Deb Shops, Inc. - Company Profile, Information, Business Description, History, Background Information on Deb Shops, Inc.
Philadelphia, Pennsylvania 19114
U.S.A.
Company Perspectives:
Our basic merchandising philosophy is to provide our customers with t he latest, updated, fashionable merchandise at the most competitive p rices possible. Looking forward, management believes in learning from its success and staying with the formula that has generated steady a nd growing earnings per share for the last few years: driving the pro fitability of Deb Shops overall store base, and entering new markets. Fortunately, the company has never been in a more advantageous posit ion to execute this strategy as its balance sheet is one of the stron gest in the industry. Finally, as Deb Shops continues to expand natio nally, the merchandising team remains focused on staying ahead of tre nds and fashion direction while responding to the ever changing needs of our consumer. This is best exemplified by the recent increase in plus merchandise which now is included in over 30% of our stores. At the core, this flexibility, focus, and execution is what really d efines the business and as always, the overriding goal is to become " the place to shop" for teenage girls, particularly over the next deca de.
History of Deb Shops, Inc.
Deb Shops, Inc., operates retail clothing stores that supply its youn g, trendy shoppers with moderately priced fashions. Its main brand, D EB, serves primarily junior-sized women between the ages of 13 and 18 , offering coordinated sportswear, dresses, coats, shoes, lingerie, a nd accessories, most under private labels. By 2005, there were 314 DE B stores, mostly in the East and Midwest; 140 of these offered plus-s ized clothing, and 17 of the DEB stores had Tops 'N Bottoms departmen ts. Deb Shops also operated 17 stand-alone Tops 'N Bottoms stores, an d three CSO outlet stores. Members of the company's founding families control about 68 percent of Deb Shops stock. The company is known fo r its fashion-forward yet budget-conscious appeal, lean inventories, and aversion to debt.
Early History
In 1932, Philip Rounick and Aaron Weiner opened their first store in Philadelphia, Pennsylvania. JOY Hosiery offered customers a wide vari ety of hosiery and foundations at reasonable prices. In 1939, nylon s tockings came on the market and JOY Hosiery added them to its stock.
The 1940s saw the regulation of nylon use, as it was required for par achutes and other equipment for World War II. The government also reg ulated how much fabric could be used in clothing and banned the use o f zippers and other metal fasteners. Despite nylon's limited availabi lity, JOY Hosiery was able to obtain enough product to continue to st ay in operation.
After the war and into the 1950s, JOY grew steadily, opening new stor es in various Philadelphia neighborhoods. As restrictions were lifted on clothing manufacturing, a much wider selection became available. JOY reduced its offerings of lingerie and began selling moderately pr iced sportswear. The merchandise mix rapidly became 50/50, and remain ed so through the 1950s.
1960s and 1970s: A New Focus
Marvin Rounick, Philip's son, joined the company in 1961. In 1965 War ren Weiner, Aaron's son, came on board. During the 1960s the suburbs around Philadelphia grew rapidly as families moved out of the core ci ty. To serve their shopping needs, developers built malls and shoppin g centers. JOY tested those waters by opening suburban stores in shop ping malls; their new concept provided a bigger store and a larger se lection of merchandise. The 1960s also saw the introduction of pantyh ose, which eliminated the need for garter belts. With the growth of t he women's movement, many young women stopped wearing girdles or bras . As a result, hose and lingerie became a smaller part of JOY's merch andise mix. It was also during this period that young people became a larger part of the consumer base, and the unisex look began to devel op.
One thing that occurred during this time greatly influenced the compa ny's financial strategy. "We had some financial problems," president and CEO Marvin Rounick recalled in a 1986 article in Chain Store A ge Executive. "And the banker who handled us retired and a new ba nker came in to replace him. We went to him for money and he told us we weren't a good credit risk." When the company nearly folded after their bank dropped them, Rounick vowed to keep the company debt free.
In the early 1970s the younger Rounick and Weiner took a more active role in the company's management and made three decisions that change d the company completely. First, they closed most of the original nei ghborhood stores and quickly opened larger units in shopping malls. S econd, they concentrated on sportswear and dresses for the junior cus tomer and eliminated merchandise in other sizes. Merchandise ranged f rom peasant tops and skirts in the early 1970s to the "Annie Hall" lo ok of men's suits and ties. By 1975, the company had sales of $9. 5 million and earnings of $400,000.
In the late 1970s, the company acquired DEB, a New Jersey junior appa rel chain. Marvin Rounick was named president and chief executive off icer in 1979.
The 1980s
Deb Shops began the 1980s with 59 stores. Within two years, it had 12 1 stores, sales were more than $70 million, and earnings were up to $5.5 million. Warren Weiner rejoined the company in 1982, havi ng left in 1975, and was named executive vice-president and treasurer . The following year the company went public, raising nearly $27 million. According to a 1983 Forbes article, the funds went fo r spending money for Rounick, his brother Jack, and Weiner, the major shareholders in the company. "We were wealthy before," Rounick said in the article. "It's just that now we can spend it." Deb Shops had n o debt and expansion continued to be paid for from its working capita l.
The company's target was primarily young women, 13 to 21 years old, w ith a small number of customers in their 20s and 30s. Rounick was suc cessful because of his pricing strategy and tight inventory. He sold his dresses and other apparel at low-to-mid prices, below those of mo re upscale, designer clothing, and cut the prices immediately if an i tem was not selling after two weeks. If the sale prices did not move the item, he shipped it to one of the company's CSO (Chain Store Outl et) stores where it was sold at a steep discount. The fast movement o f the stock meant customers could expect up-to-date, trendy merchandi se. That freshness, combined with inexpensive prices, attracted young shoppers.
Despite the company's success, Rounick realized he had to make some a djustments to his marketing strategy in response to changing demograp hics: Predictions forecast that by 1990, there would be 14 to 15 perc ent fewer women aged 14 to 24. Unlike many of its competitors, Deb di d not abandon its specialization in junior customers looking for mode rately priced clothes. Rounick's answer was to market junior as a siz e, not an age group. Under this strategy, the company would follow cu stomers as they grew up, serving both teens and their mothers. Accord ingly, in 1983 the company started selling basic as well as trendy ju nior clothing.
In addition to offering a wider variety of styles, the company made s ome decorating changes to attract older shoppers: Its green, white, a nd purple color combination became purple, raspberry, and white; and lower pile purple carpeting replaced the stores' purple shag. Gone, t oo, were the enclosed storefronts. Instead, windows were installed to show the merchandise and draw customers in.
Another part of Rounick's marketing strategy was to encourage add-on shopping by selecting merchandise that was coordinated with something else in the store. DEB displayed its merchandise in coordinated, lay ered groupings, complete with accessories. As Willard Brown, an analy st with First Albany, told Chain Store Age Executive in a 1986 article, "Every top is coordinated with every pair of pants; and if you buy the top and pants, then they have a handbag that goes with th em, too. So every time Rounick sells one piece of merchandise, he's p ut himself into the position to sell another piece."
The marketing changes worked. Within two years, customers at DEB stor es, while still concentrated in a 13 to 25 age group, ranged in age u p to 40, and sales in 1985 increased to $147.1 million.
The company was opening between 30 and 40 new stores a year, with mos t in regional shopping centers in major metropolitan areas. As these malls increased their rents, however, Deb began looking to mid-sized markets and secondary markets adjacent to a major town. The company a lso started opening stores in less expensive strip shopping centers. "They [strip center stores] are not doing the same business as the ma lls," Rounick explained in Chain Store Age Executive, "but bec ause of the reduced costs we found we can make money in the first yea r." By 1989 the company had stores in 67 strip centers. Stores ranged in size from 5,000 to 10,000 square feet, with the average store occ upying 6,000 square feet.
The movement into strip centers was only one cost-cutting effort the company initiated during the last part of the 1980s. The women's clot hing business in general softened, and sales dropped. The reason appe ared to be customer dissatisfaction with what the designers offered t hem. In 1987, Deb's profit margin dropped as customers waited for mar kdowns and sales before buying.
Rounick's response was to improve inventory control in order to cut c osts and to sell more clothes at full price. In 1988, Deb expanded it s warehouse space to 280,000 square feet and installed a computer-con trolled sorting and distribution system. The new distribution system and the company's point-of-sale merchandise data system helped manage rs analyze and respond to what customers were buying. Inventories arr ived at the stores twice a week and store displays were changed each week. Although the company continued to mark down slow-moving merchan dise, there was less of it. As a result of cost cutting, although sal es for 1988 were down 2 percent to $194 million, earnings increas ed 15 percent to $13.7 million. During 1988, Deb expanded beyond the Midwest, opening stores in Washington, Oregon, and California, an d ended the year with 316 stores in operation.
In 1989, the company continued to expand, using its own capital to op en 31 new stores. It also began increasing its private-label business in order to improve its profit margins. Its profitability and $7 1 million in equity was very attractive. According to an August 14, 1 989 article in Barron's, there were rumors that Milton Petrie, who owned the competing Petrie Stores Corporation and more than 15 p ercent of Deb stock, might attempt a hostile takeover of Deb. Nothing came of it. For the year, the company set record net sales of $2 02 million and reached its peak earnings of $17.6 million.
Trying New Things in the 1990s
During the early part of the decade, Deb continued to expand, opening DEB stores in Colorado, Idaho, New Mexico, Oklahoma, and Texas. The company also acquired Tops 'N Bottoms, a New York chain selling name- brand clothing for young men and women at moderate prices. In additio n to the smaller (2,300 to 3,400 square feet) stand-alone stores in t he chain, the company opened Tops 'N Bottoms departments in several D EB stores. The number of stores operated by the company peaked in fis cal year 1992, with 373 open as of January 31, 1993. That year also s aw the company's highest sales, $229.5 million. But earnings fell by 18 percent.
In 1993, Deb introduced its private-label credit card, which also ser ved as a mechanism to contact customers by direct mail. The company o pened 11 new stores, but saw sales decline by 4 percent. Sales contin ued to decline, even with reduced costs as underperforming stores wer e closed. In 1994 the company opened eight new stores and had a net l oss for the first time. In April that year, management spent $16. 8 million in cash to buy back the block of stock owned by Petrie Stor es Corporation. With that acquisition, insiders, including Martin and Jack Rounick and Warren Weiner, owned 75 percent of the company stoc k.
Sales continued to drop in 1995 and the company opened only one new s tore while closing 33 DEB units and one Tops 'N Bottoms store. Rounic k introduced shoes into 200 DEB stores to generate new business and s timulate sales. That move added approximately $4.6 million to sal es for the year, but continued customer resistance to offerings in wo men's clothing resulted in total sales of only $176.7 million and an earnings loss of $4.2 million.
On October 20, 1995, the company bought Atlantic Book Stores for $ ;4.47 million. "The apparel industry has seen a downturn in the last three to five years, and one of the strategies to stem the tide of ou r decline is to diversify," Deb's chief financial officer Lewis Lyon told the Philadelphia Inquirer.
Martin Simon, who was 72 when he sold his company to Deb, had started his book business around 1980 by selling used books to department st ores. At the time of the sale, the Atlantic Books chain consisted of 14 stores. Three were full-service warehouse stores, between 12,000 a nd 26,000 square feet large. These specialized in remainder books at greatly discounted prices while also offering bestsellers, new titles , and magazines. The Atlantic Book Warehouse stores were located in M ontgomeryville, Pennsylvania; Cherry Hill, New Jersey; and Dover, Del aware. The other 11 stores were located in resort towns along the coa sts of New Jersey and Delaware. These units were much smaller, betwee n 1,000 and 2,000 square feet, and sold primarily remainder books and some new titles.
Deb indicated that it planned to expand the chain by adding warehouse stores in high-traffic areas. Because of the warehouse concept, the company did not anticipate any direct competition with other discount chains such as Waldenbooks, Barnes & Noble, and Borders.
In its apparel business, Deb announced that it was shifting from its all-junior concentration. By April 1996, the company expected to intr oduce plus sizes into one-third of its stores. Up to 19 DEB stores we re to be converted to plus size stores called DEB PLUS and about half of the Tops 'N Bottoms departments in DEB stores would become plus s ize departments.
Deb Shops' diversification efforts appeared to build on the company's responsiveness to demographic changes and its retail operations and distribution expertise. The fact that the company was debt free and h ad more than $51 million in cash at the beginning of 1996 gave it some measure of flexibility and staying power as it made its changes .
Renewed Focus in 1996
Probably the company's most important strategic move in the mid-1990s was returning its focus to the junior market. "We found you couldn't cater to the teenage customer and the older customer in the same sho p," chief financial officer Lewis Lyons explained to the Philadelp hia Inquirer regarding a renewed emphasis on teen fashions.
Lyons told a financial forum covered by WWD that the more femi nine styles of the latter 1990s were easier to deliver to teens than the grunge look. In December 1995, Deb Shops had hired former Petrie Stores Corporation. CEO Allan Laufragben as its chief merchant to hel p keep it on top of teen fashion trends.
Teenage girls were a relatively attractive segment of the apparel mar ket due to their increasing spending power, lack of expenses, and pas sion for clothes. Their numbers also were increasing faster than othe r segments of the population. There was no shortage of competitors in this market, however, ranging from other specialty retailers to gian t discount department stores.
Deb Shops closed 100 underperforming stores as it regained its footin g. Said Lyons, many had originally been opened to produce top line gr owth to satisfy Wall Street's expectations. The company was also remo deling stores and opening new ones. The model store was 5,000 to 6,00 0 square feet with annual volume of at least $1 million.
The company's cash horde sustained it through the lean times. After l osing about $11 million in three years, Deb Shops returned to pro fitability in fiscal 1997 with a net income of $6.6 million on sa les of $205 million. There were a couple of great years before th e next economic slowdown. By fiscal 1999, net income was up to $2 4.5 million on sales of $270 million.
A number of specialty apparel retailers did not survive the turmoil o f the 1990s. One of them was rival Petrie Retail. Deb Shops acquired nine of the bankrupt chain's stores in February 1998.
Deb Shops launched a web site in January 1999. It was limited to desc riptions of select merchandise at first (originally prom dresses), bu t added online ordering capability in February 2004.
Beyond 2000
Deb Shops was fast becoming a national presence. It opened 23 new sto res in 2001, though the annual pace soon slacked off to half that.
Deb Shops decided to focus on its expanding core business and sold At lantic Books back to its founder, Mark Simon, in the fall of 2001. Th e deal was worth $5 million; the chain then had annual sales of & #36;18 million at its 11 stores.
Sales were $318 million in the 2002 fiscal year, and slipped to a bout $300 million a year in the 2003 and 2004 fiscal years. After a half-dozen years of success, the chain was hit by a slowing econom y, lousy weather, and some poor fashion choices, according to Chai n Store Age. The company was still making money, however, and was able to remain debt free. Net income rose 40 percent to $18 mill ion in fiscal 2005. By this time, Deb Shops had 323 locations (includ ing six Tops 'N Bottoms stores and three CSO outlets).
Principal Subsidiaries: Joy Shops, Inc.
Principal Operating Units: DEB; Tops 'N Bottoms.
Principal Competitors: Charlotte Russe Holding, Inc.; Gap Inc. ; Hot Topic Inc.; Limited Brands, Inc.; Target Corporation; The Wet S eal, Inc.
Chronology
- Key Dates:
- 1932: JOY Hosiery, precursor of DEB Shops, opens in Philadelph ia.
- 1975: Revenues are $9.5 million.
- 1980: The company has 59 stores.
- 1982: Sales are $70 million; the company has 121 stores.
- 1983: The company raises $27 million in an IPO.
- 1985: Sales are $147 million.
- 1992: Sales are $230 million.
- 1994: The company posts its first net loss.
- 1996: Plus sizes are added to certain DEB stores.
- 1997: The company returns to profitability after renewed focus on juniors.
- 1999: The web site is launched.
- 2004: Online ordering capability is added to the web site.
Additional Details
- Public Company
- Incorporated: 1932
- Employees: 3,700
- Sales: $303.78 million (2004)
- Stock Exchanges: NASDAQ
- Ticker Symbol: DEBS
- NAIC: 448120 Women's Clothing Stores
Further Reference
- Angrist, Stanley W., "So Far, So Good," Forbes, Octobe r 24, 1983, p. 144.
- Belden, Tom, "Philadelphia Retailer Deb Shops Under Fire for Stoc k Options Plan," Philadelphia Inquirer, May 30, 2003.
- ------, "Philadelphia-Based Retailer Keeps Up with Target Teenage Demographic," Philadelphia Inquirer, July 3, 2001.
- Bergen, Jane, "Thriftiness, Flexibility Mark Survivors Among Smal l Philadelphia Merchants," Knight Ridder/Tribune Business News, November 30, 1996.
- Brammer, Rhonda, "Sizing Up Small Caps: Down, But Not Out," Ba rron's, January 30, 1995, p. 19.
- "Bubble Gum By Night, Apple Pie By Day," Chain Store Age Execu tive, May 1986, pp. 35-39.
- Byrd, Jerry W., "Philadelphia's Deb Shops to Buy Atlantic Book Sh ops, Inc.," Philadelphia Inquirer, October 23, 1995.
- "Deb Shops a Trendy Competitor: Retailer's Fresh Fashion and Low Prices Woo Young Shoppers," Chain Store Age, November 2003, pp . 44f.
- Milliot, Jim, "Atlantic Books Sells for $5 Million," Publi shers Weekly, December 24, 2001, p. 11.
- ------, "Founder Buys Back Atlantic Books," Publishers Weekly, October 29, 2001, p. 9.
- Slovak, Julianne, "Companies to Watch," Fortune, January 1 , 1990, p. 89.
- Tanaka, Wendy, "Retailers Tweak Inventories in Hopes Producing a Merry Holiday Season," Philadelphia Inquirer, November 26, 200 4.
- Von Bergen, Jane M., "Demographics Prove Right for Two Philadelph ia-Based Retailers," Knight Ridder/Tribune Business News, Nove mber 18, 1999.
- Warner, Susan, "Especially Amid Economic Downturns, Teen Market G litters for Retailers," Philadelphia Inquirer, December 19, 20 00.
- Wyatt, Edward A., "Looking Good: Deb Shop Fashions a Neat Gain in Earnings," Barron's, August 14, 1989, pp. 15, 17.
- Young, Vicki M., "Deb Shops' Fountain of Youth," WWD, Dece mber 16, 1999, p. 10.
Comment about this article, ask questions, or add new information about this topic: