Stein Mart Inc. Business Information, Profile, and History

Company Perspectives:

Founded by the current chairman's grandfather just after the turn of the century, the Stein Mart concept has evolved over time to feature moderate-to-designer brand-name apparel for women, men and young children, as well as accessories, gifts, linens and shoes in a depth and assortment that hold appeal for the upscale customer. The best of current season, brand-name fashion merchandise is offered at prices 25-60 percent below those charged by department and specialty stores. Customers appreciate the service amenities, presentation, convenience and security found in Stein Mart's neighborhood locations and the ease of shopping the comprehensive fashion assortment found in the average 37,000 square foot Stein Mart store.

History of Stein Mart Inc.

Stein Mart Inc. is an "off-pricer," a leading retail chain which sells upscale merchandise at 25 to 60 percent off of department store prices. Founded in 1902 in Greenville, Mississippi, as a general merchandise department store, it later developed into a discount store which purchased cancellations and overproductions from clothing mills. Stein Mart found increased success beginning in 1977 after opening up branches in Memphis and Nashville and rapidly increased its number of branches since 1984 to a current total of 261 stores, which garnered sales in 2004 of $1.45 billion. Stein Mart stores offer quality merchandise at discounted prices in a department store atmosphere in 30 states across the United States.

Origins

Stein Mart was founded by Sam Stein, a Russian immigrant who opened his first store in Greenville, Mississippi, in 1902. Under Stein, the store remained a general merchandise department store, providing basic goods to the residents of Greenville. Upon his death in 1932, Stein's son Jake took over the store and redirected its focus toward discounted clothing. Jay Stein (Jake's son and chairman of the company in 2005) later recalled that his father "thought that to be a successful merchant, you had to do something special--either have a wider selection, or the prettiest store, or the cheapest price." Jake Stein's specialty would become men's and women's apparel at low prices.

A focus on discounted clothing was certainly timely as the country was at the height of the Great Depression of the 1930s. The original Stein Mart department store withstood the Depression and enjoyed moderate success during the postwar period, when a return to full employment increased the purchasing power of consumers.

In fact, the period from 1948 to 1962 has been called the "retail revolution." During this time, retail rapidly expanded due to technological innovations and the growth of the middle class. The resulting marketplace was highly competitive, forcing institutions to innovate or fade away. A key development during this time was the growth of discount merchandising, such as that practiced by Stein Mart. The concept had been established in the 1930s with the advent of supermarkets whose inexpensive locations, increased hours of operation, and advertising resulted in low margins. In the late 1940s, discounting increased in popularity as consumers' distress over rising prices caused them to seek out bargains. In addition, consumer confidence in the quality of goods had increased thanks to advertising. Also, while incomes rose in the postwar boom, consumers resisted paying higher prices caused by inflation.

By purchasing cancellations and overproductions from clothing manufacturers, many of which were also located in the South, Jake Stein was able to offer quality merchandise to his customers at a price they were able to afford. Stein achieved moderate success with this somewhat revolutionary concept, which rose in popularity throughout the country. However, the company remained a one-store operation in Greenville until Jay Stein took over operations in 1977 and began to pursue a plan of expansion.

Expansion Begins in the Late 1970s

While traditional department stores serve as anchors in shopping malls and offer moderate to upscale merchandise at full price, discount clothiers generally offer brand-name merchandise in an informal atmosphere. Following the end of the Korean War, the production of retail goods began to meet or exceed consumer demand, resulting in a buyer's market. While yielding lower margins per item than department stores, discount retailers made up the difference by selling large quantities of merchandise rapidly.

Stein Mart straddled both concepts by offering customers the same ambience as a regular department store with discounted prices. In doing so, it helped to define "off-pricers" as a new category in retail. Stein Mart targeted customers who shopped department stores on a regular basis, inducing them to purchase Stein Mart goods by offering discounts of 25 to 60 percent off of department store prices. By the late 1970s, Stein Mart was the leading retailer of clothing for the family in the Mississippi Delta.

When Stein Mart expanded its original Greenville store during this time, several affluent women from the Greenville area offered to act as sales assistants during the store's liquidation sale of some designer clothing. At that time, Jay Stein noticed the women, "boutique ladies" as they came to be known, were able to provide an extraordinary level of service; they were knowledgeable on these more expensive brands given their own purchasing power and sophisticated taste.

Thus, when Stein Mart expanded into Memphis in 1977, Stein and his wife developed a designer boutique within the store and sought out local shopping mavens to operate it. Stein was quoted in American Demographics as saying, "The boutique ladies are our secret weapon." This practice would continue as a unique part of Stein Mart's strategy. Boutique ladies would consult with in-store clothing buyers to stock stores and ensure that Stein Mart kept abreast of trends. These women also tipped off friends and acquaintances when key new shipments arrived, ensuring that the merchandise would sell quickly.

Furthermore, when entering a new location, Stein Mart sought references for possible "boutique ladies" from its ranks in other areas. The position became a status symbol in some Stein Mart locations, placing interested local women on waiting lists. In addition to the boutique ladies, Stein Mart stores also employed personal shoppers, referred to by the company as "agenda consultants."

Under Jay Stein, Stein Mart pursued a steady expansion program, growing from three stores in 1977 to 40 stores in 1990 and to 123 stores by the end of 1996. The chain first tackled new markets in the Southeast, establishing stores in Alabama, Georgia, Louisiana, and Texas. Later, Stein Marts began cropping up in the Midwest, with stores in Indiana, Ohio, and Missouri. In determining the prime locations for new Stein Mart stores, management targeted cities with populations of 125,000 or more and relied on demographic research regarding income, education, and occupation to help predict whether a community might support a discounter of designer merchandise.

In the 1990s, Stein Marts generally served as anchor stores in neighborhood shopping centers. To enhance its image as an upscale clothier, Stein Mart initiated several marketing concepts, including store ambience, quality merchandise, and its "boutique ladies." A typical Stein Mart store averaged approximately 38,000 square feet in size. Plush carpeting, marble flooring, soft lighting, and handsome furnishings all contributed to its department store ambience. Stein Mart also limited in-store "sale" signage and used discreet price tags to reduce any trace of the "discount store" appearance. Similarly, while Stein Mart kept costs in check through a centralized checkout system, it did not provide shopping carts. Another marketing tactic of Stein Mart was that their stores displayed merchandise in "lifestyle groupings," such as activewear and career apparel, rather than the traditional size/age departments, believing this encouraged customers to make multiple purchases.

The Stein Mart store of the 1990s carried brand name merchandise, including apparel, accessories, hosiery, costume jewelry, glassware, dishes, and cookware. While stores did carry private label merchandise to ensure selection, inventory was focused on designer apparel at discounted prices. Beginning in 1995, Stein Mart leased its shoe and fragrance departments to independent operators in order to provide customers with full-service without taking on additional stock.

The company relied on the efficient handling of inventory through drop shipments to each store rather than incurring the expenses of maintaining a distribution or warehouse center. Moreover, Stein Mart kept advertising costs low by relying primarily on limited print media ads and word-of-mouth to build a customer base. Unlike traditional discounters, who generally responded to unplanned buying opportunities of overstocked or returned merchandise, Stein Mart buyers simply waited about one month later than traditional department stores in order to negotiate lower prices from manufacturers, while still retaining access to a majority of that manufacturer's product line, ensuring that their selections would be timely and fashionable.

Stein Mart went public on NASDAQ in April 1992, and the company's stock doubled in value within 16 months. In the 1990s, Stein Mart stock proved to be a good investment, with some fluctuations reflecting general trends in the retail industry. Stein Mart appeared to have been successful in pursuing investors. As of early 1997, company stock was cited as a good purchase by several brokers and received flattering coverage in a number of investor publications.

Stein Mart's Future

According to Stein Mart's early 1997 10K report, the company planned to open between 26 and 28 stores in 1997, some in states new to the company, such as California, Nevada, Iowa, and Wisconsin. After 75 years of existence as a single store, Stein Mart's accelerated growth between 1977 and the 1997 could only be regarded as phenomenal. By creating a new niche between discount and department stores while funding growth internally and keeping costs down, Stein Mart was extremely successful. With its concept of upscale discounting, Stein Mart hoped to meet an internal goal of 600 stores by the end of the decade according to an article in the Milwaukee Journal Sentinel. Given the intense competition and fragmentation in the retail industry, reaching this goal would present a challenge.

Indeed, the company was forced to curtail its aggressive growth strategy during the latter half of the 1990s due to sluggish sales and earnings. Poor merchandising decisions and a slowdown in the retail industry continued to plague the company into the 2000s, forcing Stein Mart to make several strategic changes. Retail executive Gwen Manto was brought in as an executive vice-president in 2000 to revamp the company's merchandising strategy. In 2003, Michael D. Fisher took over as CEO while Manto was named vice-chairman.

A November 2003 Florida Trend article commented on activity in the retail industry claiming, "Before the economic slump began in 2000, Stein Mart did well competing against department stores and pure discounters. But as department stores responded to the slump by slashing their prices, Stein Mart lost some of its pricing edge." As a result, Stein Mart faced an incredible amount of competition as shoppers sought out even lower prices. "The slump drove many shoppers into the arms of pure discounters such as TJ Maxx and Ross Dress for Less," the aforementioned article reported, adding that "even Target, a discounter without the fashion depth of a Stein Mart but with its own sense of flair, is successfully wooing Stein Mart shoppers."

As a consequence of these factors, Stein Mart's new leadership team faced a tough road ahead. The company thus set out to increase store productivity and profitability. In 2003, Stein Mart shuttered 16 unprofitable locations. It also refocused its advertising and marketing efforts and launched a new television campaign aimed at its target shoppers, women between the ages of 35 and 60 with higher incomes and education levels than average Americans. Stein Mart also put an end to its coupon promotion strategy.

The company's efforts slowly began to pay off. In 2004, sales increased by 8 percent over the previous year while net income reached $38 million, the second-highest amount in company history. Seven new stores opened their doors that year, while seven under-performing stores closed. Plans were in the works to open 15 new stores in 2005.

Stein Mart's strategy for the future included focusing on increasing store productivity while offering new and exciting products. The company would also rely heavily on its marketing program to draw in new and existing customers. With approximately 261 stores in its arsenal, Stein Mart appeared to have overcome the problems it had faced in the early years 2000s. With over 100 years of history under its belt, the company seemed likely to remain a popular name in the retailing industry.

Principal Competitors: Federated Department Stores Inc.; JC Penney Corporation Inc.; The TJX Companies Inc.

Chronology

• Key Dates:
• 1902: Stein Mart is founded by Sam Stein, a Russian immigrant who opens his first store in Greenville, Mississippi.
• 1977: Jay Stein takes over operations and begins to pursue a plan of expansion; the "boutique lady" concept is born.
• 1990: The company's store count grows to 40 locations.
• 1992: Stein Mart goes public.
• 2003: Michael D. Fisher is named president and CEO.
• 2005: Stein Mart operates over 260 stores.