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Inside Bradlee's

Bradlees on path to profit, expansion

By Isadore Barmash

Peter Thorner, chairman and CEO, Bradlees Stores. Discount retailer Bradlees hopes to open four to six more stores in the year 2000 and plans to stay with its 95,000-square-foot size format.

The 41-year old regional discounter Bradlees Stores is poised for a 50%-plus expansion in new stores over the next five years, after registering its first quarterly profit since 1994. The Braintree, Mass.-based retailer emerged in 1998 from a hectic, four-year tussle with Chapter 11 proceedings, succeeding where other troubled discount chains such as Caldor and Venture Stores could not. Peter Thorner, Bradlees’ 55-year old chairman and CEO, tells how that happened and where he hopes the company is headed in the new millennium.

SCT: Would you update the company’s latest financial performance?

Our recent second quarter [ended July 31] showed our first black bottom line in five years, with sales up 19% ahead of both last year and our plan. Net income totaled $3.2 million, or 29 cents a share against a 1998 loss of $2.7 million, or a swing of almost $6 million. We had strong first and second quarters. Our margins in the last quarter were ahead of last year in both dollars and percentage growth, as well as ahead of our business plan.

How did all that happen?

Probably because of two or three things. First, it’s the second full year of our new merchandise initiative. We restored our earlier price points [dropping the lowest ones], getting rid of $9.95 irons and $19.95 coffeemakers. In other words, our shift transcended an entire price line, which Bradlees had taken on to reposition itself to compete sharply against Sears and Penney’s. When I came in during December 1996, I had to reverse that. In fiscal 1995-1996, the company lost $400 million. The next year, 1997, had to be a transition year. I couldn’t blow out all that merchandise by giving it away, so I had to work my way through all of it judiciously. In 1998, we changed the mix, so 1999 is the second year of that initiative. Our results were very good irrespective of the store closings of our rivals. We got double-digit comp gains even in that part of the chain that didn’t compete with Caldor. I guess those results reflect that customers like what we are doing. We’re getting more sales, too, at regular prices.

How were you able to emerge from Chapter 11 when Caldor couldn’t and had to terminate?

It’s mainly due to a difference in attitude. When I took over, I felt that the company had spent two-and-a-half years in Chapter 11 without adequately dealing with the onerous debt it had. I started to work on a consensual plan of reorganization to satisfy creditors’ claims and get rid of that onerous debt. Otherwise, the creditors would become impatient. That seemed more important to me than remerchandising. Caldor did not do that, focusing instead on repositioning their merchandise. They also lost the appeal of their weekly circular, too. Meanwhile, their debt and debt service remained. Creditors lost patience.

Is that typical of retailers going into Chapter 11?

Well, too many concentrate on repositioning themselves in regard to customers, merchandising and marketing at the expense of dealing with and paying creditors. I believe in reaching accord with them as quickly was possible. Then do the remerchandising on your nickel, not on theirs.

What’s Bradlees’ policy on private labels vs. name brands?

We’ve built a good balance by working with branded producers to get their line with some differences to sell exclusively to us. That’s in both apparel and housewares. So we’ve balanced well between private and national brands, but we haven’t proliferated our way into private labels.

What are the company’s expansion plans?

We’ve got 102 stores in seven states right now and plan to open two more [this month] in the Philadelphia and Hamilton, N.J., areas. In the year 2000, we hope to open four to six stores unless we go to the equity market with a stock issue to accelerate our expansion plans. Our average store size is 95,000 square feet overall, 85,000 selling, and we plan to stay with that as a footprint.

How about five years from now?

I would like to see us opening 10% more retail space a year by then so that we would be a chain of 150 to 160 stores. Our sales would run between $2.3 billion and $2.5 billion versus 1999’s $1.5 billion to $1.6 billion. I would hope that our expense structure would drop to 24% of sales from the present 26% to 27%. Also that we would have a highly developed presence in both apparel and home. I think we can do that. We already go to great lengths to assure there’s no compromise in our merchandise — we sell as much natural fiber goods as possible, try to be on the cutting edge of fashion and do not skimp on size in either apparel or home goods.

Where does Bradlees fit in the world of discounting and off-price?

As opposed to, let’s say, Ames Department Stores, which I headed before, they seem to have carved out an economic niche, but we think we come out above them with families earning $45,000 to $55,000 a year. We are a Northeast-based retailer with a strong history of fashion correctness in clothing and home furnishings, and there’s a real need for that. We are in only seven states but we will look cautiously before entering any new markets. We think there are enough opportunities for us in the seven states to become a 150-store chain.

You are not a career merchant. What do you think you have brought to the retail business?

I’ve been in retailing since 1985. Before that, I was a partner with Haskins & Sells where my experience ranged widely from heavy manufacturing to mergers and acquisitions. I had no real experience with retailing but the universality of my work helped me to adapt to it. Because of that, I could turn from the macro to the micro in this business. My background allowed me to identify the generic nature of the problems retailers face. So, I think my nonretailing background helped in my retailing career.