BURLINGTON COAT FACTORY: A RARE BREED

Byline: Arthur Friedman

NEW YORK — For most outerwear vendors, it’s the top account they never talk about, the store that can be sold first-line goods, promotional items and closeouts, and won’t advertise that a brand is on sale, ever.
One of retailing’s most unusual hybrids of off-pricer, mass merchant and department store, Burlington Coat Factory Outlet is also a fast-growing national chain, having added about 15 stores last year to total 280, and nearly 100 units in the last seven years.
During that period, Burlington Coat has also expanded into sportswear, children’s wear, baby furniture, jewelry, shoes and home goods in recent years. And it’s looking for 26 or more sites to open this year.
Burlington Coat is also a rare breed of publicly traded retailers that has always been family-owned and operated.
“More importantly, we began as manufacturers, so we know how the vendors operate,” said Monroe Milstein, chairman, chief executive officer and president of Burlington Coat, in an interview at the firm’s modest offices here at 263 West 38th Street.
Milstein explained that his father, Abe, went into the coat business in 1924. Monroe joined his father in 1946 and they ran what became one of the largest wholesalers of women’s coats over a 50-year period, bearing the family name. During that time, the only retailing the company ever did was to participate in the now-defunct practice on Seventh Avenue of opening up showrooms on Saturdays so the public could buy direct.
In 1972, the company bought a coat factory and outlet store in Burlington, N.J., from a division of Jonathan Logan and started what would become one of the most unique retail operations in the country.
“We ran the business differently from other factory outlets,” Milstein said. “My training as a wholesaler lies in the way to get the best reorder numbers. Most outlets would take things they could not sell elsewhere, whether it was because they came in late or they were damaged, or made wrong. We wanted to get the best, and we found that did much better.
“So, that is why our concept is different, that’s why we’re feared the most by department stores. Department stores put pressure on manufacturers against selling to us when we started because they saw us as direct competition.”
Wholesaling was discontinued in 1982, when retail became the only focus.
“In 1975, we opened our first branch,” Milstein recalled. “A former buyer that went into business for himself had a fire and he didn’t have enough insurance. He was depressed and we called him up and we said ‘look for another location and we will go in with you.’ We opened in Commack on Long Island.”
Milstein explained that his eldest son, Wilson, who had become an Orthodox Jew, was allowed to open the store on Sunday against local blue laws, “and it was an immediate success.”
“We were the only one open on Sunday,” he continued. “We would advertise in Newsday, and there were no other full-page retail ads on Saturday. Sunday morning there would be 300 people waiting outside the store.”
For most outerwear vendors, Burlington Coat is an account they couldn’t live without and one they hold in high regard.
“One thing that sets Burlington apart from the department stores is that a commitment is a commitment,” said Ted Goldsmith, a member of the executive committee of Herman Kay Bromley, who has done business with Burlington Coat for more than 20 years. “Monroe is a unique individual who doesn’t believe in broken promises, and his sons are following in his footsteps. He truly wants every one of his vendors to do well.”
Goldsmith said one reason for Burlington Coat’s longevity and success at a time when many other off-pricers like Loehmann’s and Filene’s Basement are struggling, is that they have stuck to their philosophy of offering an everyday low price without gimmicks.
He also pointed out that since it expanded into a national chain, Burlington Coat has become the top account of many coat firms.
“Let’s just say the coat industry depends on Burlington for its well-being,” Goldsmith added.
Ira Ganger, president of Amerex USA, said, “Monroe Milstein does it the old-fashioned way. He keeps his finger on the business and delegates properly. He’s a super merchant who has an uncanny ability for knowing the right price for the right merchandise.”
Ganger agreed that Milstein is someone who is loyal to vendors, but also doesn’t forget if someone breaks a promise.
“I was once questioning the price he wanted to pay for a style, and he reminded me of something I had told him three years earlier about ‘buying right.’ He said, ‘I thought you buy right,’ meaning I should be able to deliver on the right price.”
Milstein also knows a good deal when he sees it.
Take the time in 1976, when a lease was signed for a second branch store opened in Pine Brook, N.J., on the site of a former furniture store.
“It was a down-and-dirty furniture store,” Milstein said. “We were afraid of it. They had like 52 little rooms, and we took over the whole 40,000 square feet. The rent was like $90,000 at the time, which seemed high to me.”
After a demolition company gave an estimate of $7,500 to knock down the walls, Milstein told his manager to get two other estimates.
“It was the beginning of July, and it was hot out,” he recalled. “There was a crew outside working on the highway. All of a sudden, the clouds came up over the sky and they asked if they could come in. They were carrying their sledgehammers, and my guy said, ‘You are welcome to come in, but do me a favor and knock down these walls.”‘
The road crew came in, and for the price of two cases of beer, knocked down all the walls, and the company saved $7,500.
Milstein was joined in the interview by his sons, Stephen and Andrew, the third generation of the family to be in the business. Stephen is executive vice president and general merchandise manager, and Andrew is executive vice president and executive merchandise manager.
Stephen Milstein recalled working weekends in the stores and showroom while attending high school and college. He started working full-time for the company in 1978.
With some experience working in men’s wear at Abraham & Straus, Stephen started running a men’s wear department. Around the same time, Monroe’s wife, Henrietta, began handling children’s wear at the stores.
Monroe Milstein said as Burlington started to grow, he relied on some of his old manufacturer friends for merchandising advise.
“Most manufacturers are honest people,” he said. “They will try to sell you the right merchandise for you both to be successful. If he doesn’t, you won’t buy from him again. If he does, you become a good customer.
“No matter what people say about the garment center, it really is a wonderful industry. I think it is a unique industry. There aren’t too many industries anymore that have people running family-owned operations, real entrepreneurs.”
Burlington Coat went public in 1983, with 32 stores, using the money to expand.
“We added 28 stores in the next year,” he said, “and now we have 280 stores operating.”
There are also four Cohoes stores, an upscale chain with stores in New York, Connecticut and Rhode Island, and seven Decelle units, an off-pricer with eight stores in New England. Also showcased in the majority of stores are Baby Depot and Luxury Linens departments. Baby Depot features newborn, infants’ and toddlers’ apparel, as well as nursery furniture, strollers, car seats and juvenile accessories. Luxury Linens carries bedding, linens, kitchen and bath accessories, home fashions, housewares and gifts. A few freestanding Baby Depot and Luxury Linens stores have opened in the last year or so.
“We would like to open 26 or more stores this year,” Monroe Milstein said. “We don’t know if that many locations would be available because with the economy booming, it is more difficult and many major centers now are replacing the department stores.”
The most recent is a large unit at New Jersey Gardens in Elizabeth, N.J., while the biggest is still the store at Sawgrass Mills shopping center in Sunrise, Fla.
“That store actually sells more coats than any other store in the U.S. for six months of the year,” Monroe Milstein said. “They claim to be the second biggest tourist attraction in Florida after Disney World.”
Originally, the chain was concentrated in the Northeast, but now it has spread to 42 states.
“I never thought we could do business in the South, or in California or Texas,” he said. “We do very well in Florida, Texas and Arizona.”
“We just opened three stores in Southern California and plan to open another store there this spring,” added Stephen Milstein. “Early on, we used to limit ourselves to Northern territories where we could sell coats, but we found that they sell out of coats in the South. People have to travel.”
He explained that the product mix has expanded greatly in recent years, “so we aren’t as dependent on coats.”
“Early on, when we had just coats or mainly coats, it would have destroyed us to have the warm winters like we’ve had the last few years,” Monroe Milstein said. “It took a long time, especially in the North, for people to get over the perception that we aren’t just coats. What we found when we opened in the South in the last 10 years is that we don’t have that heavy coat perception because we came with a full complement, a full line of clothes. It has taken longer in the North for people to get the idea that we are a value-oriented family department store. We are a little bit of a hybrid. We buy a lot of programmed goods, but we also carry a significant amount of off-price goods.”
Now, about 20 percent of the product mix is in outerwear, compared to about half when the chain first went public. Other departments and separate retail concepts have also been added, including sportswear, maternity and shoes, besides the linens and baby furniture. About 70 percent of volume is still in women’s wear.
The Milsteins say Burlington Coat is a favorite among women’s outerwear vendors because the company gives makers big orders in what would normally be downtime at their factories.
But vendors have gotten lots of pressure from department stores over the years not to sell to Burlington for fear it would hurt their business.
Today, Monroe Milstein observed, “They are getting less pressure in the outerwear market, but they still get pressure in men’s wear and sportswear.”
Another reason for Burlington’s success is its relationship with the market.
“We have a good relationship because we understand the problems of vendors and we work to cooperate with them,” said Andrew Milstein. “That’s one of the reasons we made the choice to keep a New York office. Even though our corporate headquarters is in Burlington, N.J., we come in every week to be here in the market, to have our hands in the market, to keep that relationship with the market.”
He explained that they have an open-door vendor policy — every Tuesday, vendors can come show their wares to a buyer. “It gives us a presence in the garment center, while many other retailers have moved out of town.”
Monroe Milstein added, “If a manufacturer has to liquidate something or wants money quick, we are in a position to do it, which an ordinary buyer isn’t. Our buyers don’t have to go through five steps of approval.”
As for being a public company, “We have no control over stock price,” he said. “Most retailers today feel that they are undervalued. It runs in a cycle. Growth has to be with profits. If you grow but you don’t show a profit, then you are not doing the whole job.”
For the year ended May 30, 1999, Burlington Coat’s sales hit the $2 billion mark, registering a 5.3 percent increase. However, mild weather during the second and third quarters depressed same-store sales by 16 percent during that period. For the year, comps increased 2.7 percent, but earnings fell $1.02 a share compared with $1.31 a year before.
Stockholder equity increased to $548.2 million for fiscal 1999, from $516.1 million a year earlier. Net income declined to $47.78 million from $63.64 million the previous year. On Monday, Burlington Coat’s stock closed at 16 1/2, up 1/8. Its 52-week high is 20 3/4; its low, 9 11/16.
In the most recent third quarter ended Feb. 26, profits at Burlington Coat climbed 42.5 percent to $33 million, or 72 cents a share, from $23.2 million, or 50 cents, a year ago. Sales advanced 18.4 percent to $699.5 million from $591 million.
Nine-month earnings climbed to $56.6 million, or $1.23, from $41.9 million, or 89 cents, a year ago. Sales advanced 11.4 percent to $1.72 billion from $1.54 billion.
With the warm winters, many department stores have cut outerwear space, which the executives feel is an advantage for Burlington Coat.
“Whenever my dad goes away on vacation, he always shops our stores,” Andrew said. “He talks to the people in the stores, and if they are out of something, the buyer knows about it in minutes. It keeps them on their toes.”
Andrew Milstein pointed out that even though price is a key selling point for the chain, it is not the emphasis of its advertising.
“Mostly to protect the manufacturer, we don’t mention their names in our advertising, either,” he said. “That is somewhat of a handicap. Unlike our competitors that are always running 25 percent off, taking a coupon and what not, we are an everyday-value-priced store, and we hammer that into our customers.”
He noted that Burlington’s ads have become more image-oriented than price-based, and tag lines like “We’re more than great coats” have helped to broaden the store’s customer base.
In today’s atmosphere of consolidation, the Milsteins have no plans to sell out.
“You never know for sure, but we were approached many years ago and that was the time that we thought we were better off going public,” Monroe Milstein said. “But at the present price of the stock, I don’t think the shareholders want us to sell. We are actually on a buy-back program. We are selling for under book value.”
Burlington has established its own Web site at bcfdirect.com, and Andrew Milstein said e-commerce is certainly growing for apparel sales.
“It is not significant yet, but we are constantly updating our site and putting more money into fixing it up,” he said. “We are coming out with a new site in a few months. We want to make it more user-friendly. Right now, it encourages people to call our 1-800 number to buy something. We want to have complete shopping baskets and have complete registries for children and weddings.”
Monroe Milstein said he doesn’t think the Internet is going to replace traditional stores, but it could replace catalogs.
“We are fortunate that in the little bit we are doing, we get a much lower return rate than what is reported to be the average,” he said. “So, we must be giving the right items.”
To him, that’s the bottom line.