GETTING BACK ON TRACK
Byline: Mark Tosh
NEW YORK — After a devastating 88-day strike last fall at 26 stores, Fred Meyer Inc. says it has regained most of its sales momentum and has modified its business plan, putting added emphasis on apparel.
It seeks to return to its normal sales pace sometime this spring but has extended some crucial profit and expense targets due to the labor dispute.
For one, the mass merchant now looks to hit a net profit margin of 2.75 percent of sales by the end of 1997, rather than yearend 1996. The chain posted a net margin of 2.4 percent at yearend 1993, which is better than most retailers in the combined general merchandise and food format, with one exception being Wal-Mart at 3.5 percent. Earnings in 1994 were undoubtedly hit hard by the strike. Meyer is scheduled to reports its results for 1994 on March 7. Other goals: l Reduce expenses as a percentage of sales by at least 1 percent by the end of 1997 from the level in 1993.
Increase annual sales by 10 percent annually through new stores and remodelings.
Sales gains are expected to be invigorated by apparel, with the help of a new TV ad campaign aimed at enhancing the company’s fashion image. The chain has targeted dresses and activewear as the primary growth vehicles in apparel.
The Portland, Ore.-based retailer, which operates combination general merchandise and food supercenters, dropped 30 to 35 percent in sales in its core Portland, Ore., and Vancouver, Wash., markets during the strike.
However, Robert G. Miller, chairman and chief executive officer, said sales in Portland and Vancouver are now running 3 to 5 percent behind the pre-strike pace and should be back to normal by the end of the first quarter in May. He credited aggressive promotions, which have been “toned down somewhat” to protect margins, for rebuilding sales.
Miller, speaking last week at a Lehman Bros. retail conference here, said sales growth will be driven by the construction of 30 to 35 new full-line stores and 40 major remodels over the next five years. The company “controls” 40 sites in its existing markets, either by ownership or lease, Miller said, giving it the flexibility to decide which stores to open first.
“After the temporary setback in 1994 because of the strike, we expect to get back on track in 1995 with results that compare favorably on a trend basis with our 1993 performance,” he said. “Fred Meyer’s unique one-stop shopping experience is perfect for the time-poor and value-conscious customers of the Nineties.”
Unionized employees struck 26 Fred Meyer stores and a distribution center last August in a dispute over wages, benefits and guaranteed full-time employment. The strike ended in November with employees agreeing to a 30-cents-per-hour wage hike, maintained health benefits and a seniority clause, which gives senior workers rights to a full-time schedule.
“We are very happy with where we are at this point,” Miller said during his presentation. “We knew after 88 days it would take some time to come back.”
Fred Meyer has been offering apparel, general merchandise and food under the same roof since the Thirties. Its 131 stores include 83 food and general merchandise units, 18 general merchandise stores, and 25 fine jewelry stores. There are also specialty nutrition, food and apparel stores.
General merchandise, including apparel, housewares, electronics and hardware, accounted for almost two-thirds of the company’s estimated $3.1 billion sales in 1994.
By using upscale fixtures and focusing on brands, Meyer has a clear advantage over discount competitors, such as Target, which opens its first supercenter this spring, and Kmart and Wal-Mart, which entered the supercenter arena at the beginning of the decade. Among the key apparel brands at Meyer: Levi Strauss, Lee, Bugle Boy, Farah, Nike, Reebok, Jockey, Vanity Fair, Capezio and Bali.
However, in children’s clothing, Mary F. Sammons, senior vice president and director of the retailer’s general merchandise division, said the retailer is heavily weighted toward private label because price is the “most important” issue for consumers in that category.
“We don’t really consider the Wal-Marts and Kmarts to be our apparel competition,” said Sammons in an interview at the Lehman Bros. conference. She said Fred Meyer strives for a level similar to such moderate chains as Kohl’s, Mervyn’s and J.C. Penney Co. Fred Meyer supercenters feature full grocery stores and can be as large as 200,000 square feet and carry up to 225,000 different stockkeeping units. In the apparel and accessories areas, modern shelving, tables and racks help give the presentations a more upscale look.
Boosting apparel sales dovetails with the company’s effort to increase overall sales by 10 percent per year. The company admitted that the “resurgence” of competitors such as Penney’s and Sears, Roebuck & Co., combined with overall weakness in apparel, have contributed to its lackluster performance.
“Generally, the apparel business has been one of our softest businesses at Fred Meyer over the past couple of years,” Sammons said. “A lot of it is just a condition of what customers are buying and not buying.”
Sammons said many consumers are more interested in housewares and gardening and that “retailers have had to work a lot harder to try to get the customers to spend money on clothing. And there’s not been a lot of really salable new fashions out there.”
Despite the difficulties, Sammons said she has planned for apparel sales increases in 1995, though she wouldn’t specify the projected gains.
“We’re being conservative, and we’re going to really make sure that we manage our inventory at the same time,” she said. According to Sammons, dresses and activewear are coming back strong and will lead the sales revival. The retailer is looking for “strong double-digit growth out of the dress category,” she added.
“Our dress business right now has been extremely strong for the past year, and we’re going to fund that business even more in 1995 because we think we can get plus sales out of that business,” she said.
To help boost apparel sales, Fred Meyer has created a new television advertising campaign to improve its “fashion image,” Sammons said.
The campaign debuted late last year, completely funded by Meyer, around “the color of fall” theme. It featured sportswear, sweaters and outerwear.
This spring, some vendors are partially funding the TV ads, especially women’s apparel and footwear suppliers, Sammons said. She declined to name the vendors involved.
“They understand how important it is to keep us strong and that image campaign is a part of keeping us strong in apparel,” she said.