through Proffitt’s stores helping customers. Similarly, Parisian’s ceo, Donald Hess, often handles customer complaints by phone.
It’s a hands-on management style of service that Martin is determined to extend to all of his divisions and his employees.
He’s already got many going the extra yard. On rainy days, they break out the oversized umbrellas and escort customers to their cars and lug their packages for them. But the effort is worth it for them, particularly if it leads to additional sales. Employees are rewarded for improved dollar performance with company stock, and for outstanding service, they get “prestige” awards. It’s Proffitt’s way of creating a friendly store.