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Strong suit

Men's clothier steps up the pace of new store openings for '99

By Donald Finley

Reprinted from Value Retail News

S&K Famous Brands' strategy for store growth, at least up until now, has been relatively conservative.

Thanks to a strong financial situation, Richmond, Va.-based S&K Famous Brands plans to add 35 stores this year.

The approach, according to Chairman Stuart Siegel, had always been to finance new stores through cash, rather than debt. This philosophy was handed down by Siegel's father and uncle, who started the 235-store off-price menswear chain 32 years ago.

But, in reflection of S&K's strong financial situation, Siegel said 35 more stores are expected to be added this year, and at least that many more next year, as the company strives to gain a bigger share of the tailored menswear market, which has been shrinking in the past 10 to 15 years.

"Since many smaller menswear retailers have gone out of business, we are getting a bigger piece of the pie and selling more clothing than ever before," Siegel said.

He said overall sales of tailored menswear are expected to level off after years of decline.

Of S&K's 70 new stores set to open over the next two years, many will be in outlet centers and value malls. S&K serves mostly lower- and middle-income white-collar workers.

Long-range, he estimates, Richmond, Va.-based S&K could operate 800 stores nationwide.

The company has been adding stores steadily for the past several years. S&K added 25 new stores in 1998 and relocated 10 others. The company opened 17 units in 1997, 10 in 1996, 12 in 1995, 18 in 1994, and 27 in 1993.

Most S&K units are east of the Mississippi River, but a few are in Arkansas, Iowa, Kansas, Louisiana, Missouri, Oklahoma and Texas. Siegel said the company may add some new outlets in states west of the Mississippi during the next two years.

Most of S&K's existing stores are in conventional strip centers near regional malls in middle-sized markets, but 63 are in outlet centers and value malls. These include 12 Prime Retail and five Tanger outlet centers; two in The Mills Corp.'s Potomac Mills in Virginia; and one in its Sawgrass Mills in Florida.

Looking for outlet spaces

Siegel said the company will be looking for 3,500- to 4,000-square-foot spaces in outlet centers; 4,000 square feet for conventional venues and 5,000 to 6,000 square feet for superstores. S&K currently has about 40 superstores.

"Our stores are in midsized markets, from 25th to 175th in size," Siegel said. "We avoid the Top 25 markets because they are so much more expensive in occupancy, labor, advertising and other costs. With our TV advertising featuring Johnny Bench, we can own a reasonable share of a midsized market in a relatively short time, committing 7% to 8% of sales to advertising.

"In a major market, it would be difficult to achieve that kind of share without opening a dozen or more stores. For example, we have five stores each in the Albany, Buffalo, Rochester and Syracuse [N.Y.] markets, but none in the New York City market.

"The largest market we have is Tampa [Fla.], which is in the Top 25, but we have been there and growing for quite a few years. Our largest markets other than Tampa are Charlotte [N.C.], Columbus [Ohio], Jacksonville [Fla.], Memphis [Tenn.] and Nashville [Tenn.].

"We are conservative in our pace. We don't have any immediate plans to change our growth rate dramatically, but may step up our pace some. We have little debt and use internal capital for expansion. We have no plans to go overseas, or even at this point of expanding to the West Coast, Alaska or Hawaii," the S&K chairman said.

By far, the chain's main competitors for men's suits, sport coats and dress slacks in the tailored clothing business are department stores.

The major specialty-store competitor is Men's Wearhouse, a larger chain of nearly 400 stores coast to coast that serves a slightly more upscale market than S&K.

S&K seeks 10% share

Siegel said S&K has a goal of reaching a 10% share in each market where it has stores. In some markets it exceeds that, but can still make a good profit with only a 5% share.

Getting a good share of each market is important because he estimates that sales of tailored men's clothing have dropped 50% in the past 15 years as a trend toward more casual clothing has heightened.

S&K's market share of the total tailored menswear market, estimated by retail analyst Kenneth Gassman of Davenport & Co., Richmond, Va., to have been $11.45 billion for 1998, is about 1.3%. Gassman estimated that S&K's earnings for the fiscal year that concluded at the end of January 1999 would be $155 million, compared to $145 million the previous year and $99 million four years earlier. He projected sales of $175.5 million for the current fiscal year.

The analyst said the recent holiday season was "a little disappointing" for S&K, possibly due to warmer than normal weather prior to December and icy, snowy winter weather during December.

And, according to Siegel, "Casualization and casual Fridays at work have not had a positive effect."

About 70% of S&K's sales are in tailored clothing, which includes suits, sport coats, dress slacks and topcoats. Shirts, ties and accessories make up 20% of sales and sportswear and accessories account for the other 10%.

"Prices are 20% to 40% off regular retail," Siegel said. Price points on suits are from $100 to about $300.

Labels available in S&K stores include Bill Blass, Daniel Hechter, Evan-Picone, Gianfranco Ruffini, Jones New York, Kilburne & Finch, Nino Cerruti, Oleg Cassini and Pierre Cardin. S&K also sells clothing with its own labels: Club Run, Deansgate, Fenzia, Roberto Villini and Tailors Row.

Advertising aimed at women

The typical S&K customer is a white-collar family man from a household with an income of $25,000 to $75,000, but Siegel said the company's advertising is aimed also at women because "they make a large percentage of menswear decisions."

Gassman said S&K is a "well-managed company with excellent growth prospects." He said the company is financially strong, with long-term debt of only $18.4 million.

S&K Chairman Siegel said due to the lower performance in December, comparable-store sales through last December were off 1% compared to the same period a year prior, but earnings per share will be about $1.05 for the year compared to 99 cents the previous year. Sales per square foot for S&K typically average between $250 and $300, Siegel said.

S&K was founded in 1967 by the late I.J. "Hip" Siegel, a grocer, and his late brother-in-law, Abe Kay, when both men were over 65 years old.

Stuart Siegel took over the company from his father and uncle in the early 1970s when S&K had only three stores. Stuart Siegel now owns almost 30% of the company stock, which is traded on Nasdaq.

In explaining the company policy under his leadership, Stuart Siegel said, "We believe that we have the potential to provide extraordinary value to the consumer at a time when the consumer is looking for great value. The value equation is not just price. It is service, selection, quality and price.

Our philosophy is to provide all of that to the consumer in an upscale environment, providing full service and being the dominant player in our category in the markets we serve."