Variety Wholesalers, Inc.

views updated

Variety Wholesalers, Inc.

3401 Gresham Lake Road
Raleigh, North Carolina 27615
U.S.A.
Telephone: (919) 876-6000
Fax: (919) 790-5349
Web site: http://www.vwstores.com

Private Company
Founded: 1932
Employees: 7,500
Sales: $502 million (2003 est.)
NAIC: 452111 Department Stores (Except Discount Department Stores)

Privately held Variety Wholesalers, Inc. is a Raleigh, North Carolina-based operator of several discount retail chains, offering a wide variety of clothing and accessories, housewares, health and beauty aids, sporting goods, toys, snack foods, and furniture. All told, the company owns about 550 stores located in southeastern and Mid-Atlantic states, including Delaware, Maryland, Virginia, West Virginia, North Carolina, Kentucky, Tennessee, South Carolina, Georgia, Florida, Alabama, Mississippi, Arkansas, and Louisiana. The units are divided among three primary divisions. More than 200 stores in the 5,000- to 10,000-square-foot range make up the Super 10 Division. In addition to the Super 10 name, these stores operate as "Pope's," "Eagle," and "Super Dollar" stores. Slightly larger stores, 10,000 to 30,000 square feet, form the 150-plus Maxway Division, operating under the Maxway banner. Finally, the stores in the Rose's Division range in size from 30,000 to 70,000 square feet, all operating under the Rose's name. In addition, some Variety stores operate under the Bargain Town, Treasure Mart, and Value Mart Super Center names. The company is headed by the patriarch of the Pope family, John W. Pope, Sr., known as a keen retailer, able to buy struggling retail chains and turn them around, and a man not afraid to close failing stores. Business, North Carolina in a 1999 profile, described Pope as frugal: "Some might say downright cheap. His stores can go 15 or 20 years without a makeover." He shies away from larger markets, avoiding going head-to-head with Wal-Mart, for example, preferring instead areas that have minimum populations of 2,500 within one mile of a site, at least a 25 percent African-American population within five miles, and a median household income of less than $40,000. He also likes second- or third-generation shopping centers, especially ones anchored by a supermarket.

History Dating to the 1930s

Variety traces its history to 1932 when John Pope's father, James Pope, himself the son of a dry-goods store owner, opened a five-and-dime store in Angier, North Carolina. John Pope learned the business as a child and was known to sleep under the counter on Saturday nights when his father kept the store open until midnight to attract the business of farming families who came in town for the movies and might stay to shop after the show was over. Pope also picked up some shrewdness from his father, who was quick to realize that as war approached in the early 1940s there were shortages to come, so he stockpiled goods in anticipation. As a result, he was able to open additional stores in North Carolina. When the United States entered the war, John Pope, despite being 17, was in his second year at the University of North Carolina, where he majored in Commerce. His father called him home in 1942 to take the place of a manager who had entered the military, but the younger Pope wanted to enlist in the service. He was not of age and his father refused to sign the permission form, and so in an act of defiance, John Pope convinced a woman at the store to forge his mother's name and he left home to join the Army Air Force. Although trained as a navigator he never saw action, was discharged in 1945, returned to college, and graduated in 1947.

With his savings and backing from his father, who apparently forgave his insubordination, John Pope launched his own business career, which in the beginning was a string of failures that included a jewelry store and a wet-mop factory. In the meantime, his father died, leaving the five-and-dime stores he owned to his brothers. They had no interest in running them, however, and sold out to John Pope and his two brothers in 1949. John Pope then bought out his siblings two years later and began to grow the business, relying purely on cash flow for the next 20 years. In 1953 he opened his first self-service dime store, and then in July 1957 incorporated his business in North Carolina as Variety Wholesalers, Inc. Pope proved nimble in adapting to a changing marketplace, quick to make the transition from the full-price dime stores his father founded to the variety store format of the 1950s and early 1960s. Veteran retailers including Woolworth failed to follow suit and eventually fell by the wayside, while others, such as Sam Walton, who started his retailing career by owning a Ben Franklin franchise switched from variety stores to the discount store format. Pope carved out his own niche, concentrating on small southern and Mid-Atlantic towns and pursuing the downmarket business of the "dollar store" in the 1970s, and later turned to a mix of formats in the 1980s and 1990s.

Pace of Expansion Picking Up in the 1970s

After reaching the 50-store mark and generating about $8 million in annual sales, Variety began to accelerate its growth in the 1970s, as many of the small family-run dime store and variety store chains were now in the hands of second-generation owners, many of whom were Pope's friends and whose children were not interested in taking over the business. Pope would buy the chains and convert them to his lean way of doing things. In 1971, for the first time taking on debt to make a deal, he acquired the North Carolina chain of 52 Eagle Stores, which produced about $10 million in annual revenues, a move that effectively doubled Variety's size. Next, Pope bought 54 McCrory/United Stores in 1978, followed two years later by the acquisition of 188 Value Mart Stores, mostly located in Alabama, Louisiana, and Mississippi. In 1981 Variety added the 145 Super Dollar Stores, which relied on advertised sales to bring in customers. Many of Pope's other stores pursued a similar strategy, but again the retail landscape was changing, forcing Pope to adjust once more.

The legal requirement that retailers abide by the "manufacturer's suggested retail price" had started to be discarded in many states during the 1970s. As a result, the large chains could use their economies of scale and purchasing power to buy and sell merchandise at a discount, putting the squeeze on smaller players. After acquiring 55 P.H. Rose's variety stores in 1984, Variety was operating close to 400 stores under the Pope's, Value Mart, Super Dollar, and P.H. Rose's names. But the company was under pressure from discounters such as Wal-Mart which were sweeping across the South. The old formula of heavily advertising loss leader items at or below cost in the hope that customers would also buy profitable items as well was no longer working, forcing Pope to close stores in the wake of decreasing sales. Pope read in a trade journal about a California merchant who was taking a different approach, giving up on sales and instead offering all items at or below an everyday threshold price. After 1985 brought a 10 percent drop in sales for Variety, he decided to try out the new formula on 15 failing stores that he would have to close if they did not turn around soon. Now called Super 10, the stores priced everything at $10 or less. The experiment worked and over the next few years Pope applied the concept to other stores. To gain an edge he ceased advertising altogether, relying on the consistent pricing approach to bring back customers.

Using different formats, and by a willingness to close stores that could not be saved, Variety was able to rebound from the lean years of the mid-1980s and continue to expand through acquisitions, picking up the pieces of retailers who proved less adept at changing gears. In 1989 Variety acquired 106 stores from Allied Department Stores/Savannah Wholesale Co. from Michigan General Corp., a company that had recently emerged from Chapter 11 bankruptcy protection. A year later Variety added 33 Maxway stores, acquired from another company in Chapter 11. The units, mostly located in North Carolina, Georgia, and South Carolina, were then converted to an everyday low-price format. In 1992 Variety acquired 60 Bargain Town stores, almost all of which were located in Alabama, Georgia, and Mississippi.

By 1995 Variety owned about 550 stores, although that number fluctuated as Pope continued to show no hesitancy in shutting down struggling units. Pope employed a number of relatives, including son John Pope, Jr., and Art Pope. The former retired from the business in 1995 to concentrate on "his personal finances and his golf game," according to the father. John, Jr., a Duke law school graduate, had other interests aside from retailing and golf. He also was devoted to Republican politics, serving as a state representative from 1989 to 1992 before losing his bid to become North Carolina's lieutenant governor. He also chaired the conservative John Locke Foundation, a Raleigh organization he helped to found, and which the Pope family helped to fund. It was somewhat ironic that a couple of years later he would meet a drug saleswoman at a Christmas party who was an active Democrat and marry her, a situation that would prove nettlesome down the road. His younger brother Art was also a lawyer, serving as Variety's legal counsel and chief negotiator. He harbored no illusions that he possessed the retail instincts of his father, who despite his mounting years remained very much in charge of the company.

Company Perspectives:

Our mission is to provide our customer the very best values and quality merchandise at "Everyday Low Prices." Our focus is on apparel for the entire family complemented by other merchandise categories including candy, snacks, health and beauty products, household sundries, housewares, home furnishings, toys and seasonal products, all at "Everyday Low Prices."

Acquiring Rose's in the Late 1990s

In 1997 Variety acquired Rose's Stores Inc. to go with the 55 P.H. Rose's variety stores it bought 20 years earlier—another example of Pope picking the bones of a less flexible retailer. Rose's had an even longer history than Variety, its origins dating to 1915 when Paul Rose opened a general store in North Carolina's Henderson County. Rose built up a chain of dime stores and in 1960 began opening large discount stores, on which it eventually elected to focus, selling the smaller formats to Variety in the 1980s. By 1990 the chain totaled 260 stores, but more than half were in markets occupied by giant competitors Kmart and Wal-Mart. Moreover, management had lost its edge and failed to keep pace with current business practices, was slow to computerize the accounts, and even failed to adopt other standard industry money-saving techniques. After the last of the Rose family left in 1991, a new management team, headed by a former Target executive, was unable to turn around the chain and compete against Wal-Mart large-format stores by concentrating on cheap clothing and beauty and health supplies. The company was forced to enter Chapter 11 bankruptcy protection in 1993, and when it emerged in 1995 the chain had been cut in half to 106 units. Pope made a bid for the assets in 1996, offering a $20 million loan for a 65 percent stake, a move that would have given Variety a chance to acquire the chain if it returned to bankruptcy. That and a second offer were rejected, and it appeared that Rose's faced liquidation. Then Art Pope persuaded his father to make one more attempt. This time the two sides were able to reach a $19.2 million cash deal that closed in December 1997.

Variety quickly imposed its own operating strategy on Rose's, applying the everyday pricing strategy and dramatically cutting back on the advertising budget. Instead of producing a circular every week, the chain now offered a monthly advertising piece. Previous management had been ready to make some of the same changes, but the chain carried too much debt and its poor reputation made suppliers wary to ship merchandise to the stores. No such fears existed with Variety, which was not hindered by the fear of creditors as it worked to turn around Rose's. Although sales fell off, Variety was able to squeeze a profit from Rose's in the first year.

John Pope continued to run his collection of retail stores well into his 70s, converting some to new smaller express formats while continuing to show no reluctance about closing stores. Since the 1980s it was estimated that he had closed about 500 stores, or about the same number as Variety operated in 2004. His announced goal was to reach $2 billion in sales by 2007, at which point he would be 83 years old. Because Variety was guarded about its business, it was uncertain if Pope's dream was on pace.

Pope would, however, outlive his eldest son, John, Jr., who died of a heart attack at the age of 53 in March 2004. According to court records Art Pope and sister Amanda Pope then moved about $100 million in company stock from their brother's personal trust fund into a family foundation, which they said was in keeping with the individual trusts the siblings had established in 1986. According to the Associated Press, Art and Amanda Pope maintained that the trusts were designed "to bypass spouses and go to the family's foundation when they died, unless they had a birth child; John Pope, Jr., had only a stepdaughter." As a result of the transfer of stock, the stepdaughter and John, Jr.'s, wife, Jane, were prevented from receiving about $50 million, or half of the trust fund. They received about $4.2 million from a separate estate. Jane Pope filed suit to stake a claim to the money, with the situation complicated by her willingness to donate money to Democratic candidates, which was not well received by her Republican-leaning in-laws. The Pope family also was facing criticism at John Pope, Sr.'s, alma mater, The University of North Carolina. The Pope Foundation proposed funding a new Western cultures program at the school, leading to protests from students fearful that the program would simply become another way for the Popes to espouse their conservative views. For their part, the Popes dismissed the students as "radicals." No matter what their politics or how they chose to divide their fortune, the Pope family remained master retailers, able to find profit where others failed.