Charlotte Russe Holding, Inc. Business Information, Profile, and History

Company Perspectives:

Through our fashion content, merchandise mix, exciting store layout and design, and striking merchandise presentation, we project fashion attitudes that appeal to customers from a broad range of socioeconomic, demographic and cultural profiles. In addition, our breadth of merchandise enables our customers to assemble coordinated and complete outfits that satisfy many of their lifestyle needs. Our success is dependent upon our ability to anticipate, identify and capitalize upon the fashion preferences of our target customers.

History of Charlotte Russe Holding, Inc.

Charlotte Russe Holding, Inc. is a specialty retailer of women's clothes, aimed at women between the ages of 15 and 35. The company operates two different chains of apparel stores, Charlotte Russe and Rampage. The Charlotte Russe stores target women who want established fashions at reasonable prices; Rampage stores offer higher priced, more cutting-edge clothes and accessories. In 1999 the company began testing a third concept, Charlotte's Room, offering accessories and home fashions. As of April 2000, the company operated a total of 113 stores in 17 states and Puerto Rico.

From Brooklyn to San Diego: 1975-89

Dan, Frank, and Larry Lawrence grew up in the clothing business, working in their father's clothing store in Brooklyn. They moved west, formed the Lawrence Merchandising Corp., and in 1975 opened their own store, in Carlsbad, California. They named the 1,500-square-foot store Charlotte Russe after a dessert they remembered from their childhood.

Over the next ten years, the brothers opened six more stores in San Diego County, bringing in sales of $12 million in 1984. They then began to move into other parts of the state. The units grew bigger, to around 5,000 square feet, and continued to be visually dramatic. To attract the trendy young women they wanted as customers, they concentrated on visual displays, location, and packaging. The Lawrences opened stores in heavily shopped malls, taking prime locations and making Charlotte Russe an anchor store. Their windows made the local news, and customers used the distinctive shopping bags, with a psychedelic art deco design of a buxom woman, at the beach and when travelling.

Their first store outside San Diego was huge compared with other Charlotte Russe locations--20,000 square feet. Inside, the decor was dramatic: television monitors showing the latest rock and fashion videos and some 65 mannequins. As had become a tradition, customers on opening day were served charlotte russe, a pastry made of custard, whipped cream, and cherry topping. Although the Lawrences spent $750,000 on that new store, their expansion plans were conservative and growth was financed internally.

Growth of the Company: 1990-96

In 1990, the Lawrences moved outside California, opening three units in Phoenix, Arizona. By 1991, the company had net sales of about $50 million, with a history of annual sales increasing in double digits. In 1992, despite a slowing retail climate, the company opened stores in Las Vegas, Nevada and Los Angeles.

The Lawrences also saw a change in their customer base and moved to respond. Women who had shopped at Charlotte Russe while in their teens and 20s were now bringing their daughters in to shop with them. The company broadened their inventory, adding more classic styles and special occasion dressing as well as gift items and shoes at several locations. 'We hold on to our customer longer than our competition,' Larry told Michael Marlow of WWD in 1995. 'We carry a wide range of inventory for ages 14 to 40. We attract women of a certain attitude, not age.'

One of the company's strengths, according to wholesales and industry watchers, was that the brothers, especially Danny, who was in charge of buying, kept their focus on their customer and concentrated on clothes and accessories suitable to the southern California and Southwest areas. As one junior manufacturer explained to WWD (Women's Wear Daily) in a 1994 article, 'Charlotte Russe is one of the best. Number one, the stores are very large and give the women a great atmosphere with a comfortable design. Number two, they watch the trends very closely, but don't overdo them. Number three, they watch their selling on a daily basis and number four, their distribution is terrific. ... Their turnaround time is 24 to 48 hours.' California had emerged as a very strong junior retail market, and in 1995, WWD identified Charlotte Russe as one of the three most aggressive junior retail concepts, along with Rampage and Wet Seal.

In April 1996, the company hired Bernard Zeichner as president and CEO. Zeichner had been head of the retail division of Guess? and prior to that was president and CEO of Contempo Casuals. In September, Zeichner and two funds managed by investment firm Saunders Karp & Mergue, L.P. bought Charlotte Russe from the Lawrence brothers.

Starting a Retail Company: 1993-95

Larry Hansel, at age 32, was founder and CEO of Rampage Clothing Co., a California manufacturer that made sportswear and dresses for juniors and children. In 1993, he moved into retail, buying Los Angeles-based Judy's Inc., with its 62 stores, as part of a bankruptcy reorganization plan. Hansel paid $2 million in cash for 80 percent of Judy's stock and assumption of its liabilities. Judy's, which was founded in 1946, had been one of the first retailers to give Hansel an order when he started Rampage.

Originally, Hansel planned to keep the Judy's name and expand the chain. But the first revamped stores were not successful, because they were not 'special,' according to Hansel. In 1994, he decided to keep some 40 of the Judy's stores and convert them into Rampage stores. As Hansel explained to the Los Angeles Times, 'It's a brand new vision about business. It's done with product and people. The product is more accessible, fresher and presented better. It's more exclusive. We make over half of it ourselves, and we don't sell to other stores.' In addition, the stores would reach beyond the junior market of teens and women in their 20s to target women ages 15 to 35.

The first Rampage retail unit opened in Reno in March 1994, quickly followed by stores in Houston and Los Angeles. Inside the stores, wooden floors replaced carpet, the lights were much brighter, and customers could find other merchandise in addition to clothes, including jewelry, shampoo, and vases. Rampage stores, said Hansel, were 'urban, raw, sensual, soft' and 'a collection of boutiques' under one roof. He also started another boutique chain, Friends, for girls 4 to 13, which sold Rampage's existing children's lines and were located close to a Rampage store.

From Boom to Bust for Rampage: 1996-97

By 1996, Hansel was talking about taking the company public and had created expansion plans to accomplish that. While the wholesale side of the business was the major contributor to its annual quarter of a million dollars in revenues, the 45 stores (Rampage, Judy's, and Friends) had sales of $65 million, up from $27 million when Hansel bought the 60-store Judy's chain. Plans included closing or converting the remaining Judy's stores; licensing for shoes, lingerie, swimsuits, and jewelry; a Rampage line of cosmetics; and franchising the retail operation worldwide.

However, within a year, according to the March issue of Chain Store Age, Hansel was 'overextended and plagued by inventory problems, fashion misses, high overhead and overstructuring.' Rampage Clothing Co. and its retail affiliate filed for bankruptcy in June 1997 and began closing or selling the retail units. Charlotte Russe, which had been acquired by Sanders Karp & Megrue the year before, bought 16 Rampage stores for $10.5 million.

The Holding Company: 1996-97

In October 1996, Charlotte Russe president and CEO Bernard Zeichner and investment firm Sanders Karp & Megrue (SKM) bought the California-based Charlotte Russe chain of women's retail stores from the Lawrence brothers, who had founded the chain. SKM owned other retailers, including Dollar Tree Stores and Hibbett Sporting Goods. At the time of the sale, Charlotte Russe had 35 stores in California, Arizona, and Nevada, with annual revenues of about $70 million.

SKM and Zeichner planned to take the chain national, hiring top management with extensive retail experience, consolidating the distribution and corporate operations in San Diego, and upgrading the management information systems. During the first year, Charlotte Russe opened its first store in Northern California and moved into the Texas and Florida markets. Net sales for the 1997 fiscal year grew to $81.5 million, an increase of more than 15 percent from fiscal 1996.

Meanwhile, Rampage Clothing Co., a manufacturer of clothing for juniors and children, and Rampage Retailing, its affiliated chain of stores, filed for bankruptcy in June 1997. Rampage closed most of its retail business, including its Judy's and Friends units, and in October sold the remaining 16 Rampage stores to Charlotte Russe for $10.5 million. The purchase gave Charlotte Russe Holding a second, distinctive store concept, which it continued to operate under the Rampage name.

Integration of Rampage: 1998-99

Integrating the Rampage purchase into its operations put a strain on the company for about six months. Once it established separate buying operations for each chain, moved into a new headquarters building, and opened its larger, more automated distribution center, however, things went more smoothly. Even as the internal changes were going on, Zeichner opened 17 new Charlotte Russe stores, including units in new markets of Georgia and South Carolina. The Rampage chain and new stores helped the company increase its sales a whopping 64 percent, to $134.1 million, despite poorer performance in Charlotte Russe stores that had been open at least a year.

The company continued its subsidiaries' focus on a broader customer base than the traditional junior market, targeting women 15 to 35. Each chain had its own strong brand identity, and the company's 'test-and-reorder' approach to merchandising allowed the in-store testing of small quantities of merchandise and the placing of larger orders when customers had indicated, with their purchases, what they liked. Unlike most of its competitors, the company dealt primarily with American manufacturers, which made it possible to get the clothes it wanted in a relatively short period of time.

Another difference between Charlotte Russe Holding and other mall-based specialty retailers was store size. The company's stores averaged 7,500 square feet, about twice the space of most of its competitors. The interiors of the two chains aimed to accomplish different objectives. Charlotte Russe, 'Where You Fit In,' offered distinct and separate areas of 'lifestyle collections'--casual, career, and club wear, shoes, lingerie, and accessories&mdashø create a multi-boutique. Dressing rooms have couches and colors are soft and feminine. That arrangement appeared to attract and encourage shopping by both juniors, ages 15-21, and older women, ages 25-35.

At Rampage, whose tag line was 'Bold, Sexy, Modern,' merchandise was grouped by color and fashion trends. Hardwood floors and metal fixtures stressed the 'urban' message under bright lights. Prices in both chains were lower than at competing women's stores, and more than 80 percent of the merchandise carried house labels. The chains turned over their inventory 12 times a year, a rate that was up to three times greater than most of its competitors. A final benefit of this two-pronged approach was that items that proved to be hot at Rampage soon showed up at Charlotte Russe.

2000 and Beyond

In October 1999, without a dot-com or an Internet strategy to its name, Charlotte Russe Holding, Inc. went public. The company had more than doubled its size since 1996 and was operating 96 stores in 15 states and Puerto Rico. Earnings had increased an average 27 percent annually and sales were growing 40 percent a year. The IPO netted about $13.5 million, which was used to pay down debt under the company's revolving credit facility.

A month later, the company introduced a new concept, Charlotte's Room. Two new, 3,500-square-foot stores opened in Los Angeles and Phoenix, aimed at young women ages 12-20. Although the new units offered some clothes and accessories, the focus was on furnishings, including bedding, rugs, bean bags, and lamps. 'If it doesn't work, we can just walk away from it,' Zeichner told Investor's Business Daily at the end of the year. A second new venture was the development of a web site that would, according to the company, create 'a unique `pop-culture' experience for our customer that blends music, fashion and entertainment.'

Through mid-2000, Charlotte Russe Holding continued to read the trends right. Zeichner announced that the company would open more stores than originally planned for fiscal 2001, with a more aggressive expansion of Rampage. New stores were important to the company, because they drove additional profits. In an April 2000 WWW article, Zeichner explained, 'Since our stores do well over $2.2 million each, we are not looking for strong comparable increases, and our new stores open up with a return investment of over 90 percent.' With those strong cash flows, a good economy, and continued accurate trend reading, Charlotte Russe Holding was moving to be a 500-store national chain.

Principal Divisions: Charlotte Russe; Rampage.

Principal Competitors: Limited, Inc.; Wet Seal Inc.; Arden B; bebe stores inc.

Chronology

• Key Dates:

• 1975: Lawrence brothers open first Charlotte Russe store, in Carlsbad, California.
• 1990: Charlotte Russe moves into Arizona.
• 1992: Company expands into Nevada.
• 1994: Clothing manufacturer Rampage Clothing Co. opens first retail outlet.
• 1996: Investment firm SKM buys Charlotte Russe.
• 1997: Company buys Rampage, with 15 stores nationwide.
• 1999: Charlotte Russe Holding goes public.