Discount Retailing and Leased Departments

Abstract

Financial woes of a relative few have been making ugly headlines. Whether there will be more is yet to be seen, for some have tried to go too far too fast too soon. These financial troubles revealed weaknesses of undercapitalization and lack of organizational strength for rapid expansion. It seems to be characteristic of progressive, competitive capitalism that fast surges forward beget equal and opposite reactions in which the overextended become jolted, crimped or flushed out in the struggle for existence. This has happened times before in other industries and it may be expected to occur again. A nearby parallel to discount retailing's shake-out was seen in the supermarket industry during that formative period preceding the post-war population explosion and rush to suburban living which still changes the demographic map of the nation. More and more families today drive cars full of children to more and more shopping centers to buy all sorts of things in self-service stores at low prices. Developers of supermarkets today are becoming more wary because of crowding and overstoring in some areas. So the discount retailing business should be viewed through a wide-angled lens. The stronger companies are showing good sales, profits and return on invested capital. In truth, they are doing better than other phases of retailing. Successful operators of leased departments deserve some studious attention because of a profitability which, relative to net worth and working capital, is substantially above that being shown by the traditional department store. A wide-angled view of discount retailing involves consideration of its segments. Differentiation is not easy because chain organizations of conventional department stores, variety stores, supermarkets and drug stores have moved into discount retailing of nonfood items. Many are famous corporate names. Among them being Food Fair, Aldens, Stop and Shop, Gamble-Skogmo, Genesco, Grand Union Co., W. T. Grant Co., Goodyear Tire & Rubber Co., B. F. Goodrich Co., National Bellas Hess Co., Allied Stores Corp. and Jewel Tea Co. It is significant that S. S. Kresge Co. and the F. W. Woolworth Co. are among the big, seasoned and conservatively managed chains which are moving in. The K-Mart division of S. S. Kresge has about 25 discount units today and expects to be operating some 50 by the end of 1963. The Woolco division of F. W. Woolworth Co. intends to operate 10 units in the U. S. by the end of 1963. Consider that Interstate Department Stores Corp. represents a typical, big nationwide chain of conventional junior department stores which moved heavily into discount retailing since 1959. In a few years its sales zoomed from $65.6 million to $222.8 million and are expected to go to $330 million this year. Sol Cantor, its president, is said to have commented that a 10% cut in distribution costs truly advances the American consumer's standard of living which discounting can effect. All-out 100% discounters include such familiar names as E. J. Korvette, Inc.; GEM International, Inc.; J. W. Mays, Inc.; Fed-Mart Corp.; Vornado, Inc.; King's Department Stores; S. Klein; Alexander's Department Stores; Zayre Corp.; Arlan's Department Stores; Bargain Town U.S.A.; Virginia Dare Stores and Ohrbach's, Inc. (Not all of these are publicly-owned companies.) The leased department operators represent a group with which my company is identified. We feel that leased departments in discount department stores are, in general, progressing in a way which is as solid as it is rapid. The lessee's role will continue to enlarge in discount retailing, and there are good reasons for thinking so. Obviously, the discriminating analyst will deem some to be stronger than others as a long term investment. Well known successful operators of leased departments include Marrud, Inc. and Parkview Drug in cosmetics, drugs and sundries; MEDCO in jewelry; Endicott Johnson, Genesco, Melville Shoe and Morse Shoe in footwear; Gateway Sporting Centers in sporting goods; Unishops, Inc. in men's and boys' wear; H. L. Klion in furniture, and Shoe Corp. of America in the retailing of soft goods and shoes. A great opportunity is before the leased department operator in this rapid growth of discount retailing. It shows the way for him to demonstrate his particular merchandising skills, as in apparel, cosmetics and drugs, sporting goods, appliances and so on. In fact, leased departments' sales record for 1962 shows gains of from 30% to 100% over 1961 for most of them, it is observed by the Discounters Digest (February 1 8, 1963) published by Dun & Bradstreet, Inc. Its study of 39 leased department operators and a comparison with 204 discount stores and 416 department stores for 1961 is shown elsewhere. Because of the small size of the sample and the tendency of each Daniel Kessler is Executive Vice President of Unishops, Inc., an independent operator of men's and boy's wear leased departments in discount department stores.