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STEIN MART: UPSCALE GOODS, DOWNSCALE PRICES

BY GREGORY J. GILLIGAN

Stein Mart is testing Collections, a smaller prototype carrying a narrower merchandise range.

Twenty-five years ago Jay Stein wanted to open a discount store, but he didn’t want it to look like a discount store.

It was vital that the store have a classier look, because Stein intended to sell better apparel merchandise. He certainly didn’t want his clothing on rows of racks that gave the place a warehouse look, which was the way his competitors were laying out their stores.

“The sameness was prevalent all over,” he said. “We had to break out from the pack.”

A few days after opening that first store in September 1977 in Memphis, Tenn., Stein said, he knew that consumers had embraced his concept of selling brand-name merchandise at discount prices in a department-store-like setting.

“We opened up on a Thursday, and I was back on a plane to New York on Tuesday buying more merchandise,” said Stein, the chain’s chairman. “On opening day, people just poured in.”

Stein Mart has been growing ever since. The Jacksonville, Fla.-based chain, with $1.4 billion in sales in 2002, operated 265 units across the United States by the end of the past fiscal year (which ended Jan. 31).

“[Stein] took a great idea and then had the willingness to experiment, validate it and change it,” said Michael D. Fisher, the chain’s president, who at press time was soon to succeed Stein as CEO. “He epitomizes entrepreneurialship.”

Unlike such off-price competitors as T.J. Maxx and Marshalls, which sell similar merchandise but have more of a warehouse layout, Stein Mart showcases items in higher-quality display cases. Clothing hangs on round racks rather than in rows. Employees work in specific departments assisting shoppers, as they do in department stores.

Nearly 70 percent of the merchandise sold in Stein Mart stores is current fashions — and is bought at around the same time the department store chains buy theirs. That means the chain isn’t selling much of last year’s clothing, as is often the case at other discounters. And a key area that sets Stein Mart apart from its competitors is the boutique, which sells higher-end designer apparel for women.

“Stein Mart is an undiscovered jewel,” said Liz Pierce, a retail analyst at Los Angeles-based stock brokerage Wedbush Morgan. “Once people discover it they become loyal shoppers.”

One of the chain’s strongest and most interesting strategies, Pierce said, is a program that Stein launched at his first store and that continues at the chain’s other stores today. The chain hires “ladies of means” — the wives of lawyers, investment bankers, engineers and architects — to work several hours a week as “boutique ladies” and serve as goodwill ambassadors.

“Most of them don’t do it for the money,” Stein said. “They do it to get a company discount, to shop and to socialize.” But their contacts in the community help lure their friends and others into the store, which ultimately helps spur sales, he added.

“We knew we couldn’t hire all the people we needed to sell the better merchandise we carried,” Stein said. “We did the next best thing: We hired the people who wore the kinds of clothes we sell. ... What it does is give us instant credibility in a market.”

Stein Mart now has more than 5,000 such boutique ladies working at its stores, including the initial four who began at the first store in Memphis.

Still, Stein Mart has had its struggles. Though 2002 overall sales rose 6.7 percent from the year before, sales at stores open at least a year fell 0.8 percent. Full-year 2002 profit figures were unavailable at press time, but for the nine months ended Nov. 2, 2002, profit was up 61 percent over the comparable period the year before. However, 2001 profit had fallen by nearly that same amount versus 2000, largely as a result of opening new stores, and that has prompted the chain to pull back on expansion. Last year it opened only 12 new stores, compared with the 30 it had opened in 2001.

Even so, efforts to revamp the business over the past 18 months are working, Stein said, so the company expects to open 25 new stores this year.

Also aiding growth, he said, is the availability of more real estate at rents Stein Mart is willing to pay — largely because so many retailers have gone out of business in the past year or so.

“There are lots of real estate locations available to us at the price points we want to pay,” he said, but Stein declined to say what those rental rates are.

Meanwhile, Stein Mart is testing a new, smaller prototype store that opened in October in affluent Palos Verdes, Calif. The store, called Collections of Stein Mart, is less than half the size of a typical Stein Mart store — 13,000 square feet, versus 37,000 square feet — and features an edited assortment of merchandise. The company will open about two or three more of these Collections stores in existing markets this year, Fisher said.

The smaller store is a way for Stein Mart to venture into larger markets or upscale areas in which rents on a larger store would be cost-prohibitive. Stein Mart has 18 units in Southern California, for instance, but couldn’t find a location in the Palos Verdes area for a traditional-size store.

“We’ve got a premium clientele there, but we don’t have the ability to service them with a full store,” Fisher said. “There are lots of areas around the country with these types of market conditions.”

The boutique area containing higher-end women’s clothing is about the same at the prototype store as at a typical Stein Mart. But the rest of the selection is smaller, including women’s sportswear and men’s apparel. There is no children’s apparel in this store, and only a limited number of houseware items. Wedbush Morgan’s Pierce who has visited the new store, says she likes what she sees.

Fisher said he and other Stein Mart executives are pleased with the results since the store opened, but they haven’t decided yet on a full rollout.

In general, Stein said he is happy with the direction the chain is taking. “I’m still amazed that for 25 years, with some minor tweaking, the concept is still valid and consumers are still accepting of it.”

Gregory J. Gilligan covers the retail industry for the Richmond Times-Dispatch.

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