Mercantile Stores Company, Inc. Business Information, Profile, and History

History of Mercantile Stores Company, Inc.

Mercantile Stores Company, Inc., a traditional department store retailer, operates over 100 primarily fashion apparel stores and 15 home fashion stores, most of which are mall-based, in 17 states. The stores operate under 13 names, with regional store groups: Bacons, McAlpin's, Lion, and Root's (Mercantile East); Gayfers and J.B. White (Mercantile Southeast); Castner Knott (Mercantile Central); Gayfers and Maison Blanche (Mercantile South); and The Jones Store Company, Joslins, Hennessy's, de Lendrecie's, and Glass Block (Mercantile West). The stores are found in over 50 markets and in most cases hold the dominant general merchandise retailer position. The typical Mercantile department store measures about 170,000 square feet and offers apparel, cosmetics, accessories, and home fashions designed to appeal to the middle to upper-middle income consumer. Mercantile also has a partnership interest in five operating shopping centers; it operates a full-line department store in each and a home fashion unit in two.

Company Origins

The company got its start in 1914 in the wake of the failure of a chain of dry goods stores, H.B. Claflin Company. One of Claflin's largest creditors was the Milliken family, which owned a textiles firm in the South. Claflin's assets were divided into two groups, and the group of less valuable stores was taken over by a committee of creditors that included the Millikens. This new entity, named Mercantile Stores Corporation, assumed ownership of 22 stores on December 14, 1914. Although the company established headquarters in New York City, its stores were located from Washington state to New York and Pennsylvania, as far north as Canada and as far south as Alabama. In its early years, the main preoccupation of the company's leaders was to overcome the Claflin company's heritage of debt and stay in business, so that creditors could receive a portion of what they were owed. At the end of 1917, eight months after the United States entered World War I, the company found itself unable to sell enough assets to pay off the $33 million in notes it had issued three years earlier to old creditors, and the notes were extended two years.

As this new deadline drew near, however, the uncertainty of the postwar U.S. economy, with large-scale unemployment and a spiraling cost of living, made it less likely that the company would be able to meet it obligations. Mercantile's leaders again decided to start anew, and the company was reorganized at the start of 1919 under a new name, Mercantile Stores Company. The old company's outstanding notes were replaced with newly issued stocks and bonds. Mercantile Stores Company was incorporated in Delaware, under the state's favorable corporate statutes, and a new president, Alexander New, was elected shortly thereafter. New, the son of a dry-goods merchant, brought legal training and a life-long familiarity with retailing to his position.

As the United States entered the turbulent postwar years of the 1920s, Mercantile Stores set about solidifying its shaky financial position. Although the company issued additional stock, both common and preferred, Mercantile Stores continued to struggle. As a later company president commented in Barron's, December 28, 1987, the individual stores "were then mostly third and fourth rate." In 1925 Mercantile Stores's many diverse parts were linked more closely when the company discontinued its practice of allowing each store to purchase wholesale goods separately. Instead, the company centralized its purchasing by taking over a New York dry-goods buying office in 1925.

Depression Setbacks

By 1929 the company had experienced some modest growth, as its assets increased 25 percent from the start of the decade. Late that year, however, the stock market crash of October 29 plunged the country into the Great Depression. Mercantile Stores, entirely dependent upon strong consumer spending, found itself in a perilous position as bank failures, widespread unemployment, and wage cuts reduced the buying power of most U.S. consumers. In 1930 the company was set further adrift when its president for the last decade, Alexander New, resigned due to ill health and died shortly thereafter. For the next several years, Mercantile Stores was led by an executive committee of four vice-presidents, with a member of the Milliken family as the fifth member and chairman of the committee.

Under this joint management, the company retrenched. Stores losing in money were sold, and only those properties turning a profit were buttressed by further investment. At one point, fearing the spread of rumors that would set off a frenzy of stock selling and ruin the company's worth, Mercantile Stores's chief executive bypassed the telephone in favor of traveling personally to each store in the chain to tell the manager to sell everything, so that desperately needed cash could be raised to pay off debts. With these measures, the company narrowly staved off collapse, but this close call helped to instill cautious and conservative business principles in the company's leaders.

Resurgence in the 1930s under Firm Leadership

In 1934, after the resignation of one short-term president, Mercantile Stores emerged from its leaderless limbo: Francis G. Kingsley, who would become a close associate of the Milliken family, assumed the company's top spot. Under Kingsley the company further centralized its operations in New York. Since ready-to-wear clothing purchased off the rack was rapidly replacing clothing made at home, Mercantile also began to devote more of its energy to marketing fashionable clothes. The company farmed out its purchasing in other areas, but kept decisions about coats, dresses, and other manufactured clothing in-house, under a top Mercantile buyer, Rosalie Lavain. By the end of the decade, Mercantile Stores had brought all its purchasing under its own roof to ensure greater control of the merchandise sent to its stores.

In 1941 Kingsley was elevated to chairman, and Harold Jockers, who would also develop close ties to the Millikens, became the fourth president of Mercantile Stores. At the end of that year, the United States entered into World War II, after the bombing of Pearl Harbor. The war brought further changes in U.S. society and consumer needs. As men entered the armed forces, women entered the work force in large numbers for the first time and found themselves with increased spending power. The company, whose fashionable goods were sold primarily to women customers, profited from this development, despite the difficulty of obtaining merchandise during times of wartime shortage. By 1945, at the war's end, Mercantile's profits had nearly tripled their 1941 level.

Postwar Consumer Demands and Expansion

In the second half of the 1940s, the U.S. economy enjoyed a postwar boom, and Mercantile Stores grew along with the vast overall demand for consumer goods. The company began a strong expansion. It acquired additional stores--Duluth Glass Block Store Company, in Minnesota, in 1944, and J.B. White & Company, of Greenville, South Carolina, the following year. In 1946 the company's stock was listed on the New York Stock Exchange for the first time, and expansion continued. Stores in Colorado, North Dakota, and Alabama were soon added to the fold.

In addition to expanding the number of stores it owned, the company also began to change its focus within each separate market. Realizing that the greatest population growth in the postwar years would take place not in the inner city, where previous waves of immigrants from abroad had concentrated large numbers of people, but on the outskirts of urban areas, where internal migration of young city dwellers filled vast new suburban housing tracts, Mercantile Stores began to open branch versions of its downtown stores on the outskirts of metropolitan areas to reach this new breed of customer. The company sought to tap into the vast demand for home furnishings and appliances to fill the new homes of the baby-boom generation.

Throughout the late 1940s and early 1950s, the company continued its strong trend toward centralizing operations for all of its stores to maximize efficiency. Under Kingsley and Jockers, Mercantile Stores embarked on a strategy to compete with the largest national retailing chains, such as Sears, on an equal footing by keeping costs and therefore, prices, down. The resulting policy of maintaining a small profit margin through conservative business practices was based on the company's large degree of centralization for economies of scale and strict limitations on operating expenses. In addition, the introduction of merchandise sold under its own labels allowed Mercantile Stores to market high-quality goods without incurring the expenses of buying through an intermediary. By the end of 1955, these policies started to pay off, enabling Mercantile Stores to solidify its strong position in the postwar department store industry, and sales had more than doubled from their level of ten years earlier. In the second half of the 1950s, sales continued to rise, reaching $170 million by the end of 1960.

The presidency of Mercantile Stores was taken over by F.K. Bradley in 1960, and the company continued on its postwar path of steady expansion into the suburbs. This effort was headed by the Mercantile Stores Real Estate Division, which grew eventually to encompass all aspects of store construction, from property acquisition to architectural design to interior decoration.

Emphasis on Clothing in the 1960s

In addition, the company began to shift its emphasis in marketing away from appliances, a growth area of the 1950s, to clothing and accessories. To do this more effectively and to garner the business of a more affluent clientele, Mercantile Stores began to supplement its own private-label merchandise with the brand name wares of other manufacturers and to feature products imported from other countries.

In 1964 the company presidency passed to R. Nelson Shaw. By the mid-1960s, its annual sales were nearing $200 million, as Mercantile Stores continued its efforts to maintain its market share by staying abreast of latest fashions. In 1965, for instance, the Mercantile Stores Wig Division was inaugurated, as a result of a fad for hairpieces, and soon shops to make and style wigs of imported human hair and other materials had been set up in all major stores throughout the company's chain.

During the late 1960s and the 1970s, Mercantile continued its steady growth. The number of restaurants within its stores was increased, and its successful beauty salon sideline, which was begun before World War II, was expanded to include freestanding stores. The installation of electronic cash registers in many stores enabled Mercantile Stores to fine-tune inventory control, and plans were made to expand this capability.

In 1974 the chain's 72 stores were generating more than $500 million in sales, although profits had gone flat because of the poor economy. Nevertheless, the company continued its plans to build new stores, primarily in suburban locations, and to renovate its older facilities. Mercantile's fortunes overall picked up in the years following 1974, and demand for apparel and the company's growth continued throughout the late 1970s.

By the early 1980s, the chain encompassed 84 stores, and sales had reached $1.4 billion, despite a recession of the U.S. economy. Mercantile Stores had a year of flat revenues in 1980, but overall they continued to do well, placing its emphasis on flexibility in the mix of products it sold.

Renovating Existing Stores in 1980s

The late 1980s were a period of consolidation in the department store business, as healthy chains borrowed heavily to finance large mergers and takeovers, and venerable names closed their doors forever. The large-scale discounting and heavy advertising undertaken by competitors softened profits for the company, and Mercantile concentrated on enlarging and renovating existing stores rather than on purchasing or opening new ones. The company continued to de-emphasize goods such as housewares, in favor of higher-profit items like fashionable clothing and accessories, and also phased out less profitable downtown stores for newer, suburban mall stores. Sales and profits in the late 1980s, dampened by in-store construction, fell flat. In 1987 Mercantile sold its Canadian operations.

Relocation of Headquarters

In 1990 the company began relocating its headquarters from New York City to a suburb of Cincinnati, and undertook a program of brisk expansion, laying plans to open two or three new stores a year for five years in hopes of reversing its sluggish sales growth, which resulted in lowered earnings for 1990. The move cut costs and centralized operations, with everything in one location, from visual merchandising to product development and advertising. In addition, the company made plans to finally implement advanced computerized inventory control procedures under a system called Quick Response.

In 1992 Mercantile acquired Maison Blanche, Inc. and consolidated operations from some existing company divisions. Two other important events occurred that year. David L. Nichols, a longtime company veteran, was promoted to chair and CEO. He previously served as executive vice-president, chief financial officer, and treasurer. Under Nichols's direction Mercantile completed its move to new corporate offices and there established Mercantile Stores University, a 30,000-square-foot facility for training managers, merchandisers, and other personnel in the subjects of finance, leadership, business ethics, negotiations, international trade, teamwork, and other subjects. The school included ten classrooms, a 180-seat auditorium, a library, and six-acre outdoor educational area.

Mercantile reported financial success in 1995 with revenues of $2.9 billion, up from $2.8 billion in 1994. Also in 1995 Mercantile debuted its first free-standing home store in Cincinnati and announced plans to open more. These Signatures Home Stores were promoted as a "seamless home stores," which sought to transcend traditional boundaries in displaying home furnishings. Quoted in a May 1996 article in HFN--Home Furnishings Network, home furnishings manager Robert Christnacht commented, "We don't have all leather together, we don't have all the recliners together; we don't have all the chairs together; we don't have all the lamps together; it's all lifestyle."

Mercantile opened five new stores in 1996. Mercantile's revenues in 1996 increased 2.9 percent to about $3 billion. In the first nine months of the year, the company showed a 4.4 percent increase in net income for the year as profit per share went up to $3.50. However, the fourth quarter rendered less than satisfactory results. Chairman David Nichols attributed this lackluster performance to a comparatively short Christmas selling period. Nevertheless, Mercantile retained market share during this difficult season for all retailers.

Looking to the next century, Mercantile set up "brand teams," with an eye on increasing its private label merchandise business by 50 percent. The plan, key to Nichols's strategy, would broaden the Mercantile's customer base considerably. Another challenge was growing the business in non-real-estate ways. Mercantile planned on opening a few stores a year, but much of the future lay in innovative marketing.

In the early 1990s rumors had spread that Mercantile was ripe for takeover by industry giants May Department Stores or Dillard Department Stores. The company denied any possibility of merger, however, and by mid-1996 the media was reporting that Mercantile was on solid ground and an able regional competitor. Industry observers suspected that any big changes in Mercantile's future most likely would depend on the wishes of the Milliken family, the textile dynasty that controlled the department stores with a 40 percent stake. But as the century drew to a close, the Millikens were affording Mercantile a great deal of autonomy and were apparently happy with the company's performance; Mercantile was referred to in a 1996 Cincinnati Enquirer article as a "jewel" among small retailers.

Principal Subsidiaries: Hennessy Company; Duluth Glass Block Store Company; DeLendrecie Company; J.B. White & Company; The McAlpin Company; The Joslin Dry Goods Company, Inc.; Castner-Knott Dry Goods Company; The Jones Store Company; C.J. Gayfer & Company, Inc.; J. Bacon & Sons; Root Dry Goods Company, Inc.; The Lion Dry Goods Company; Maison Blanche, Inc.; Jones Store Company Hairstyling School.