Baby Superstore, Inc.

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Baby Superstore, Inc.

605 Haywood Rd.
Greenville, South Carolina 29607
U.S.A.
(803) 675-0299
Fax: (803) 675-0299

Public Company
Incorporated: 1970 as Carolina Baby Inc.
Employees: 1,662
Stock Exchanges: NASDAQ
Sales: $309 million (1995)
SICs: 5641 Children’s & Infants’ Wear Stores; 5712 Furniture Stores; 5999 Miscellaneous Retail Stores, Not Elsewhere Classified

Baby Superstore, Inc., operates a chain of 60 stores in 16 southeastern and midwestern states. The stores sell clothing, supplies, toys, furniture, and other accessories for babies, and are distinguished by diverse inventory and low prices. The company plans to more than double in size during the mid-1990s.

Baby Superstore was founded by American entrepreneur and billionaire Jack Tate. In 1995 Forbes listed 51-year-old Tate as one of the 400 wealthiest people in the United States. Most of that wealth was generated through Tate’s Baby Superstore venture, which he launched in the early 1970s and groomed into the most successful baby supplies business in history. Baby Superstore capitalized on the trend toward giant discount specialty outlets in the 1980s, expanded rapidly, and began growing at an even faster pace in the 1990s.

Tate was first exposed to the retail industry as a boy growing up in Greenville, South Carolina. His father. Jack Sr., operated a furniture store with his Uncle George. The business was moderately successful, but Tate’s father didn’t believe that it. or retail in general, promised a very bright future for his son. Instead. Jack Tate, Sr., wanted his son to become an attorney. Tate Graduated from the University of North Carolina in 1966 and entered Harvard Law School. The intense desire to start his own business was ignited one day in March 1969 when he went shopping for baby supplies and furniture for his nine-month-old daughter and was struck with an inspiration: Why not put everything that you needed to buy for your baby under one roof and create a sort of one-stop-shop for parents? “It hit me with a force that 1 still don’t understand.” Tate recalled in the October 23, 1995, Forbes.

After his shopping trip, Tate wrote the name “Carolina Baby” on a legal pad and tiled it away. Although he hesitantly started his own law practice after graduation from Harvard, he couldn’t get his mind off of the idea. His attention quickly strayed from his law firm, and Tate began looking for capital to start a Carolina Baby shop. He approached some local bankers and was able to convince them to front about $200.000. Tate had hired a 20-year-old legal secretary named Lisa Robertson to help with his law practice part-time. Together, they opened the first Carolina Baby store in Greenville in March 1971, and Robertson remained president of the company, under Chief Executive Tate. into the mid-1990s. The shop, which provided furniture, clothing, and toys for babies and children through age 12, was a hit. Tate shuttered his law firm in April and never looked back.

Tate’s ability to round up $200,000 in cash while still in his early 20s reflected his entrepreneurial traits, which included infectious enthusiasm and hard-driving ambition. Augmenting those personal qualities was a feeling that Tate had experienced since early childhood that he was destined to accomplish something significant with his life. “I remember feeling driven when I was six years old,” Tate said in the Forbes article. “I can’t describe it. It was just a feeling that I was supposed to do something.” That “something” for the next few decades would be his baby supplies enterprise.

Tate opened his second Baby Superstore two years later in nearby Easly, South Carolina. That store spawned a gradual expansion of Carolina Baby shops throughout the Carolinas during the 1970s and early 1980s. Besides building more stores. Tate began experimenting with different concepts and formats to find the perfect recipe for his shops. He tried opening some stores in malls, for example, but discovered that the real estate was too expensive for him to fully stock a store and still generate sufficient profits. He eventually found that bigger, less expensive locations in strip shopping centers worked well. He also gradually narrowed his target market to younger and younger kids, finally focusing on babies and toddlers.

Hard work and persistence paid off for Tate and Robertson, who watched their venture slowly take off during the 1970s and early 1980s and build steam during the mid-1980s. The company began expanding outside of the Carolinas into neighboring southeastern states, where the concept was well received. By the mid-1980s Carolina Baby, Inc. was operating about 25 stores that averaged 6,000 square feet in size. The company was generating nearly $15 million in annual sales and realizing steady profits, and Tate was generally satisfied with the store format that had evolved—until 1987. In that year, Tate hit on a new concept that was destined to transform his company when he opened an experimental 20,000-square-foot superstore in Marietta, Georgia.

The giant store offered a wide range of goods and was an immediate hit. Sales-per-square-foot shot up an amazing 50 percent over the company’s smaller stores. Tate suddenly realized that, after building his business for more than 15 years, he would have to effectively shut down his other stores and convert them into superstores. In 1987 Tate changed the name of the company to Baby Superstore, Inc., and began looking for cash to build Baby Superstore outlets. During the next five years he and fellow executives scrambled to open a total of 26 shops under the Baby Superstore banner. From $14.5 million in 1987, sales exploded to $26 million in 1989, $38 million in 1990, and then to a whopping $47 million in 1991.

Tate’s gains at Carolina Baby and Baby Superstore during the 1970s, 1980s, and early 1990s were made even more impressive by the fact that he achieved them by utilizing a fiscally conservative growth strategy. Expansion was funded largely by internal cash flow, and Tate invested much of the company’s profits back into the business. Tate himself was something of a maverick among successful entrepreneurs. For example, despite his multimillionaire status, he lived simply in a two-bedroom A-frame house located in a remote mountain town near Greenville. He kept two pet goats and a pet sheep. The most conspicuous evidence of his success were a helicopter and a Lear jet, which he purchased and maintained with cash from his own pocket.

As the company opened new stores, it continued to tweak its format to maximize sales and profits. In one important innovation in 1992, Baby Superstore borrowed an idea from hardware superstore retailer Home Depot. Management began tearing out interior walls and ceilings and reducing backroom stock space. Long, wide aisles were created that were walled in by inventory piled high toward the ceiling. Stores were stocked with a wide range of furniture and supplies for babies, toddlers, and juveniles. The goal was to create an impressive store where shoppers knew that they could go to find nearly any item that they needed, wanted, or didn’t even know existed for their children or grandchildren. The effort was hugely successful, as evidenced by a steady increase in per-store sales and profits.

The success of Baby Superstore didn’t go unnoticed. Other retailers followed the company into the baby market. Among the most notable new competitors in the early 1990s were KidSource and Lil’ Things. Tate met the startups head on by opening Baby Superstore outlets across the street from some of the competitors’ new stores. A more weighty contender was the massive Toys “R” Us chain, which announced in 1994 that it was going to open five Babies “R” Us stores in 1995. To contend with such threats to his market share, Tate opened new stores at a steady, rapid clip. By 1994 the company was operating a chain of about 40 stores, with plans to have roughly 50 shops in 13 states open by the end of 1995.

Even with the new competition. Baby Superstore executives were confident of their future. Demographic projections favored Baby Superstore’s concept and suggested continued market growth, and Tate worked to boost the company’s exposure through new marketing efforts. Baby Superstore began offering its own brand of clothing, for example, which was manufactured by some of the same Asian producers that supplied Baby Gap. At the same time, the company was expanding floor space and inventory to top its competitors. In 1994 it began opening 40,000-square-foot stores that stocked about 25,000 items from 500 suppliers—compared to about 15,000 items stocked by Toys “R” Us.

Indeed, over several years the company had developed a shrewd mix of products, prices, and service that generated its reputation as a savvy merchandiser. “Baby Superstore has struck a chord with consumers with its combination of great brand names and dominant assortments,” surmised Doug Hyde, chief executive of OshKosh B’Gosh, in the June 19, 1995, Discount Store News. “They’ve been around for a long time, and they’re very sophisticated merchants. … Baby Superstore is a long-term, significant player.” Baby Superstore sold goods categorized into six major segments focused on babies through three-year-olds: furniture, which comprised its largest profit center; clothing; baby needs; toys; commodities; and shoes. The product mix within each segment was chosen to appeal to both broad markets and niches, such as premature babies or baby Christening accouterments. And, while prices were kept low through volume purchases, the company prided itself on a high level of customer service.

After more than two decades of funding growth largely from earnings, Tate finally decided to take Baby Superstore public. The decision was partly the result of a meeting between Tate and Kenneth Langone, a well-known New York investment banker. Langone was known for, among other deals, taking Ross Perot’s Electronic Data Systems public in 1968 and engineering a successful initial public offering for Home Depot in 1978. In September 1994 Langone helped to take Baby Superstore public with a stock sale that raised $33 million. The company’s stock price more than doubled to $25 on its first day of trading, reflecting investor enthusiasm over the company. A few months later, by which time the stock had vaulted to $38 per share. Baby Superstore raised another $29 million through a second offering.

Tate planned to use the cash to intensify expansion efforts. The company had already managed to boost sales to $63 million in 1992, $104 million in 1993, and then to a whopping $175 million in 1994. At the same time, profits swelled from about $500.000 annually during the early 1990s to a fat $2.32 million in 1994. By the end of 1994 the company was operating a chain of nearly 40 Superstores. Management planned to boost that number by about 40 during the next two years, moving into new markets including Chicago and New York. As a result of new stores, as well as increased revenues at existing units, the organization’s sales surged to more than $300 million in 1995. “This is a company with tremendous growth prospects,” said retail analyst Marcia Aaron. “Based on our estimates, we believe that Baby Superstore is capable of 50 percent compound annual growth over the next three years.”