Parisian, Inc.

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Parisian, Inc.

750 Lakeshore Parkway
Birmingham, Alabama 35211
U.S.A.
(205) 940-4000
Fax: (205) 940-4987

Private Company
Incorporated: 1880 as the Parisian Dry Goods & Millinery
Company
Employees: 6,500
Sales: $598 million
SICs: 5651 Family Clothing Stores

Parisian, Inc., is one of the most successful retail family clothing store chains located in the southern United States. Selling clothes lines similar to those found in Dayton-Hudson, The Gap, The Limited, and Bloomingdale’s, the company has been a highly regionalized operation, with stores primarily in Alabama, Tennessee, and Florida, but by the mid-1990s it was expanding nationwide. Parisian has been managed by the same family for nearly 70 years, and until the 1980s this stability helped the firm establish solid if not spectacular growth. However, the 1980s were boom years for the company. With sales hovering at $96 million in 1980, revenues skyrocketed to over $500 million by the early 1990s. Company sales have continued to grow rapidly, and management planned to aggressively expand operations.

The Parisian Dry Goods & Millinery Company of Birmingham, Alabama, was founded in 1880 by two sisters, Estella and Bertha Sommers. The store originally sold clothing and millinery at low prices. However, the Sommers sisters had financial difficulties from the start of their operation and were forced to move three times during a period of nine years. The two sisters sold their interest in the firm to Louis Gelders and G. W. Beringer in 1911, who renamed the store The Parisian Company. Lauren Bloch was hired as the general manager and, in turn, Bloch purchased the store from Gelders and Beringer in 1918. The new owner renamed his operation Bloch’s Parisian.

During the early 1920s, Carl Hess and his family had traveled from Germany to America in search of a better life. The Hess family settled in Memphis, and Carl worked a number of different jobs in the retail industry, including a position as buyer for a large department store in the center of the city. The owner of the store was a brother of Lauren Bloch, and when Bloch died his brother asked Hess if he wanted to acquire the Parisian Company. Hess jumped at the opportunity, moved his family to Birmingham, and arranged for a partner, William Holiner, to help him finance and manage the business.

Throughout the 1920s, the Parisian Company grew slowly. Selling clothing items and millinery, the small company had a difficult time competing with the larger stores in downtown Birmingham. In 1928, Hess and Holiner decided to move the location of the store into a larger building, thinking that the additional space and attractive quarters would attract many new customers. Unfortunately, the relocation proved disastrous. Away from the busier streets and pedestrian thoroughfares, the company began losing money. By the time the Great Depression swept across the United States, the company was in dire financial condition. Hess traveled to New York in order to purchase merchandise on credit; his wife became the head buyer of girls’ clothing, and Holiner managed the company’s day-today operations. Hess’s efforts were to no avail, however. As the depression grew worse, the company was forced into receivership in 1932.

Hess and Holiner turned to the First National Bank of Birmingham for help, and the bank assisted the owners in buying back the company from the court. One of the first decisions made after the reacquisition was to move the store back to the center of the city’s retailing district. By the end of the depression, the Parisian Company was slowly rebuilding its clientele and making a name for itself as a quality clothing store. When World War II started, both Hess and Holiner expected their profits to increase. But the government’s regulation on “excess profits” required that taxes were to be paid on most of the company’s earnings. In spite of this setback, Parisian Company was able to significantly expand its customer base during the war and established a firm financial framework.

When the war ended, the son of Carl Hess, Emil, and the son-in-law of William Holiner, Lenny Salit, joined the company. Emil Hess had earned an MBA from the Wharton School of Business at the University of Pennsylvania, and Salit had graduated from Dartmouth University and intended to pursue a career in retailing. With their fathers’ consent, the two young men arranged a meeting for all the company managers and began to assess the strength and weaknesses of the business. Although the firm was growing, Emil’s and Salit’s analyses uncovered many problems, including the absence of a regular customer base and the lack of brand-name merchandise.

Throughout the postwar period and the early 1950s, Emil Hess and Salit worked to correct the problems that they had identified. The two men initiated a comprehensive and aggressive merchandising program to bring in brand-name products and implemented numerous policies to improve customer service. One of the most important of these policies involved the creation of a six-month installment plan. Most of Parisian Company’s competitors offered their customers extended payment plans that carried interest charges of 1.5 percent per month, adding up to 18 percent per year. Hess’s and Salit’s alternative was to offer a six-month, interest-free credit account. With assurances from First National Bank of Birmingham, just as during the Great Depression, to provide funds necessary to cover increases in the company’s receivables, the new credit account was a rousing success. Shoppers flocked to the store during the early 1950s, and with its revenues growing, the company was able to concentrate on developing more policies that enhanced customer service, such as free gift wrapping, free mailing throughout the United States (except during holiday seasons), and a no-fuss return policy. One of the first retail stores in America to provide these services to its customers, Parisian Company began to stand out as one of the most reliable and professional clothing stores in the state of Alabama.

During the late 1950s and early 1960s, the civil rights movement had a profound effect on the company. Birmingham, Alabama, was the center of social unrest during this period, and a very small group of businessmen, including Emil Hess, tried to alleviate some of the indignities suffered by African-Americans in the city’s transportation system and government offices. All of their efforts, however, came to naught. When the Reverend Martin Luther King Jr. arrived in town, a boycott was brought against the retailers and merchants. Clothing stores such as the Parisian Company were asked by the African-American community to meet certain of their demands. The small group of businessmen lobbied hard on behalf of King’s requests, and most of the stores in Birmingham’s retail district complied.

Nonetheless, the experience of the downtown Birmingham boycott made a lasting impression on Emil Hess and his partner. As a result, in 1963 the two men decided to expand their operations and open a store in the city’s suburban Five Points West Shopping Center. Although the owners’ expectations were low, the customer response was overwhelming. Buoyed by the success of the company’s first suburban store, the two men immediately decided to open another outlet in the Decatur Gateway Shopping Center. This second store also garnered an enormous response from suburban customers. The lessening of racial tensions convinced Hess and Salit to open two additional stores in Birmingham, the Vestavia store in 1965, and the Eastwood Mall store in the last year of the decade. One of the milestones for the company had been reached in 1968 when Parisian Company was named “Brand-Name Store of the Year.” Management’s commitment to stocking its stores with designer labels and brand-name clothing made it very popular with consumers and resulted in huge financial rewards.

In 1970 Donald Hess, the son of Emil Hess, joined the company. A graduate of Dartmouth, Donald worked as a buyer under the direct supervision of Lenny Salit. After Salit died in 1972, Donald was promoted to general merchandise manager. A short time later he was appointed president of Parisian Company by his father. Donald Hess continued the expansion strategy that Salit and his father had initiated during the 1960s. A new store was opened in the Parkway City Mall in 1976 in Huntsville, Alabama, and additional stores in 1977 in Montgomery, Alabama, and in 1978 in Florence, Alabama. Sales continued to increase during this period, and by the end of the decade Donald Hess decided to take a close look at how he could best build upon the foundation that his father and Lenny Salit had established.

What Donald Hess discovered about the company in 1980 was not surprising. Parisian was one of the leading fashion specialty stores in Alabama, known for its moderate to expensive price range and high-quality merchandise. The company concentrated on providing its customers with leading fashion designs. Every store owned by Parisian Company had an impressive array of different kinds of merchandise, including men’s and women’s accessories, cosmetics, and apparel. Most important of all, however, was the reputation Parisian Company had established for its extremely helpful and courteous customer service. Many people drove their cars 50 miles or more to shop the nearest store.

During the 1980s Parisian Company was becoming known as a primary tenant, rather than a secondary tenant, in the development and building of suburban shopping malls. During the late 1960s and throughout the 1970s the firm was one of the companies selected for a mall site only after a store like Sears, Penny’s, or Dayton-Hudson had already signed a lease. By 1981, with the company’s store in the University Mall in Tuscaloosa, Alabama, Parisian Company was a primary tenant and one of the first companies the developers of the mall sought out to lease space. Parisian Company was in the enviable position among retail stores to make development plans for almost any suburban mall become a reality. The opening of its store in the Bel Air Mall in Mobile, Alabama, in 1983, and the opening of an additional store in the Madison Square Mall in Huntsville, Alabama, in 1984, were indicative of Parisian Company’s growing influence and prestige in the retail industry.

In order to raise the capital needed for Hess’s continuing expansion program, the family decided to take the company public in 1983. Maintaining control of the firm by selling a minority interest, on November 11, 1983, over 1.5 million shares of company stock were sold at $14.50 per share. A secondary offering was made in 1986 at $26.00 per share, and this contributed additional equity in the amount of approximately $18 million. With this money, Hess was able to open new stores in Riverchase, Dothan, Pensacola, and Chattanooga. The first of the company’s out-of-state stores was opened in Atlanta, Georgia, in 1986. Two of the most important indicators of performance within the retail industry are inventory turnover and sales per square foot. In 1985, with all of its stores operating at full capacity, the company reported an inventory turnover rate of 3.7. This meant that all the merchandise in Parisian Company stores totally changed in less than four months, one of the best turnover rates in the industry. During the same year, the firm reported sales of $255 per square foot of selling space on the store floor, approximately twice the national average for all department stores.

By 1988 Emil Hess was semiretired, and Donald Hess had assumed full responsibility as the company’s president and chief executive officer. Even though he was the force behind taking Parisian public in 1983, there still wasn’t enough money to fulfill his plans, and Donald Hess remained dissatisfied with the pace of the firm’s expansion. As a result, in 1988 Hess brought in a partner whom he thought would contribute funding for expansion. The U.S. branch of Hooker Company, an Australian holding firm that had already purchased Bonwit Teller and B. Altman, acquired Parisian for $250 million and agreed to make $125 available to Hess for his expansion program. Unfortunately, the highly leveraged buyout for Hooker misfired when a recession hit the United States in the late 1980s and easy financing for such ventures abruptly ended. Hooker filed for bankruptcy and its U.S. holdings were sorely threatened.

Since most of its stores were located in the South, Parisian survived the recession and Hess bought Hooker’s interest in the company for $31 million. But now the company was loaded with debt and, since Hess still wanted to continue his expansion program, he sold a 45 percent interest in the firm to Lehman Brothers in July 1990. Once again a private company, Parisian had the financial wherewithal to open new stores with the influx of approximately $35 million provided by Lehman. Nine new stores were opened with this money by 1992. Yet Hess seemed insatiable for even more Parisian outlets. In 1993 he decided to take the company public again to finance more store openings, but he was forced to withdraw the public offering when Wall Street brokers did not express enthusiasm for retail department stores. These setbacks did not affect Donald Hess at all. In 1994 Parisian opened five new stores, including locations in Detroit, Michigan, and Nashville, Tennessee.

Although not as cautious as his father, Donald Hess has built a solid reputation for Parisian, Inc., as one of the premier department stores, equal in quality to Dayton-Hudson, Nordstrom, or Lord & Taylor. Hess’s expansion program has provided the company with a higher profile, and Parisian is no longer viewed as a chain of southern stores catering to a localized, southern clientele. Only time will tell whether Donald Hess’s aggressive expansion program benefited the company over the long term.