LOT$OFF Corporation

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LOT$OFF Corporation

8750 Tesoro Drive
San Antonio, Texas 78217-0555
U.S.A.
(210) 805-9300
Fax: (210) 804-4952

Public Company
Incorporated: 1975 as Shoppers World Stores, Inc.
Employees: 1,200
Sales: $106.19 million (1997)
Stock Exchanges: OTC
Ticker Symbol: LOTS

SICs: 5651 Family Clothing Stores; 5331 Variety Stores

LOT$OFF Corporation, formerly 50-Off Stores, Inc., operates approximately 40 discount stores throughout the United States, all of which offer products at closeout prices. LOT$OFF stores sell clothing for men, women, and children, as well as houseware items, toys, health and beauty aids, stationary, and gift items. LOT$OFF carries name-brand goods that are either surplus or slightly out-of-season, and thus can be marked down in order to sell quickly, as well as private label goods. The chain’s store units are located in Texas, Louisiana, Tennessee, Oklahoma, and New Mexico. Under its previous incarnation as 50-Off, the chain operated more than 100 stores and was active in several other states. Following emergence from Chapter 11 bankruptcy protection in 1997, the company adopted the name LOT$OFF and shifted from half-off to deep-discount pricing.

The Early Years

LOT$OFF traces its beginnings to 1975, when a company called Shoppers World Stores, Inc. was formed in New York to manage nine discount department stores in Texas that had just been purchased. The department stores carried merchandise that was also featured by its department store competition at regular high prices, but Shoppers World Stores marketed it instead at discounted prices.

After eight years of decently steady business and marginal success, in 1983 Shoppers World Stores, Inc. was reincorporated in Texas as the successor to the former New York entity. At its head was Charles Siegel, who had already accrued many years of retail experience, after entering the business in 1963 as a department store manager at King Clothing Company. Under his leadership, Shoppers World Stores continued to manage its discount department store chain, while also planning moves to expand.

Two years later, in 1985, the company acquired the inventory and entire holdings of five “Terry Farris” department stores from G.C. Murphy Company. With the acquisition, Shoppers World Stores received not only the stores’inventory, but also their property leases, furniture, display fixtures, and rights to all previous layaway sales. This allowed the new owners to continue business as usual immediately following the transaction.

Just one year later, the company was undergoing drastic changes, making moves to pare down its holdings following a mediocre business year. A recession in Texas was hitting the retail market hard, and Shoppers World Stores was falling as a casualty. Siegel decided to open an outlet store in San Antonio as a means of quickly moving out the company’s inventory from the other stores. The new outlet store unit was meant to be temporary, and was only 12,000 square feet. The store was called “50-Off,” and was supported by a strong advertising campaign which touted the store’s extreme low prices. Inventory was moved into the unit from other stores, and was tagged with both the original price and the discounted 50-percent-off price.

When the 50-Off store opened in January 1986, it was an immediate success. Siegel had done a good job advertising the store, in the hopes that people would stop in to get a last minute bargain before the other stores closed down. Management’s expectations were obviously far lower than the store’s potential, however, because people flocked to the store and business was great. The television commercials had worked like a charm, as had advertising gained by word-of-mouth after shoppers left the store with goods priced 50 percent below what they would have paid elsewhere. Siegel recognized a new niche with loads of potential, that of the discounted goods retail market. He quickly sold off all existing merchandise through the outlet store, and then made moves to bring in more discount items that would lend themselves well to the 50-Off concept.

Rapid Growth Throughout the 1980s

In September 1987, the company changed its name to 50-Off Stores, Inc. The stores continued the practice of tagging all items at their original “department store” price, totaling this original price at the check-out register, and then pressing a button that slashed the total in half in front of the customer. Customers loved the savings that appeared right before their eyes, and the practice was the store’s own method of advertisement. Word of mouth spread quickly, while further television advertisements were also highly effective. After beginning as a “temporary fix” to retail problems during the recession, 50-Off was actually a huge hit.

Most of the 50-Off stores’sales came from women’s apparel, followed by children’s apparel and then men’s, house-wares, and other items. The chain found that its typical customer was a female from a two-income family whose annual net earnings were in the category of $25,000 or less. The stores purchased items from vendors that were either suffering from surplus in stock, or who were still holding on to present-season or out-of-season merchandise. In either case, a vendor would be willing to cut 50-Off a good deal in order to rid itself of the merchandise, and 50-Off would then sell the items for just enough to make a profit.

In order to ensure that it would have access to any deals that were available, 50-Off s management hired highly knowledgeable buyers—most of whom had over 20 years of experience in the field—and then authorized each buyer to make any on-the-spot decisions or buys that he or she deemed necessary. This arrangement allowed the company to keep a constant and steady supply of goods in stock that were within the target customer’s price range. It also ensured that buyers would not have to pass up on quick deals in order to receive purchasing authorization from their superiors, which gave 50-Off an edge on acquiring merchandise at great prices.

Meanwhile, the store chain was continuing to grow. Management formulated a plan to open new store units near residential areas of low-income customers, or where other demographic information indicated that a deep-discount store would do well. Locations were considered only if and when the real estate costs associated with operating the proposed store totaled four percent or less of the location’s anticipated sales potential. All 50-Off stores ranged in size from 10,000 to 50,000 square feet, with the majority averaging 20,000 or above.

The 1990s and Beyond

By the beginning of the 1990s, 50-Off s business was booming and the company was responsible for over 50 stores that were in operation throughout the southern United States. The company decided to list itself as a public company, and offered shares of its stock to the public in July 1991. Management anticipated over $11 million in proceeds from the transaction, which was slated to be used as capital to fund further expansion into new market areas. At that point, the chain was located in Texas, Oklahoma, New Mexico, and Louisiana.

Following the public listing, plans were made to add Georgia to 50-Off s list with a strong entrance into the Atlanta market. In addition, the company was also hoping to open approximately 15 new store units in its present markets by the end of 1991. Sales rose to $130.1 million in 1992, and the company increased its store unit total from 68 at the beginning of the year to almost 100 by December.

Sales jumped to $181 million the following year, and continued to rise each subsequent year through the 1995 sales year, when 50-Off broke the $200 million mark for the first time in the company’s history. Celebration of that achievement did not last long, however, as the chain began to experience its first annual sales decline during the decade when 1996 sales dropped by more than $25 million. Apparel sales, which had traditionally been the chain’s strongest area, began to slump.

That same year the company filed for Chapter 11 protection and instituted drastic cutbacks, including closing 60 stores in half a dozen states, reducing its corporate staff by 25 percent, and slashing pay to top executives by 20 percent. The company’s sales for 1997 fell to $106.2 million. One bright note that year, in addition to the company’s eventual emergence from Chapter 11, was a $151 million settlement with Chase Manhattan for mishandling a 1995 company stock transaction two years earlier.

Entering the end of the century under a new name, LOT$OFF Corporation struggled to recover its standing as one of the premier discount retailers in the southern United States. Prior to the decline in earnings that had arisen in 1995, the company had enjoyed steady growth in its market areas and had created a viable niche for itself. Many critics had begun to compare the store chain to such giants in the industry as Wal-Mart, and had actually ranked the company ahead of Kmart in terms of total savings received by the customer. As LOT$OFF approached the end of the 1990s, its management’s response to the apparel sales problem and the general financial situation of the company would dictate the store chain’s potential for future success and growth.