Loehmann’s Inc.

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Loehmann’s Inc.

2500 Halsey Street
Bronx, New York 10461
U.S.A.
(718) 409-2000
Fax: (718) 518-2766
Web site: http://www.loehmanns.com

Public Company
Incorporated: 1930 as Charles C. Loehmann Corp.
Employees: 3,049
Sales: $417.8 million (1996)
Stock Exchanges: NASDAQ
Ticker Symbol: LOEH

SICs: 5611 Men’s & Boys’Clothing & Accessory Stores; 5621 Women’s Clothing Stores; 5632 Women’s Accessory & Specialty Stores

Loehmann’s Inc. is a retailer of women’s clothing, shoes, and accessories, and menswear, and is best known for designer and brand name women’s fashion apparel sold at discount prices. In early 1998 the company was operating 86 stores, all of them in the United States.

Family-Run Discounter: 1921-64

The Loehmann’s retail chain was founded in 1930 by Charles C. Loehmann. The company’s spiritual matriarch, however, was Loehmann’s mother, Frieda Loehmann. Mother of three children, she became the family breadwinner in 1916 when her husband, a flutist with a symphony orchestra, developed a paralyzed lip. Mrs. Loehmann was a coat buyer for a fashionable department store until 1921, when, with $800 in cash, she and her son Charles opened, below their Brooklyn apartment, a women’s specialty clothing shop named the Original Designer Outlet. “Mama” Loehmann got her merchandise by driving to the garment district on Manhattan’s Seventh Avenue in a black limousine and filling it with designers’seasonal overstocks at a fraction of the traditional wholesale price, paying from a wad of cash she kept in what designer Bill Blass called her “voluminous black bloomers.”

Mrs. Loehmann continued to descend daily on the garment district until two weeks before her death in 1962, and the store was doing an estimated $3 million in annual sales at the time. Her one flaw, according to a manufacturer who was one of her suppliers, was that “she thought Brooklyn was the beginning and end of the world.” Her son Charles had different ideas. After his mother rejected the notion of expansion, he opened a women’s clothing store on Fordham Road in the borough of the Bronx in 1930 and incorporated the enterprise as the Charles C. Loehmann Corp.

Loehmann’s gained fame as a discounter, but of high-fashion, first-quality merchandise, made possible by purchasing manufacturer’s overruns and “broken lots”—groups of garments in a limited range of sizes and colors. The store also kept its costs down by paying cash for these “odd lots” on the day it ordered them. These were then taken from the manufacturer’s plant, processed and ticketed at the company warehouse, and delivered to the store, sometimes all on the same day. As a result, a woman might be able to buy a couturier-designed dress for as little as one-third the price at a competing store, with the only difference being that the manufacturer’s label had been removed from the garment.

Loehmann’s also saved on overhead by hanging most of the clothing on ordinary pipe racks and making women try clothing on in “community” dressing rooms. The mayhem that occurred when a desirable shipment arrived was recalled by one woman as “female bonding” and discussed, more graphically, by Erma Bombeck in her book Everything I Know About Animal Behavior I Learned at Loehmann’s. The company also saved money by not offering credit, delivery, or alterations, seldom accepting returns, and restricting advertising to the mailing of announcements.

It was not until 1951 that Loehmann’s felt ready to open a store outside of New York City. Three such stores were opened during the 1950s, and by 1964, when the company went public, it was operating four stores in New York, one in Connecticut, and one in New Jersey. Specialty stores for women, these establishments sold dresses, coats, suits, sweaters, blouses, skirts, slacks, shorts, separates, raincoats, and bathing suits. Net sales rose from $9 million in 1961 to $15.1 million in 1964; net profit rose from $288,315 in 1961 to $532,712 in 1964. After shares were first offered on the American Stock Exchange in 1964, Charles Loehmann and his wife, Anita, continued to hold a majority of the stock for about a decade. George J. Greenberg succeeded Charles as president of the company, which was renamed Loehmann’s Inc.

Under Various Ownership: 1964-88

Before the 1960s ended, Loehmann’s had added ten more stores. The company entered Massachusetts in 1965, Maryland in 1967, and Pennsylvania and Virginia in 1968, and it opened a store in Los Angeles in October 1969. The flagship Bronx store remained by far the largest, however, and the company also built a new Bronx corporate headquarters and warehouse in 1968. The new Loehmann’s stores were much like the earlier ones, located away from high-rent areas and with furnishings kept to a minimum. Moreover, the company was careful to make sure that the stores were a sizable distance from major fashion retailers normally carrying the same merchandise lines. Net sales passed $37 million in 1970, while net income was reported at $1.1 million.

After the Los Angeles store proved successful, Loehmann’s opened its first midwestern outlet in a Chicago suburb and its first southern store in Atlanta. The company also experimented with seven lower-line Charley’s Place outlets but converted them into conventional Loehmann’s stores in 1972 when the profit margin proved too small. By the spring of that year there were 27 stores in the chain. In 1975, when Loehmann’s boasted 31 stores in 12 states, the company broke precedent by beginning to advertise in local newspapers. Still, advertising expenditures in 1976 came to less than one percent of sales.

Five categories of women’s sportswear were accounting for 62 percent of Loehmann’s sales in 1977. That year Greenberg discussed the company’s activities among a group of financial analysts. He noted that Loehmann’s blouses could be purchased for as low as $8.98 and that its dresses retailed for as much as $700; the company also carried a wide variety of furs and had sold sables and minks for as much as $12,000. Loehmann’s was still striving to process goods in its warehouse and get them to its stores within 48 hours and was turning around its merchandise 12 to 13 times a year, as compared to six to eight for a regular retailer. The company, said Greenberg, was doing “considerable” purchasing outside Seventh Avenue, particularly in Philadelphia, Baltimore, and Los Angeles, but also overseas.

Loehmann’s net sales reached a record $159.7 million in fiscal 1980, and its net income came to a record $6.5 million. In April 1980 there were 48 stores (all but two leased) in 21 states. More than half were in shopping centers, including 19 in “Loehmann’s Plaza” locations. At the instigation of the Loehmann family, which still held 37 percent of the stock, the company agreed in September 1980 to accept a purchase offer of about $68 million from AEA Investors Inc. Greenberg continued to serve as chairman and president of the company.

Three years later, this investment group sold Loehmann’s to Associated Dry Goods Corp., operator of 14 department-store chains, for $96 million. During 1983 the company had posted sales of about $260 to $270 million and extended its operations to 61 stores in 25 states. Along with the rest of Associated Dry Goods, Loehmann’s passed in 1986 to May Department Stores Co. By 1988 the number of Loehmann’s had grown to 82 in 26 states. That year the original Bronx store was closed, giving way to a 35,000-square-foot outlet—the largest in the chain—in a converted skating rink.

Despite its growth in scale, however, Loehmann’s had achieved only modest growth in average sales per store during the mid-1980s and had actually slipped in this category during 1987. A new president and chief executive officer, Allan R. Bogner, closed 13 marginal stores, established a policy of accepting credit cards and personal checks, and hired a trendy New York advertising agency to conduct a $4 million campaign. During 1988 Loehmann’s 77 stores had sales of $334 million. In the summer of 1988, however, the chain was sold again—this time to an affiliate of a Spanish firm, Entrecanales y Tavora S.A., and a venture-capital arm of Donaldson, Lufkin & Jenrette Securities Corp.—for a reported $170 million. The new owners took the firm private in a leveraged buyout.

Loehmann’s in the 1990s

In its first full year under new management, Loehmann’s closed more underperforming stores while expanding rapidly across the nation and achieved an average same-store increase in sales of 18.7 percent. The owners used the profits to buy back about $30 million of the loans they had taken out and the high-yielding “junk” bonds they had issued to pay for the company. Loehmann’s lost $4 million in fiscal 1989 (the year ended February 3, 1990). Its sales remained essentially stagnant during the next three years, in which it lost $1.1 million, $6.5 million, and $783,000, respectively. Some sources suggested in 1992 that Loehmann’s had sacrificed some of its mystique by venturing into mainstream retailing and stocking many lesser-known brands. By then the 83-store chain was accepting returns as well as credit cards, was leaving the manufacturers’labels in its clothing, and even began offering its own private-label clothing. In March 1992 Bogner was replaced as president by Robert Friedman, a veteran Macy’s executive.

Friedman steered Loehmann’s toward an even more conventional department store atmosphere, putting up signs in the stores that emphasized manufacturers’names, displaying clothing on mannequins, and even giving customers the option of trying on clothes in private dressing rooms. The company also added shoes, lingerie, hosiery, hats, and accessories such as jewelry, perfume, and sunglasses to its offerings. Loehmann’s circulated its own credit card and offered an Insiders Club for special discounts. Still, however, sales continued to drop in 1993. In October of that year the company completed a financial reorganization, repurchasing $30 million of its notes and selling $55.7 million of new bonds, with no repayment of principal required until 1997.

Loehmann’s lost a record $12.2 million in fiscal 1993 on net sales of $373.4 million—down by $16 million—and $1.5 million in fiscal 1994 on net sales of $392.6 million. The company was burdened t*y heavy interest payments—$18.2 million in fiscal 1994—on its considerable debt. During fiscal 1995 net sales dipped to $386.1 million, and the company lost $15 million, after taking a $15.3 million charge to close 11 small, underperforming stores.

Loehmann’s went public again in May 1996, raising $60 million after expenses by selling common stock at $17 a share. The proceeds were used to redeem preferred stock held by the investors and to help refinance the company’s long-term debt load. Just before going public, the company also sold $100 million worth of junk bonds at 11.875 percent in annual interest, due in 2003, in order to redeem $130 million worth of notes, some of which were at even higher rates. This enabled the company to reduce its interest costs in fiscal 1995 to $13.4 million.

Many analysts agreed with the editor and publisher of a research service who said Loehmann’s had lost its way by reducing sales of designer and “bridge” merchandise—apparel just below designer category—to only one-third of overall inventory. Company executives countered that the chain’s traditional niche was ill-suited to the expansion they planned—seven new stores in 1996 and seven to ten each in 1997 and 1998. Investors did step up to buy the company’s stock, lifting the price of the initial offering to $22.25 by day’s end. In October 1996 a secondary stock offering raised $63.8 million for insiders who chose to sell. One month later, Loehmann’s common stock reached a peak of $30.25 a share.

On opening day in October 1996, Loehmann’s new five story, 60,000-square-foot Manhattan store on 16th Street and Seventh Avenue was mobbed by frenzied shoppers contending for such merchandise as Giorgio Armani bustiers marked down from $2,810 to $750 as well as upscale goods by Jones New York and DKN Y in the $ 100 to $500 range. By August 1997 the number of new Loehmann’s stores opened since the beginning of 1996 had reached 13, raising the total to 77. Many, like the Manhattan one, were in high-rent downtown districts where Loehmann’s rarely had been located in the past. For fiscal 1996 the company reported record revenues of $417.8 million and net income of $4.5 million after a $7.1 million writeoff on early extinguishment of debt.

During the spring of 1997, however, bad news returned in the form of escalating costs and falling sales. Management attributed the results to its inexperience with large stores in major downtown locations, while observers pointed to the competition Loehmann’s faced from the more than 1,900 stores nationwide now competing in the off-price category for designer apparel overruns. Donna Karan International Inc. and Anne Klein & Co., for example, formerly good Loehmann’s clients, were now directing their surplus production to their own outlet stores. Some of Loehmann’s own employees suggested that as little as two to ten percent of the chain’s merchandise on hand was designer clothing, although Friedman maintained that the level remained at 30 percent. At the end of July 1997, shares of Loehmann’s common stock were selling for only $6.625. The company’s long-term debt was $107.9 million at the end of March 1997.

In October 1997 Loehmann’s introduced merchandise for men, including dress shirts, ties, sportswear, and some designer-collection items such as jackets and pants, in 15 of its stores. (Tailored clothing and shoes were not offered.) Design collections included Ralph Lauren, Donna Karan, Calvin Klein, and DKNY. Friedman said the chain’s desired merchandise mix was 60 percent women’s apparel; 20 percent accessories, intimate apparel, and shoes; and 20 percent menswear, compared to its current merchandise mix of 80 percent women’s apparel and 20 percent accessories, intimate apparel, and shoes. Management intended to have menswear in 55 Loehmann’s stores by the end of 1998.

Loehmann’s announced in February 1998 that, of its existing 86 stores, it was planning to close ten, which combined were losing an estimated $900,000 a year. The company reported a loss of $15.6 million in the fourth quarter of fiscal 1997, including a $9 million restructuring charge to cover closing costs. Still, the company also had plans to open three stores in 1998: in Cincinnati, Cleveland, and Long Beach, California.