Old America Stores, Inc.

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Old America Stores, Inc.

811 North Collins Freeway
Highway 75 North
Howe, Texas 75459
U.S.A.
(903) 532-3000
Fax: (903) 532-6708

Public Company
Incorporated: 1980
Employees: 1,800
Sales: $134.6 million (1995)
Stock Exchanges: NASDAQ
SICs: 5949
Sewing, Needlework & Piece Goods; 5999 Miscellaneous Retail Stores, Not Elsewhere
Classified; 6719 Holding Companies, Not Elsewhere
Classified

One of a handful of retailers who redefined the arts and crafts industry during the 1980s and 1990s, Old America Stores, Inc., through its wholly owned subsidiaries, Old America Store, Inc. and Old America Wholesale, Inc., operates a chain of stores that feature a vast selection of craft, framing, floral, and home decorating products. With 95 stores scattered throughout 25 states, Old America ranked as one of the leading multiregional arts and crafts chains in the United States, drawing the majority of its business from its chief areas of operation in the Southwest, Midwest, and Southeast. The company’s stores, which ranged in size from 12,000 to 40,000 square feet, were primarily located in small and medium-sized towns and stocked roughly 28,000 products. Although described as an arts and crafts retailer, Old America did not derive the bulk of its sales from the retail sale of traditional arts and crafts items. Instead, the company focused its efforts on selling silk and dried flowers, picture frames, and prints, the fastest growing and most profitable segment in the arts and crafts industry during the 1990s. The company’s flower, picture frame, and print sales, which accounted for 53 percent of its total sales in 1995, were enhanced by free framing services, including while-you-wait service for ready-made frames, and free floral arrangement services, provided the framing and floral materials were purchased at the company’s stores. Based in Howe, Texas (55 miles north of Dallas) Old America relied on a 96,000-square-foot distribution center adjacent to its executive offices to serve as the primary waystation for its merchandise.

Arts and Crafts Industry during the 1980s

The most successful retailers during the 1980s were those who aped the prevailing trend of merchandising on a mammoth scale. Big was better for retailers of all types during the decade, as the benefits of volume purchasing and a broad merchandising mix manifested themselves in the proliferation of massive retail units and the decided rise in the number of national and multiregional chains. Small retail establishments, once pitted against much larger stores that offered greater product selection at substantially lower prices, watched their business decline in the face of the sprawling national giants who usurped their markets and drew away their customers. The era of individually operated, “mom-and-pop” stores was coming to an end. The race was on to see who could secure the greatest number of markets first, a chess game that more often than not resulted in national and multiregional chains reigning victorious at the expense of small, privately owned retailers. One company that could count itself among the winners during the 1980s was Old America, a retailer that began its corporate life as a small, unassuming company and then expanded vigorously, wholly embracing the strategy of operating as a large volume purchaser with a broad merchandise selection.

Like the U.S. retail industry as a whole, the arts and crafts retail industry became the domain of large-scale operators during the 1980s. In an industry that, historically, had been highly fragmented, or primarily composed of small specialty shops and variety stores, competition was intense, but generally limited to small areas, with one small store doing its best to secure a hold on its local market and fend off a small number of independently operated rivals. Though the arts and crafts market amounted to a considerable sum on a national basis, there were essentially no arts and crafts retailers who could boast that they controlled an appreciable portion of the industry’s national market. This characteristic of the industry began to change during the 1980s when a few specialty retailers recognized the growth that could be achieved by greatly expanding the square footage of an arts and crafts store, stocking that store with a vast array of products, and transforming this retail prototype into a regional or national chain. These retailers were the“winners” in the arts and crafts industry during the 1980s and the companies that ranked as the dominant forces during the 1990s. Old America’s development during the 1980s and the description of its operations during the 1990s exemplified what it took to be an industry leader in the arts and crafts industry.

The Birth of Old America

The course of Old America’s development during the 1980s neatly framed the arts and crafts industry’s decade of change, beginning with the establishment of the first Old America store in 1980. Although the company’s pace of expansion would be at its greatest during the 1990s, when the number of retail units more than doubled during the first half of the decade, Old America by no means remained idle during the 1980s. Instead, the company spent its formative years establishing itself as one of the new breed of retailers that were altering the composition of the arts and crafts industry. By the end of the decade, the company had developed into a multiregional chain, quickly adding to the solitary store opened in 1980. With the exception of an acquisition completed in 1988 that gave Old America two stores, all of the company’s stores established during the 1980s were funded principally by equity capital, borrowings, and internally generated reserves of cash. Eschewing the acquisition of existing retail establishments, Old America erected its own stores, developing into a chain with a strong presence in the Southeast, Midwest, and Southwest.

By establishing a network of stores (more than 40 were opened during the 1980s), Old America was able to realize the cost efficiencies achieved by purchasing its merchandise in large amounts. This, in turn, allowed the company to price its merchandise significantly lower than the small, independent competitors who constituted the bulk of the company’s competition. From the beginning of its expansion program, Old America stuck to its strategy of establishing stores in small and medium-sized towns, thereby ensuring that much of its competition consisted of small, locally owned and operated retail outlets. The company’s penchant for small and medium-sized towns also kept the price of establishing new stores to a minimum, positioning it where real estate and labor prices were substantially lower than in cities.

The location of Old America stores was a distinctive characteristic of the company’s operations; so too were the products that filled the shelves of its retail units. Inside a typical Old America store, roughly 28,000 products were stocked, the breadth of which distinguished the company’s stores from the small, independent outlets against which it competed and the composition of which differentiated Old America from the national and multiregional arts and craft chains. By stocking a far greater number of products than its direct rivals, Old America held an obvious advantage over the smaller stores situated in the company’s market areas. Given a choice of frequenting a store with a limited supply of arts and crafts items or a store that stocked a vast array of merchandise, customers generally opted for the latter and flocked to the superior merchandise selection housed in Old America stores. The fact that the company’s retail units offered their broad range of merchandise at prices significantly lower than the prices charged at the less well-stocked stores of its competition further strengthened the company’s customer-drawing power, giving Old America a basic formula for success in the small and medium-sized towns where the company operated the majority of its outlets.

Other arts and crafts retailers could claim a variety of merchandise as bountiful as Old America’s, particularly the national and multiregional chains that, along with Old America, were changing the dynamics of the arts and crafts industry during the 1980s. Operators such as Michaels Stores, Inc. (Old America’s chief competitor), M. J. Designs, Inc., Hobby Lobby Stores Inc., and Amber’s Stores, Inc. stocked a full array of merchandise as well, but Old America distinguished itself from its larger-sized competitors by the makeup of its merchandise mix. As the company developed into a steadily growing chain during the 1980s, the unique composition of Old America’s merchandise stood as the hallmark of its success, predicating the company’s business during the 1990s.

Although the company carried a broad selection of decorative accent products and craft supplies for do-it-yourself home decorators and craft hobbyists, it did not derive the majority of its business from the sale of traditional arts and crafts items. Instead, Old America concentrated on selling picture frames and flowers, which typically yielded much higher profit margins than could be realized from the sale of traditional arts and crafts products. The merchandise strategy to focus primarily on the sale of flowers and frames proved to be a boon to Old America’s business, positioning the company in the fastest growing segment of the arts and crafts industry. There was more to the company’s strategy, however, than merely stocking store shelves with a preponderance of silk and dried flowers and picture frames. Unlike most of its competitors, Old America offered free floral arrangement and framing services to customers who purchased materials at company-operated stores, adding an extra enticement to lure customers through the doors of Old America’s.stores. The free services increased the volume of sales of high-profit-margin merchandise and led to impulse purchases of other merchandise, rounding out the company’s business strategy with an innovative flair and giving the company a winning formula to carry it into the 1990s.

Company Perspectives:

Our formula for growth is simple: Satisfy our customers. Old America’s 1,800 associates are committed to this goal, and our team is better trained and prepared than ever before to make it happen.

Rapid Growth during the 1990s

As Old America entered the 1990s, it embarked on the greatest period of growth in its history. The company opened more stores during the first half of the 1990s than it had during the first ten years of its existence, recording a pace of growth that extended the company’s presence throughout half of the United States. As the company’s expansion program moved forward during the 1990s, it did so in the same fashion as it had in the past: new stores were primarily situated in strip shopping malls near major thoroughfares and small and medium-sized town were selected over larger population centers. In 1991, five new stores were established, giving the company a total of 52 stores by the end of the year. As a national economic recession intensified during the early 1990s, making the going particularly rough for retailers throughout the country, Old America moved aggressively forward, its expansion unchecked by a stifling economic environment. Ten new stores were opened in 1992, 12 more were established in 1993, when the company completed its initial public offering of stock, and a record-setting 17 stores were opened in 1994, lifting the number of Old America stores to 91 after the four-year spree of new store openings.

At this point in the company’s history, as the pace of expansion slowed, Old America’s management initiated meaningful changes that were expected to strengthen the company’s position during the late 1990s. While the company was busily establishing 17 new stores in 1994, it also took time to conduct a review of its merchandise policies. Following the review, company officials resolved to trim the inventory and selling space devoted to furniture products and to certain craft categories. Management also formulated a more aggressive policy concerning product markdowns to invigorate inventory turnover and speed the introduction of new products. On the heels of these changes, the company launched a store renovation program in late 1994 aimed at increasing store productivity, quickening inventory turnover, and improving the financial performance of the company as a whole.

By late 1995, the store renovation program was completed in 87 stores, each of which contained a wide center aisle the company called a“power aisle.” The addition of the wide aisles was expected to accelerate the company’s ability to turn over its fastest selling merchandise and provide a highly visible location for the fastest selling items of each season. Concurrent with the creation of power aisles, the company committed itself to offering a greater selection of merchandise associated with the three longest seasons in the crafts industry—spring, fall, and Christmas—and, to a more limited extent, with the Easter and Halloween seasons.

Future Expansion

By the end of 1995, after establishing three new stores during the year, Old America operated 94 stores, 48 of which had been opened during the previous five years. The company’s area of operation by this point covered a 25-state area, with the greatest number of outlets located in Florida, where the company operated 14 outlets, and in Arizona and Louisiana, where there were 11 stores in each state. Another store was added to the company’s network of outlets in Louisiana in August 1996, when a store opened in Hammond that represented the prototype for future Old America stores. With decor, floral, and framing merchandise occupying 75 percent of the store’s 20,000-square-foot floor plan, the Hammond store exemplified Old America’s stature as a home decor store with some arts and crafts merchandise, rather than as a genuine arts and crafts retailer.

As the Hammond store was recording a highly successful grand opening, the company was pursuing the objectives it had laid out for 1996, which included opening as many as 16 stores during the year. Given the company’s exemplary record of expansion throughout its history (only six stores were closed during Old America’s first decade and a half of business), the addition of further units in 1996 and during the late 1990s promised to add to the company’s strength. With plans to accelerate expansion during the late 1990s, Old America appeared destined to remain among the ranks of the country’s premier arts and crafts retailers.