Claire’s Stores, Inc.

views updated

Claire’s Stores, Inc.

3 S. W. 129th Avenue
Pembroke Pines, Florida 33027
U.S.A.
(954) 433-3900
Fax: (954) 433-3999
Public Company
Founded: 1961
Sales: $344.8 million (1996)
Employees: 6,650
Stock Exchanges: New York

SICs: 5632 Women’s Accessory & Specialty Stores; 5999 Miscellaneous Retail Stores

A fixture in malls for more than three decades, Claire’s Stores, Inc. and its subsidiaries lead the fashion accessory industry with over 1,500 stores in the United States, Canada, England, Japan, Puerto Rico, Scotland, and Wales. The company’s perennially popular women’s accessories (priced from $2 to $20, with a $4 average) were geared to females aged 13 to 40, a group analysts credited with over $90 million in disposable income each year in the 1990s. Despite an often sluggish economy and a fickle, faddish marketplace ruled by impulse purchases, Claire’s Stores’ guiding force, Rowland Schaefer, took his company from moderate success to phenomenal sales and profits in the 1990s (from about $190 million in fiscal 1990 to nearly $345 million in fiscal 1996). Through calculated expansion both in the United States and abroad, Claire’s Stores became the number one specialty retailer in the world, encompassing the Claire’s Accessories, Bow Bangles, Dara Michelle, The Icing, Topkapi, Arcadia, and Art Explosion names.

From Wigs to Accessories, 1961 through the 1970s

What became the Claire’s Stores, Inc. of today emerged from two entirely separate companies. Schaefer formed a company named Fashion Tress Industries (FTI) in 1961 to service the increasingly popular wig marketplace in the South. FTI’s quality hair pieces were a success with women of the early 1960s, and the company eventually became the world’s largest retailer of fashion wigs. Meanwhile, in the Midwest, a small chain of retail outlets named Claire’s Boutiques began selling a wide range of accessories from necklaces and earrings to evening bags and pins. Catering to women and teenaged girls, Claire’s Boutiques had tapped a rare market niche—when times were tough and people had little to spend, women and young ladies could purchase a few trinkets and accessories to make an old outfit seem brand new. In plush times, these same consumers continued to enhance their wardrobes by purchasing accessories for both old and new outfits.

By the dawn of the 1970s America’s fashion trends were changing and women began to turn away from wigs and concentrate on their own tresses instead. As demand for wigs waned, Schaefer looked into diversification and found it in Claire’s Boutiques. Based in Chicago with 25 retail outlets, Claire’s was still a relatively young enterprise yet with tremendous growth potential. Schaefer bought the midwestern chain and changed his company name from FTI to Claire’s Stores, Inc. in 1973. The transition from wigs to accessories proved relatively smooth, and despite some rough times in the early 1980s was a success. Yet few imagined just how successful the Claire’s stores would become in the next decade and a half.

Accessorize, Accessorize, Accessorize: The 1980s

By fiscal 1985 (the company’s fiscal year ended with the Saturday closest to January 31st) sales for the Claire’s chain reached $55.9 million with net income of $6.6 million. The following year, sales climbed to $74.5 million, income to $7.5 million, and stock traded as high as $15 on the New York Stock Exchange. Although sales continued to climb for fiscal 1987 to $87.2 million, net income fell to $5.3 million, an indicator of difficulties to come. Yet from sales alone, Claire’s appeared to be on the run, when fiscal 1988 hauled in $103.4 million in sales, and income was back in the black to $6.2 million. Even Claire’s Stores’ stock held steady at $13, until fiscal 1989 when it plummeted to $2 despite strong sales of $127.3 million and income of $7.1 million.

So what had happened? During fiscal 1989 Claire’s ambitious expansion plans took their toll on sales after a burst of openings and the acquisition of the Japanese chain Topkapi (16 stores, bringing total stores to 580). Same-store sales and earnings floundered in red ink during the spring of 1988. Yet Schaefer, aware of the too-aggressive expansion and a temporary loss of control over his ever-growing empire, tightened the reins and initiated a turnaround by the last two quarters of 1988 with Claire’s Stores’ stock regaining some of its lustre (back to $7) by the end of the fiscal year.

Part of the company’s turnaround was the implementation of a $5 million chainwide state-of-the-art computerized cash register and inventory system that linked Claire’s stores with headquarters. Daily data capture rose to 99 percent as opposed to 70 percent when performed manually by the Claire’s staff. The computer system and the hiring of Claire’s Stores’ first director of loss prevention further improved the company’s numbers by reducing “shrinkage” or theft of the thousands of small items available in each store, with the company keeping this figure to 10 percent or less (1986’s figure was as high as 12 percent of sales). Lastly, an increase in Asian imports accelerated gross earnings, and new management selected by Schaefer completely stopped the company’s hemorrhaging before any long-lasting or irreparable damage was done.

By May of 1989, three months after the end of the previous fiscal year, Claire’s posted an incredible sales surge of nearly 79 percent, with same-store increases of 58 percent. Though the company continued expanding, it did so carefully, and by July had 650 outlets in 47 states with some 4,000 employees, nearly two-thirds of whom worked part-time. Claire’s finished the year (fiscal 1990) with $190.2 million and a very healthy $19.5 million in net income.

Staying ahead of Competitors and Thriving, 1990-1995

Sales for fiscal 1991 increased 35 percent to $255.2 million, and income was up to $20.5 million partially due to a seven percent rise in same-store sales. The company’s stock was up again too—trading at about $14—almost as high as 1985’s all-time high of $15. Claire’s hoped to add between 125 and 150 new stores by the end of the fiscal year and had even revitalized its ordering system to keep a better tab on trends and delivering merchandise to its stores in far less time. By the spring of 1992 there were a total of 1,006 company-owned stores in 47 states, of these 721 were Claire’s, 113 were Topkapi, 32 Dara Michelle, 32 Arcadia, 20 Art Explosion, and another 90 under the name Art Works or Picture Show. The latter four chains were a departure from Claire’s Stores’ general trade in women’s and girls’ accessories. Arcadia and Art Explosion stores were considered “trend” gifts shops stocking calendars, mugs, t-shirts, seasonal and stationery items, unframed posters, and other quick-sale products with a price range from $1 to $75 and an average sale of between $5 and $10. Art Works and Picture Show outlets carried graphic arts, such as framed posters and many other types of matted and framed art work.

The end of the year, however, brought a vast turnaround as fiscal 1992 sales fell to $234.2 million, and Claire’s suffered its first loss since 1981. Led by a same-store sales drop of 11 percent, the stunning loss of $8.7 million was blamed on several factors, including too-rapid expansion again (such as ill-fated stores in outlet malls which proved redundant), markdowns on excessive Christmas and Easter inventories (which in turn compounded the problem by tying up space and keeping new merchandise from the shelves and racks), the discontinuation and disposal of the costly graphic arts line of stores (Art Works and Picture Show) for a sizeable hit of nearly $12 million, and lastly, the cost of increased security as Claire’s introduced cameras and locked display cases to lower theft rates.

While the company made adjustments to shore up losses and promote sales, Schaefer also looked into diversification. One option was a mail-order sideline with slightly higher-priced items; another was to duplicate the successful $130,000-proto-type store that Claire’s had opened in the Pembroke Pines Mall near headquarters, filled with black marble, mirrors, plenty of bright neon, mannequins, and several up-scale items like earrings with a price tag of up to $50. Despite its difficulties in the early 1990s, Claire’s was still considered a cash cow with some $22 million in cash in fiscal 1992. Additionally, Schaefer, who had long passed the traditional age for retirement (he was 76), sporadically talked about leaving the company or finding a buyer for his 41 percent share of Claire’s Stores, Inc. If those on Wall Street were concerned, few showed it for Schaefer was well-liked and respected throughout the industry, and most knew he would never leave his company unstable. Fiscal 1993 brought good news as sales rose to $248 million, and income was back in good form at $14.5 million. By July total stores grew to 1,060 (up from 1,040 the previous year) in 48 states.

Fiscal 1994 proved another successful year for Claire’s with $281.7 million in sales and income of 7.9 percent or $23.6 million. Costume jewelry, generally Claire’s Stores’ biggest selling item, dominated the company’s bottom line once again by accounting for $180.3 million or 64 percent of total sales. The same rang true in fiscal 1995 when costume jewelry sales reached $196.1 million of the year’s $301.4 million total sales with income at nine percent or $23.9 million. Yet 1995’s fiscal figures once again brought a red flag as same-store sales decreased two percent due to what the company deemed as the lack of a discernible “significant” fashion trend.

Company Perspectives:

Our customers know it’s hot. . . when they see it at Claire’s Because young fashion trends can change so quickly, Claire’s merchandising team continually monitors the television shows, movies and magazines that influence our customers’ taste in fashion. Claire’s size and international buying presence gives the company a unique ability to adapt to fashion shifts while they ’re just beginning to take shape.

Near the end of fiscal year 1995, the company bought a $7.4 million new distribution facility in Hoffman Estates, Illinois, a suburb of Chicago. Claire’s Stores’ other distribution facility, originally leased in 1985 and located in Wood Dale (another Chicago suburb) continued to service the company’s merchan dising needs (up to five shipments weekly to individual stores with the exception of imported goods like tote bags and costume jewelry) until the new facility was ready in June 1996.

New Acquisitions and What Lies Ahead, 1996 and Beyond

In January 1996, just prior to the end of the company’s fiscal year on February 3rd, a three-for-two stock split was declared by the board of directors in the form of a 50 percent stock dividend distribution (9.9 million shares of common stock and 653,807 shares of Class A common stock were given to stockholders of record). Also in January the company moved forward with the first of three major acquisitions, two in the United States and another in the United Kingdom. The first of the U.S. purchases (which counted towards fiscal 1996) involved assets from The Icing, Inc., which had filed for Chapter 7 protection. Assets included 85 property leases in prime locations, retail equipment, fixtures, and furniture. After remodeling, Claire’s planned to reopen the stores by May as either “Claire’s Accessories” (if no other Claire’s store existed in the mall) or as a refurbished “The Icing” if a Claire’s store was already in operation.

The second acquisition was a British fashion chain known as Bow Bangles, PLC. Purchased assets included 48 stores throughout England, Scotland, and Wales, as well as related fixtures, furniture, and equipment. Lastly, in April 1996 (fiscal 1997), the company acquired a third chain, Accessory Place, Inc., taking over 31 stores. This brought Claire’s Stores’ total number of outlets worldwide to over 1,500, with plans to open another 150 locations before fiscal 1997 ended (between 15 and 20 in Canada, 110 to 115 in the United States, and 30 more in Japan). Of the 1,500 stores, 142 were Claire’s Accessories stores with each averaging 919 square feet in enclosed and “open-air” malls.

For a start-up cost of about $95,000, using specially-designed display systems, each Claire’s Accessories store was ready for business within three months (a relatively short time in the retail industry) and well-stocked in women’s (and some unisex) fashion accessories (usually in excess of 6,000 pieces of merchandise) like costume jewelry (bracelets, earrings, hair ornaments, necklaces, pins, etc.), purses, sunglasses, tote bags, some trend gifts, and ear-piercing for a small fee. The other company-owned outlets under the Bow Bangles, Dara Michelle (the more up-scale outlet, with items priced from $5 to $75), The Icing, L’ccessory, and Topkapi names often operated within the same malls as Claire’s Accessories stores. This clustering of stores in successfully tested geographical areas kept administrative supervision costs to a minimum and made it easier for refurbishing stores, which the company did on a regular basis.

Although the first quarter of fiscal 1996 found same-store sales lagging, a turnaround began in April and continued. By the third quarter (in October 1995), Schaefer and the company’s management were jubilant over record sales and earnings. Stating that the year had proved to be “everything we expected it to be,” Schaefer further explained that customer traffic was “excellent,” average sales were higher, promotional costs were under budget, and markdowns had been unnecessary. Claire’s Stores’ finished fiscal 1996 with $344.9 million in sales (an increase of 14 percent over the previous year) and income of $30.9 million, including a rebound in same-store sales to three percent instead of 1995’s decrease. Costume jewelry sales remained strong at $244.9 million for about 71 percent of sales, six percent over 1995 and seven percent over 1994.

After three straight years of record sales and earnings, Claire’s Stores’ prospects appeared strong and steady as the company headed into the 21st century. Though how long Rowland Schaefer remained as president, CEO and chairman was yet to be determined, three other Schaefers—Sylvia (vice-president), Maria (vice-president, fashion merchandising) and Bonnie (vice-president, southeast region real estate) were trusted members of Claire’s Stores’ top management and well-versed in the elder Schaefer’s business savvy and poised to lead the company into the next century.

Principal Subsidiaries

CBI Distributing Corp.; Claire’s Accessories U.K. Ltd.; Claire’s Boutiques, Inc.; Claire’s Canada Corp.; Claire’s Nippon Co. Ltd. (50%); Claire’s Puerto Rico Corp.