Byline: Holly Haber

HOUSTON — Rapidly raising its profile, Specialty Retailers Inc. is planning 60 store openings this year, seeking a niche in small-town America that Wal-Mart hasn’t already grabbed.
Specialty’s strategy: selling moderate and better-priced branded apparel, accessories and shoes in communities with 12,000 to 31,000 people, which aren’t big enough to support full-line department stores.
“You might have a Kmart or Wal-Mart, but we sell branded fashion, so in these small towns, we are the place to go,” asserted Carl Tooker, president and chief executive officer.
“Wrangler jeans and Hanes are the only two brands we both carry,” he explained, referring to Wal-Mart. “We’re promotional as well, so we can stay very competitive price-wise, and there is a difference in shopping in a mass merchant versus a junior department store. The customer who shops in our store for fashion is not going to shop in Wal-Mart for clothes.
“Our future is in expanding to small markets because there’s no competition.”
In 1996 and for the foreseeable future thereafter, SRI, based here, plans to add 30 to 35 units a year. The stores average 25,000 square feet in size and sell women’s, juniors, children’s and men’s wear. Best-selling labels include Liz Claiborne, Guess, Norton McNaughton, Dockers and Levi Strauss. Basics that are automatically replenished, such as Dockers, Levi’s, as well as hosiery and foundations, account for 50 percent of sales.
Tooker said the stores carry traditional and some more forward styles. “We try to base the content of a store on the demographics of the market. There is a tremendous dress market in small markets because religion is instrumental and people like to wear dresses to church.”
“It’s a very viable strategy because where they go they’re usually the only apparel retailer in town,” observed Deborah Downie, an analyst with Freeman Securities Co.
The strategy puts a higher-profile on a company that even Tooker acknowledged he hadn’t heard much about before joining it as ceo in 1993. He was ceo of Rich’s in Atlanta, a prime job, but he was attracted to SRI by receiving an equity stake and the opportunity to “take this venue and spread it across the U.S. We’re looking at growth opportunities constantly.”
The 215-unit chain operates stores under the names Palais Royal, Bealls, Fashion Bar and Stage, which are mostly in Texas and Louisiana. New stores in eastern states will be called Stage.
The company posted $395 million in sales for the first nine months of fiscal 1994 ended in October, representing a 4.5 percent gain over 1993. The period also marked a return to profitability, with $7 million in net income against a loss of $6 million in the prior year that was attributed to the costs of a bond offering.
Results for the full year won’t be released until April, but SRI outperformed the industry in December, when the chain’s holiday sales rose more than 8 percent, but turned flat in January due to warm weather, according to Tooker. Sales in 1993 were $557 million.
Seventy-five percent of SRI’s stock is held by Bain Capital Inc. of Boston and Acadia Partners of New York, the venture capitalists that were instrumental in merging Palais Royal with Bealls in a 1988 leveraged buyout that created SRI. There are other investors, including company chairman Bernard Fuchs.
SRI’s game plan capitalizes on the growing number of households where both spouses work and have less time to visit the mall, especially in smaller communities where the mall could be 15 or more miles away. “The average customer is driving to the mall 1.5 times a month versus twice a month a year ago,” Tooker claimed.
SRI’s stores are generally in strip centers. “The costs are one-third of a regional mall — $4 a foot average rent versus $12 a foot,” Tooker pointed out. “I only need to do $100 (in sales) a square foot to make a lot of money.”
“The critical aspect to making this work is to start with the real estate,” Tooker said. “We don’t need to reinvent our concept. We need to find communities with the population and demographics and strike up a rent that allows us to make money at $70 a square foot [in sales].”
Tooker also said he’s read studies indicating rising concerns over crime in mall parking lots, and a growing preference to shop stores where consumers can park close to the storefront.
“Gangs have a tendency to hang out in malls in major metropolitan areas,” he noted. “It’s not common in every mall, but there are malls that have that stigma.”
Tooker claims there is another good reason to shop his stores — better service. Similar to many department stores, his stores offer alterations and frequent buyer clubs that enable faithful shoppers to earn free gift wrapping, free faxing and extra discounts.
But SRI also offers service right from the fitting rooms, where customers can summon help by pressing a buzzer on the wall. In addition, sales associates, Tooker suggested, in small-town stores have a low turnover rate, about 25 percent, and get better acquainted with customers.
Last October, the company bought 49 Beall-Ladymon sites, marking the chain’s entry into Kansas while strengthening its presence in Louisiana, Arkansas and Mississippi. Most of the stores will become Stage stores. About 15 more units will be opened this year, including its first three units in Illinois. Tooker also is eyeing Alabama and other eastern states for expansion.
However, SRI is in the process of shutting 33 lackluster Fashion Bar units in Denver, as reported, some of which have closed already. Fashion Bar was purchased in 1992.
The expansion, which should bring the company to 265 units by the end of 1995, is financed by a $325 million bond offering completed in 1993.
The chain does operate some large metropolitan stores through the 37-unit Palais Royal chain, including 34 stores in Houston. These units rack up average sales of $200 a square foot. Bealls units, which number 130 and are in smaller communities, average $130 in sales per square foot.
However, the real push will be in the small towns. Said Tooker: “This is not a strategy department stores have in their arsenal today, and by the time they figure out how to do it, I’ll already be in all those markets.”