Elder-Beerman Stores Corporation

views updated

Elder-Beerman Stores Corporation

3155 El-Bee Road
P.O. Box 1448
Dayton, Ohio 45401-1448
U.S.A.
(513) 296-2700
Fax: (513) 296-4586

Private Company
Incorporated: 1911 as Elder & Johnston Company
Employees: 8,500
Sales: $630 million
SICs: 5311 Department Stores

Elder-Beerman Stores Corporation is one of the largest regional retailers in the midwestern United States and one of the few remaining family-owned, independent department store chains in the country. The company’s 49 Elder-Beerman department stores in Ohio, Michigan, Indiana, Illinois, Kentucky, Wisconsin, and West Virginia generate the vast majority of the corporation’s total sales. The retailer’s 130 El-Bee discount shoe store outlets help extend its geographic reach to Pennsylvania, Texas, Iowa, and Virginia, and its 72 Margo’s La Mode women’s ready-to-wear stores in the Southwest add Arkansas, Oklahoma, and New Mexico to the company’s roster of states.

The Elder-Beerman Department Stores division is the company’s most important business and primary source of growth. It operates 31 department stores and two furniture retailers in Ohio, nine department stores in Indiana, three in Illinois, four in Michigan, and one each in Kentucky, Wisconsin, and West Virginia. In total, this division generated 82 percent of the company’s total sales for fiscal 1991. The stores are generally located in smaller, less competitive markets with populations of 20,000 to 60,000 people. There, Elder-Beerman is often able to garner an anchor location in medium-sized malls and become each community’s primary supplier of soft goods. In the early 1990s, brand name products generated about 80 percent of total sales, with the remainder being private label or non-branded goods. Prominent brand names include Liz Claiborne, Esprit, London Fog, and Estee Lauder. The department stores’ merchandise mix is approximately 77 percent apparel and accessories and approximately 23 percent home furnishings.

The Elder-Beerman Stores Corp. was formed through the 1962 merger of Beerman Stores, Inc., and the Elder Johnston Company. Known as “The Store with the Friendly Spirit,” the Elder Johnston Company had roots in the pre-twentieth century Boston Dry Goods Store located on East Third Street in Dayton. William Hunter, Jr., Russell Johnston, and Thomas Elder, who had all worked as traveling salesmen for the venerable eastern retail firm, Jordan, Marsh and Company, founded the company in 1883. After scouting the Dayton retail environment, the three partners purchased all the stock and business of a firm that had suffered heavy losses in a fire.

The partners’ Boston Dry Goods Store (it was popular in the Midwest to name retail stores after prominent eastern cities) stated its objective in its first advertisement as: “To present to the public good, dependable merchandise at sensible prices.” The growing establishment moved into Dayton’s first skyscraper, the Reibold Building, in 1896 and incorporated as the Elder Johnston Company in 1911. In the meantime, Johnston died and Hunter retired, leaving Elder to run the company until his death in 1936. Elder’s son Robert had joined the company in 1908 after graduating from Princeton and, upon his father’s death, became president. He served as president, and later chairman of the board, until retiring in 1955. Thomas Elder Marshall, a grandson of the founder, joined Elder Johnston in 1946 and succeeded Robert Elder as president in 1953. He advanced to chairman of the board in 1956. Marshall inaugurated a semiannual custom of giving each employee of Elder Johnston a red rose—he had a hobby of cultivating both roses and employee goodwill.

Beerman Stores, Inc., was founded in the late 1930s by Arthur Beerman, who had moved to Dayton from Pennsylvania in 1930 at the age of 22. He went to work for brothers Chester and Raymond Adler at their home furnishings and children’s clothing stores. But Beerman would not be satisfied with being a mere employee. He founded Beerman Realty Co. in the mid-1930s and would parlay savvy real estate holdings into an Ohio retail empire. During the early 1940s, Beerman opened several neighborhood “Cotton Shops,” offering house dresses and aprons. The entrepreneur soon added infants’ and children’s wear to boost sales in the winter months, and the business incorporated in 1945.

Through his realty venture, Beerman began acquiring and developing neighborhood strip shopping centers in anticipation of the suburban exodus. When a deal to rent a two-story shopping building fell through in 1950, he took advantage of the empty space and established his own Beerman Budget department store. His venture appealed to value-oriented shoppers with its “Beerman’s for Bargains” slogan. In 1953, Beerman formed Bee Gee Shoe Corporation, a partnership with Max Gutmann, to operate leased shoe departments within the stores. In 1956, Beerman bought his former employer’s Home Store and opened his first El-Bee Shoe store. Within three years, he had six stores located at shopping centers around Dayton. By 1961, Beerman had opened two additional stores and expanded into housewares.

Arthur Beerman acquired a controlling interest in, and the chairmanship of, Elder Johnston in December 1961. Although he had originally planned to keep the two ventures separate, he merged Elder Johnston with his own firm early in 1962 and closed the older retailer’s flagship downtown store. Thomas E. Marshall, former president of Elder Johnston, became president and chief executive officer of the newly formed chain, and Max Gutmann became senior vice president and general manager.

The Elder-Beerman Stores Corporation’s first-year sales were estimated at $30 million. The union facilitated the establishment of branch stores, and the firms’ combined buying power helped transform Beerman’s bargain image into a more fashion-oriented reputation. Public trading in Elder-Beerman shares began in 1966, but the Beerman family and insiders would continue to hold the vast majority of shares, over 70 percent.

The new alliance was embroiled in a retail rivalry throughout the 1960s that Arthur Beerman, who was known as ’ ’confrontational,” took to the courts. In 1961, he filed a $15 million federal antitrust suit against Rike’s, which was owned by retail giant Federated Department Stores. Beerman had offered to sell his stores to Rike’s in 1959, but was rebuffed by the long-established rival. Although Beerman’s stores had initially cultivated a budget orientation by offering lower-priced merchandise, executives hoped to transform the merged chain into a classier operation by offering brand-name goods. However, Arthur Beerman claimed that Rike’s and Federated conspired with suppliers to keep many better quality brand names out of Beerman stores through “exclusive” contracts.

Beerman won a $3.8 million judgment, including triple damages (a stipulation of antitrust law), when the case came to trial in 1969, but the verdict was reversed on appeal. Before the appeal trial, a settlement was reached in which Rike’s agreed to pay Elder-Beerman $1.2 million—the original judgment without treble damages. As part of the settlement, the Dayton Mall had to provide direct access from its parking lot to an adjacent Elder-Beerman store. Beerman had accused the mall, its developer Edward J. DeBartolo, and its major tenant, Rike’s, of excluding his company from the mall. After defeating Rike’s in court, Elder-Beerman supplanted its competitor as the Dayton area’s preeminent retailer in the late 1970s.

Elder-Beerman continued to blanket the Dayton area throughout the 1960s and opened its first out-of-town store in 1968, just two years before Arthur Beerman’s death. In 1970, Beerman’s longtime partner, Max Gutmann, became president. A native of Germany, Gutmann and his family fled Nazi persecution during World War II. When he ultimately arrived in the United States, the teenager joined the Army and served in Europe. After the war, one of his first jobs was operating the leased shoe department at Dayton’s Adler & Chi Ids department store. Gutmann had joined Arthur Beerman to form the Bee Gee Shoe Co. in the early 1950s and rose in the executive ranks. He became chief executive officer and chairman in 1974, the same year that the chain crossed state lines and established a store in Richmond, Indiana.

Elder-Beerman grew dramatically under Gutmann’s guidance. The leader expanded the retail chain internally, building seven local stores before the end of the 1970s, and pursuing an aggressive acquisitions policy. In 1969, Elder-Beerman bought Everybody’s Office Outfitters and made it a wholly owned subsidiary, El-Bee Office Outfitters, by 1973. In 1978, Elder-Beerman acquired four of Cincinnati’s Mabley & Carew stores, which boasted $20 million in sales the previous year. The 101-year-old Mabley & Carew chain had previously been acquired by national retail powerhouse Allied Stores Corp., which operated the stores from 1961 to 1978.

Elder-Beerman purchased Texas-based Margo’s La Mode chain of specialty stores from Alexander’s Inc. for $7 million in 1981. Founded in the 1930s and owned by Alexander’s from 1979 to 1981, Margo’s operated 72 stores in Texas, Arkansas, Oklahoma, and New Mexico. The southwestern specialty chain Regan’s was acquired in 1984, and its 20 stores were appended to Margo’s. After a reorganization, the combined division encompassed 80 stores managed from Dallas. Twenty-six Spare Change discount junior sportswear stores in Ohio, Indiana, Kentucky, and West Virginia were acquired in 1982 and merged into the Margo’s chain in 1986. In 1985, Elder-Beerman purchased three R. H. Macy & Co. stores in the Toledo, Ohio, area. Although the company had adopted a policy of avoiding larger urban markets beginning in the early 1980s, it entered Toledo with the assurance that it would begin as the city’s number two department store in terms of volume.

Elder-Beerman celebrated its centenary in 1983 with the theme “100 years in the making and still something new every day.” The company’s sales grew 187 percent from 1975 to 1985, to $312 million, and net profit increased 236 percent to $7.3 million over the same period. Much of this growth was credited to Max Gutmann’s dynamic leadership.

Elder-Beerman was taken private in 1987 by the E-B Acquisition Co., a vehicle of several executives and members of the Beerman family, including Jessie Beerman, Arthur’s widow; Barbara Beerman Weprin, their adopted daughter; her husband, William S. Weprin; and Leonard Beerman Peal, a first cousin. The company purchased the remaining 30 percent of Elder-Beerman it didn’t already own for an estimated $30.7 million, or $33 per share. The retail chain has been “closely held” since that time. According to its last annual report, for fiscal 1986, the company posted sales of $380.8 million and net profit of $6.3 million. As consolidation in the retail industry overall accelerated during the 1980s, Elder-Beerman found itself one of the few family-owned, independent department store chains. Local observer James Bohman, of the Dayton Daily News, noted that, by 1989, the Beermans ranked among Ohio’s 25 wealthiest families.

Elder-Beerman acquired Meis of Illiana’s 10-store chain, which operated locations in Indiana, Illinois, and Kentucky, from the Brown Group Inc. in 1989. The chain was founded by the Meis (sounds like “lease”) family in 1924 and sold to the Brown Shoe Co. of St. Louis, Missouri in 1972. At the time of its sale to Elder-Beerman, Meis was considered one of western Indiana’s leading retailers.

Max Gutmann retired in 1991. In addition to the dramatic growth that occurred during his watch, another legacy of Gutmann’s leadership was the distinctive blue used in Elder-Beerman’s logo—blue was one of the chairman’s favorite colors. Gutmann was followed at Elder-Beerman’s helm by Herbert O. Glaser, who had served as president of the department store unit from 1984 to 1989, and then as president and chief operating officer. He retained the post of COO only two years before retiring. Glaser was succeeded by Milton E. Hartley, chairman of the board and chief executive officer. The company continued to expand throughout these upper management shifts, opening 11 stores and a distribution center between 1991 and 1994. An April 1993 business brief in the Dayton Daily News noted same-store sales increases of over 8 percent and “a record Christmas season,” according to chairman Hartley. The private company is not required to disclose detailed financial information, and often declines to do so since going private in the late 1980s.