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Lechters, Inc. is the leading specialty retailer of housewares in the United States. The company operates more than 500 stores, which sell a wide variety of kitchenware and other practical devices. More than 400 of its stores are known as Lechters; others are called Lechters Kitchen Place, and the company runs off-price stores under the names Famous Brands Outlet/Lechters Houseware Outlet and Cost Less Home Store. In addition, the company planned to introduce the name ThinkKitchen for several stores and its web site beginning in 2001. Lechters started as a store designed for shopping malls and expanded dramatically throughout the 1980s. As overall mall business slowed, however, Lechters began to seek other places for its stores, opening outlets in cities and in outdoor strip shopping centers.
Failure, Then Success, as a Mall Chain in the 1970s
Lechters was founded in 1975 by Albert Lechter. The company ran housewares departments in leased space in two Valley Fair discount stores in New Jersey. The discount stores were owned by Donald Jonas, who had run a variety of retail outlets since entering the field in 1947 at age 18.
In 1977, Jonas and Lechter decided to team up to open their own separate housewares store. Because many conventional department stores had shrunk or eliminated their housewares departments, the two businessmen felt that there was a gap in the market that they could fill with their store. In addition, they wanted to offer their goods in malls. Although these locations generally concentrated on clothing, shoes, and jewelry stores, Lechter and Jonas felt that their merchandise would also find a market there.
The two opened their prototype store in a mall in Rockaway, New Jersey. This store proved a complete failure. Not yet fully versed in the nature of their business, Lechter and Jonas had rented a large space, 6,500 square feet, in a far corner of the mall where there was very little foot traffic. In addition, relying on Jonas's experience in the clothing business, they had stocked their store with seasonal goods, such as picnic baskets in warm weather and holiday-themed kitchenware. When customers failed to buy the products at the appropriate time, they had to be marked down severely in order to be sold at all.
After two years, Lechter and Jonas had realized that they needed to adjust their formula. In 1979, Jonas bought out the bulk of Lechter's holdings in the company, and the two tried again. The second Lechters prototype was smaller than the first, with just 4,500 square feet. The company stocked this store with 4,000 different timeless, basic housewares, which never needed to be discounted.
By specializing in housewares, Lechters filled the gap between department stores, which offered a small selection of higher-priced items, and discount and variety stores, which considered housewares just one small part of a much larger variety of offerings. In addition, the company was moving into an area that had no dominant national retailer in place. Although housewares on the whole were not high-priced items, Lechters found that it could make money on a steady turnover of small, less expensive goods. The company instituted an everyday low-price policy, which matched the offerings of the discount stores and did not rely on special sales or promotions to bring customers into the stores.
Growth in the 1980s
By the end of the year, the new Lechters store had become profitable, and Jonas moved to expand his concept to other malls. The company grew rapidly in the early 1980s, in an effort to preempt any competitors who might decide to join Lechters in the niche it had created. By the end of 1980, Lechters had opened 30 stores in malls. By 1984, the company was expanding at a rate of 40 percent per year. In 1985, 83 Lechters stores had been opened. By the mid-1980s, Lechters' management was confident that they had a hot retail concept on their hands, and the company moved aggressively to capitalize on its success.
In 1986, Lechters raised $11 million in a private placement of stock, and the company used these funds to fuel even more rapid expansion. In the next three years, the company's number of stores more than doubled, to reach 297. In 1988, sales reached $120.7 million, and, in the following year, they grew to $150 million. The company's growing revenues and earnings were driven by the ever larger number of Lechters outlets taking their place in malls around the country.
In 1989, Lechters moved out of malls into the cutthroat retail environment of Manhattan for the first time. The company made this move with trepidation. 'We weren't sure how people in Manhattan felt about Rubbermaid and cake plates,' a Lechters' vice-president later told HFD, a trade journal. The high density of customers, the relatively high income of the population, and the lack of any real competition, however, made Lechters executives feel that the risk was worth it. The company shortly discovered that its experiment had been a success, as Lechters' Manhattan store began to turn in revenues twice as high as those of stores in suburban malls.
To fund further expansion, Jonas sold 35 percent of Lechters to the public in 1989. This offering of stock raised $53 million. Of this sum, $31 million was used to buy out previous investors and insiders, and the rest was dedicated to funding Lechter's growth. To direct this expansion, Lechters recruited seven senior executives from top retailers around the country in the late 1980s.
These managers were brought in to help Lechters move to the next stage of its development. The company had successfully invented and refined its concept, and it had rapidly expanded its format to a large number of locations. By the end of the 1980s, however, it was necessary for Lechters to invest in systems and controls to enhance the profitability of its existing operations.
Evolving Retail Concepts in the Early 1990s
By January 1990, these operations comprised 280 separate Lechters stores. The company's sales had grown at a compound rate of 43 percent over the last five years. In that time, Lechters had come to dominate its housewares category, retailing gadgets, gifts, and frames, as well as basic cookware. Despite this success, one worrisome note was the company's reliance on new store openings for growth. Sales increases at individual stores had been minimal, rising just $20 per square foot over a two-year period.
In addition, the company experienced some difficulty with its Kitchen Place outlets. Along with its trademark stores, Lechters had moved into the burgeoning discount mall category, opening 13 Kitchen Place units. These stores were bigger than the typical Lechters and sold similar products at slightly lower prices. In its initial guise, this concept did not contribute strongly to Lechters' earnings, so the company revamped the idea to see if it would fly in strip malls. The new Kitchen Place store was envisioned as a more aggressively promoted, high-tech outlet, with lower prices and a higher profile. The company tested out this idea in a Price Club Plaza in North Haven, Connecticut.
In an effort to improve operations at its flagship chain, Lechters turned its attention to the consistency of its merchandise and to its distribution system. The company began testing new computers for sales and inventory control and also began to diagram more precisely where items should be displayed in each store. Without such planning, displays in Lechters' small stores sometimes became haphazard and disorganized. In addition, the company moved to pare down its offerings in some categories, after discovering that it had twice as many versions of some items as it needed. With these steps, the company hoped to position itself as a slightly more upscale retailer, with an average purchase slightly higher than its standard $6.
As part of this program, Lechters aggressively expanded its presence in Manhattan. In May 1990, the company opened a New York outlet, its 319th overall, and then in June a fourth Manhattan store was brought on line. By the end of the year, Lechters had a total of 364 units open. In an effort to reduce costs, the company also had started to import its products directly from overseas manufacturers. Lechters' sales for 1990 totaled $187.6 million.
As mall traffic began to slow, Lechters looked to a variety of store formats for further growth in 1991. The company had expanded its initial concept to include the Kitchen Place strip mall store, of which it planned to roll out 20 to 25 in the course of the year. In addition, Lechters resurrected a discount mall store called Famous Brands Housewares Outlets and introduced a mall 'superstore,' which was much larger than a regular Lechters. The Kitchen Place stores and the Famous Brands Outlets were to feature the same merchandise and price levels in different settings. Famous Brands merchandise also would be supplemented by excess inventory from manufacturers like Rubbermaid and Ekco.
Lechters' superstores had 50 percent more space than the regular stores. In their initial tests, in A & S Plaza in New Jersey and Newport Center in Jersey City, the Lechters superstores reported sales that grew by 50 percent when their size was expanded. New products offered in the bigger spaces included a wide variety of home decorations, such as ceramics, lamps, dried flowers, and brass and pewter objects.
In July 1991, Lechters rolled out a new prototype for its traditional stores, which featured more subtle shelving, wider aisles, and a bigger open space at the front of the store. In this way, the company hoped to relieve the crowding present in many of its smaller locations. In a test on Staten Island, these changes increased sales volume by 40 percent.
In addition to these changes, Lechters also planned to expand its urban operations by opening three more Manhattan stores and a first location in downtown Chicago. At the major intersection of 57th Street and Broadway in Manhattan, Lechters opened a two-level, 8,000-foot superstore. Called the 'Lechters Home Store,' this outlet featured an expanded selection of merchandise. Despite Lechters' moves into the city and into strip malls, more than 80 percent of the company's revenues still derived from stores in malls by the end of 1992.
In January 1993, Lechters' sales reached the $234 million mark and earnings were at $13 million. This growth came despite a generally slowed economy. Rather than depress Lechters' earnings, the downturn appeared to have enhanced them, as people began to eschew expensive restaurant outings to eat more at home, which prompted them to buy more housewares.
Although Lechters' sales figures showed strong growth, trouble loomed on the horizon, as traffic in malls continued its steady drop. To counteract the effect this decline would have on its business, Lechter located just 20 of the 65 stores it opened in 1993 in malls. Despite this measure, the company reported falling profits in the first quarter of 1993, even though sales had risen. This trend continued throughout the year, and the company ended 1993 with sales up $44 million to $350 million and profits down $4.3 million, to $11.1 million. This drop was attributed to weakness in the company's product selection and low levels of customer recognition. Without noticing it, Lechters had failed to establish any clear identity for the company in the public's mind.
To redress these problems, Lechters revamped its product presentation and increased the amount of information presented to customers, so that the store would become easier and more efficient to use. As part of this program, Lechters implemented a computerized ticket-scanning system at all of its cash registers. Lechters also opened its first distribution center in 1993, to serve its 100 west coast stores. Located in Las Vegas, this facility included 155,000 square feet of storage space. By the end of the year, the company's number of stores had reached 567, and Lechters executives estimated that there was room for at least 500 more stores in the years to come. Dominating a market niche that it had pioneered, Lechters looked forward to expanding its operations throughout the late 1990s.
Revamping in the Late 1990s and Beyond
Instead, the retailer was forced to pull back. Lechters' earnings slid, declining quarter after quarter, and the company was forced to come up with a strategy to turn itself around. Employee turnover was extremely high, and something was clearly amiss with the housewares chain. In 1994, Lechters brought in Dutch-born Steen Kanter as vice-chairman and chief executive. Kanter had been behind the success of the Swedish furniture and housewares chain Ikea, and he was thought to have the kind of merchandising savvy that could pull Lechters back from the brink. Kanter began to reorganize the Lechters stores, primarily by focusing them on kitchen items and removing housewares such as picture frames and storage units that belonged in other rooms of the house. Kanter cut the number of skus (shelf-keeping units) each store carried from about 18,000 to only 4,200. Some categories had been cluttered because there were too many choices. For example, before Kanter's reorganization, Lechters carried 15 kinds of colander. This number was soon reduced to seven. Customer surveys and focus groups showed that the store layout was confusing. So the company redesigned its stores. Another part of Kanter's strategy was to expand Lechters' private label business and offer a more complete cookware line. Plans for new store openings were put on hold.
The company hoped to see results of its reorganization by early 1996. Instead, Lechters continued to flounder. Sales at both its full-price Lechters store division and at its off-price division decreased. The company went back on some of its earlier decisions, faced with continuing poor results. In focusing more exclusively on cookware and kitchen items, the chain had lost some of its higher-margin items. Picture frames and storage units had been banned, but were brought back, and placed in the front of the store. Meanwhile, the company's competitors chipped away at Lechters' leading position. When the chain began, it was the first of its kind, but by 1997 it had major competitors in Bed Bath & Beyond, Linens 'n Things, and HomePlace. Department stores and discount stores also carried many of the same housewares as Lechters. An article in Discount Store News from April 1, 1997 quoted several analysts who were still disappointed with the 'new' Lechters. Although the housewares market as a whole was doing well, Lechters' 'stores are not differentiated enough,' complained one Wall Street analyst. Another analyst quoted in the same article also declared that Lechters did not seem unique. Despite the changes of the mid-1990s, the chain still lacked a clear identity.
By mid-1997, the chain had 648 stores total. Of these, 484 were the full-price Lechters Housewares, and 164 were its Famous Brands Housewares Outlets. A year later, the company announced that it would close as many as 70 underperforming stores. Most of these were mall stores. Its urban sites and strip mall stores did better on the whole than its mall locations, and Lechters did plan to open more of these. However, overall, the chain was shrinking, not growing. At the start of fiscal 1998, the company announced again that it had a new focus, and again, this was the kitchen. Lechters resolved to bring in 'trend right' products, meaning new, fresh items that hit current fads. The company resolved to push national brands, while continuing to promote its three private labels. Lechters had three private lines, one for its cookware, one for frames, and one for storage products, and it hoped to derive 40 percent of its sales from these. The chain continued to close stores in the late 1990s, so that by 2000 it had barely more than 500 stores total. Sales continued flat, despite management's continued exertions to bring the company back to its former profitability. In late 2000, the company announced that its cofounder, David Jonas, would be succeeded as CEO by David Cully, a former Barnes and Noble executive. In December 2000, Cully remarked to HFN, an industry journal, that 'If we don't change both boldly and quickly, there will be no more Lechters.' This was the most dire pronouncement yet. Cully's plan relied on Internet technology to bring customers into the store. The company planned to open an e-commerce site called ThinkKitchen, followed by prototype ThinkKitchen stores featuring computer terminals to link to the web offerings.
Principal Subsidiaries: Lechters New York, Inc.; Lechters N.Y.C., Inc.; Lechters New Jersey, Inc.; Lechters California, Inc.; Lechters Texas, Inc.; Cooks Club, Inc.; Regent Gallery, Inc.; Lechter Investment Corporation.
Principal Divisions: Lechters Housewares; Famous Brands Housewares Outlet.
Principal Competitors: Bed Bath & Beyond Inc.; Linens 'n Things, Inc.; HomePlace of America, Inc.
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