Clothestime Chain Plans to Double Number of Stores
Michelle Popp strolled into Clothestime to kill a few minutes before a haircut.
But the 18-year-old Westminster restaurant hostess came within a hair of improving her wardrobe instead of her hair style. “I can walk in here and buy things I could never afford in a mall,” she said. “I can buy a dress here for $20 that costs $70 at a department store.”
Clothestime executives are counting on the Michelle Popps of the world to help the Anaheim off-price chain achieve what could be one of the most ambitious goals in the junior apparel industry--massive growth at a time when industry analysts say the core market of teen-age consumers is shrinking.
The 234-store chain plans to more than double the number of its stores over the next five years, to a total of 500. At the same time, it expects to see sales jump to $500 million by 1991--nearly quadruple its current sales.
When its shareholders gather at the company’s annual meeting Friday, Clothestime executives will detail growth plans to turn the mostly Western regional retailer into a national chain. Over the next five years, the company plans to invade the Midwest and East Coast and to make Clothestime a household name.
Even with the so-called graying of America--and concurrent compression of the teen market--Clothestime is going gung-ho for the bubble-gum-chewing, Walkman-wearing, Volkswagen-driving teen-age girl whose fashion fancies change faster than Top 40 hits.
“It’s a kinky, kooky and trendy business,” said John Ortega II, who co-founded the company, which now employs 2,500, from the stall of an Orange County flea market in 1979. The three other founders are brothers Michael and Raymond DeAngelo and their father, August DeAngelo.
Until now, the company has seen the most growth in California, where it now has 140 stores. Earlier this month, it opened a dozen stores in California in a single day.
The rapid growth has been accompanied by solid profits. Over the past three years, the company’s profits have increased by an average of 98.3%. Last year’s profits of $10 million were more than triple the $3.3 million profits of the previous year. In a ranking this week of the nation’s 100 fastest-growing small companies, Business Week put Clothestime 18th on its list.
But some retail analysts suggest that the company should slow its growth in new markets . “Clothestime has a lot of expansion potential, but it is going into regions of the country where it is not yet known,” said Keri Christenfeld, a securities analyst at Montgomery Securities in San Francisco. “The name Clothestime still doesn’t mean anything in the Midwest.”
At a time when most competitors are diversifying into less-fickle fashion markets, Clothestime’s juniors-only format leaves the company with few competitors in its discount niche. One competitor, Pic-a-Dilly, failed to attract much business when it was owned by Lucky Stores Inc., and it was sold a few years ago to the Limited.
Ironically, Clothestime’s harshest competition doesn’t come from discounters such as Pic-a-Dilly, Ross Stores or Dress Barn, but from major department stores. “Most of the big department stores have been forced to become discounters themselves,” said Steve Ginsberg, West Coast bureau chief of Women’s Wear Daily.
To avoid competing with department stores in more than one sector, Clothestime recently abandoned its short-lived attempt to expand into fashions for career women. The company had hoped to persuade working mothers to buy apparel at the same store as their teen-age daughters.
Sales Dip
Although that decision was probably a wise one, it has hurt sales at least temporarily, Christenfeld said. Clothestime’s first quarter comparable store sales fell 2%, she said. Clothestime executives dismiss the drop as a short-term dip. When the store dumped the career women’s lines, it lost some revenue--but it also lost a big headache, they say.
In fact, that unsuccessful 18-month marketing move resulted in the ouster of former Clothestime President Gordon Nielson, and it brought the company’s founders back into a more active role at the company.
With its focus now narrowed to the teen market, the company plans to open stores next year in Chicago, Detroit and Washington. And by 1988, it plans to invade the toughest retail market of all--New York City.
But the stores will be smaller there, and the initial advertising budgets will be larger. “We’re practically on every corner in California, but on the East Coast nobody knows us,” Ortega said. “As we go East, we don’t want to stub our toes, so we’ll cut our stores down in size there.” The stores could be half the size of the typical 4,300-square-foot Clothestime in California.
Clothestime buyers will also have to adjust to the need to supply colder-weather fashions back East. But Clothestime already has nearly half its buying staff in New York. And the company has learned a lot about colder climate fashions at its stores in Colorado and Washington state.
Population Studied
In choosing locations, Clothestime uses computer studies to pinpoint areas most heavily populated by families with teen-age girls. And if the store is in a new market, the company relies on monthly mailings of glossy brochures to make its name known.
Clothestime has assembled an extraordinary mailing list of more than 1.5 million names. It purchases some names from teen magazine subscription lists and gets others from customer sign-up sheets at its stores. The week after a mailing, sales typically double at stores, company officials said.
Low prices have been Clothestime’s best calling card. To save money, the company leases all of its stores--most of which are opened for less than $100,000. But the real key to the discount prices is the company’s penchant for buying “opportunistically”--at least 25% below wholesale prices from its 600 domestic vendors, said Vice Chairman Raymond DeAngelo.
Critics, however, say that consumers eventually pay the price for cheaper merchandise. “The fashion-conscious person isn’t looking for off-price merchandise. It may be defective, and it’s usually out of style,” said Marcia Israel, president and chief executive at Judy’s Inc., a Van Nuys junior clothing store chain.
But Clothestime executives maintain that their clothing is top-quality and up-to-date. They say they just buy--and sell--it at low prices.
Imported Items
And in a bid to offer even lower prices, Clothestime plans to begin importing some of its items from Hong Kong, Korea and Japan, said Michael DeAngelo, the company’s chairman.
“We don’t try to set the trends; we react to what the customer wants,” Michael DeAngelo said.
Clothestime asks customers to fill out “report cards” grading the company on everything from pricing to selection. These cards are read carefully by the company’s senior executives--who respond immediately to complaints.
It was customers’ comments that recently persuaded management to enlarge the size of the stores’ dressing rooms and also to put seats inside them.
“You can’t ask your customers too many questions,” Ray DeAngelo said. CLOTHESTIME AT A GLANCE
(projection) FISCAL YEAR 1983 1984 1985 1986 1987 NET INCOME 1.13 2.42 3.31 10 12.75 (millions) REVENUES 45.97 68.36 98 126.53 165 (millions) NO. OF STORES 98 125 155 190 265
Source: Clothestime, Inc.
