Less than two years ago, Proffitt's chairman and CEO Brad Martin said he hoped to grow his retail enterprise to $3 billion by the end of the decade.
But with the most recent round of acquisitions and financial wizardry, that benchmark already has been surpassed with time to spare. As of January of this year, the well-capitalized public company's worth was estimated at $3.5 billion, with shares trading on the New York Stock Exchange at $37.
The Birmingham, Ala.-based retailer is a phenomenon not only in the retail industry but in the business world at large. Since 1994, the company has doubled its size several times by adding dominant regional department store chains, including Younkers, Parisian, McRae's and Herberger's.
Today, Proffitt's boasts 236 stores, including four stand-alone furniture stores, in 24 states across the Southeast and Midwest. The company's stores offer a wide selection of fashion apparel, accessories, cosmetics and decorative home furnishings, featuring assortments of premier brands such as Polo Ralph Lauren and Calvin Klein, as well as unique specialty merchandise.
The most recent growth spurt occurred with the January acquisition of Milwaukee-based Carson Pirie Scott & Co., which operates 56 Carson's stores in Indiana, Illinois, Wisconsin and Minnesota. The $800 million deal propelled Proffitt's into a fourth-place position behind national retail empires The May Co., Federated Department Stores and Dillard's.
The company's approach is to buy strong regional retail companies, many of which are in smaller markets that larger department stores have traditionally bypassed.
For example, in March, the Proffitt's chain purchased the Brody Brothers Dry Goods Co., operators of six Brody's department stores in North Carolina, which will be converted into Proffitt's Division stores. The purchase strengthens the larger company's presence in several second- and third-tier North Carolina markets, such as Greenville, Rocky Mount, Kinston and Goldsboro, says Martin.
Founded in 1919 by David W. Proffitt, the retailer operated as a family business for 65 years. When Martin joined the southeastern Tennessee chain in 1984, the company had four stores and sales of $40 million. In 1988, when the last Proffitt family member retired, Martin purchased the chain with a group of investors.
The Tennessee-born entrepreneur began an aggressive acquisition campaign in 1994. With Martin at the helm, Proffitt's sustained rapid growth over the next four years, not only through nine major acquisitions but also through expert operating performance. Expected company revenues for 1998 are near the $3.8 billion mark.
Regionalized buying Proffitt's operates its major department store chains as separate divisions, retaining their headquarters and the regional names already familiar to the local customer. With the Carson Pirie Scott purchase, Proffitt's Inc. now operates six divisions, including the Proffitt's department store chain.
Unlike many competing retail giants, Proffitt's allows each of its divisions to operate individual buying offices, a tactic that Martin says helps the company keep in closer touch with the consumer in each market area. In this way, the department store chain enjoys a competitive advantage because of regional assortments and an understanding of the local customer base.
"We would be foolish to ignore the distinctiveness of the regional markets. We also want to retain our regional talent and expertise," says Martin.
The unusual strategy works well for Proffitt's, although it evolved out of necessity. Starting with such a small enterprise, the firm did not have the infrastructure in place to simply gobble up new businesses as it grew.
Martin admits that decentralized merchandising and marketing operations cost more, but he says these higher margins are offset by running more efficient back-office operations and by selling more merchandise.
The company also keeps its pulse on the consumer through proprietary credit cards issued by each of the company's divisions. The information captured by these cards aids in tracking spending patterns for brands, departments and locations.
"This type of data collection makes our vendor relationships more effective, while our increasing size gives us more clout," says Martin.
With 40 percent of its stores in towns with populations fewer than 150,000, Proffitt's wins points with national brands such as Nautica and Tommy Hilfiger by bringing them to small towns that otherwise would not have an outlet for these products.
Proffitt's strategy of leaving the local division's cultures in place not only makes the acquisitions process less disruptive but also makes Proffitt's a more attractive partner. Despite the aggressive growth plan, Proffitt's has a reputation for friendly takeovers.
For example, several years ago when Carson Pirie Scott made an unsuccessful hostile bid for the Iowa-based Younkers chain, Martin stepped in with a gentler approach and managed to woo the Younkers chain to the Proffitt's roster in 1995. Two years later, Carson Pirie Scott also opted to join the Proffitt's family.
Martin says it's no secret that additional acquisitions are in the future as the right opportunities present themselves. The criteria includes strong regional operators selling better brand-name and private-brand merchandise tailored to regional tastes. Superior customer service and amenities, and solid locations in premium community malls in both small communities and large metropolitan markets, are also part of the formula.
"We have an outstanding balance sheet and a strong cash flow, so we are in a very good position going forward," says Martin. The five-year plan calls for adding 1 million sq. ft. to 1.5 million sq. ft. of space, and building six to eight new units annually, while achieving solid comparative store sales growth in the 8 percent to 10 percent range each year.
This year, the company has opened a new Proffitt's store in Parkersburg, W.V., and plans a July opening of a new Younkers store in Coralville, Iowa.
Building synergies Proffitt's corporate focus is centered on real estate, financial operations and information technology, where "building synergies" to achieve cost savings is the underlying goal. Cost reductions resulting from the increased scale of the company resulted in a $20 million savings last year. Additional savings to the tune of $29 million are targeted for 1998.
A major capital restructuring endeavor last year also lowered the company's debt to around 20 percent and expanded its liquidity, says Martin. An October 1997 2-for-1 stock split served to enhance the company's visibility in the investment community by providing wider distribution of its stock.
At the same time, the retailer will build its operating earnings and share price through what Martin terms "relentless self-improvement."
"We are continually looking at each of our divisions to determine best practices - good ideas that can be applied to the entire company," says Martin.
For example, when Proffitt's acquired McRae's, it found a well-developed home products business that it quickly implemented at all of its Proffitt's stores. Likewise, the company used an existing special-size apparel business at Younkers as a model for its Proffitt's and McRae's stores.
Mirroring a national trend, new brand and label development is getting a major thrust from Proffitt's. The company's private-brand penetration is about 7 percent, but its Birmingham, Ala.-based Merchandising Group plans to up that number to 12 percent over the next couple of years.
Current development is focused on men's wear, women's casual dress and career dress wear, children's wear, and home furnishings. A new home store brand called Living Quarters, which will include textiles, cookware and tabletop items, should hit the shelves in all but the Parisian stores this fall.
The Parisian chain is perhaps the shining star in Proffitt's department store portfolio. Acquired in 1996 for about $450 million, the specialty store chain presents Proffitt's with a unique opportunity to expand on a single-store basis into much larger markets, says Martin.
Marketing better-priced, specialty cosmetics and apparel with a high level of service is Parisian's current niche. Proffitt's plans to take the concept one step further with the introduction this year of the Parisian Signature label for women's career apparel.
Putting the customer first Martin attributes much of the company's success to its ability to stay focused on existing operations even in the midst of rapid growth.
"We've always operated our stores very efficiently, and so, achieved excellent financial results along the way. This gained us access to capital and gave us the confidence to grow through acquisition," he says.
However, Proffitt's never put company efficiency above the customer. "When you start thinking like a retailer rather than a customer, then you make mistakes," Martin says.
Looking ahead, the 46-year-old politician-turned-retailer remains bullish on the department store sector as a whole.
"Over the last four to five years," he says, "department store retailers have learned how to become value as well as fashion leaders, gaining shares even over some category-killers and specialty retailers. As a group, we have a very bright future."
* March 1994: Purchase of 28-store, Jackson, Miss.-based McRae's department store chain.
* February 1996: Purchase of 51-store, Des Moines, Iowa-based Younkers department store chain.
* October 1996: Acquisition of 38-store, Birmingham, Ala.-based Parisian specialty department store chain.
* February 1997: Acquisition of 40-store, St. Cloud, Minn.-based Herberger's department store chain.
* July 1997: Proffitt's is listed on the New York Stock Exchange.
* October 1997: A 2-for-1 stock split of outstanding shares of Proffitt's common stock.
* November 1997: Proffitt's designates Birmingham, Ala., as its official corporate headquarters.
* January 1998: Merger with 56-unit, Milwaukee-based Carson Pirie Scott & Co. department store chain.