The Clothestime, Inc.

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The Clothestime, Inc.

5325 East Hunter Avenue
Anaheim, California 92807
U.S.A.
(714) 779-5881
Fax: (714) 779-0512
Web site: http://www.clothestime.com; http://www.ctme.com

Public Company
Incorporated: 1974
Employees: 4,666
Sales: $308.20 million (1996)
Stock Exchanges: NASDAQ
SICs: 5621 Women’s Clothing Stores; 5632 Women’s Accessory & Specialty Stores

The Clothestime, Inc. is a retailer of discount sportswear, dresses, and accessories for junior-sized women ages 15 through 35. The chain sells quality merchandise at the lowest possible prices, typically offering branded merchandise at 30 to 70 percent less than the retail prices suggested by manufacturers. The company’s subsidiary—Lingerie Time—sells off-price intimate apparel in companion stores next to selected Clothestime establishments. Clothestime stores in some outlet malls operate under the name Trend Club.

From Flea Markets to a Chain of Stores

During the early 1970s, a group of business partners visited flea markets and bought interesting items to resell to retailers in southern California. By 1974 the partnership—which included Ray DeAngelo and John Ortega II—settled into conventional retailing and opened their own store called Clothesline. Shortly after starting out, however, the partners changed the store’s name to Clothestime when another retailer filed a lawsuit, claiming ownership of the rights to the Clothesline name. Undeterred, DeAngelo and Ortega developed their retail concept into a chain of stores under a different name.

With a motto of “always in fashion, never full price,” Clothestime attracted enough fashion-conscious but financially conservative women to establish stores throughout the West Coast, particularly in California. Each store averaged about 4,000 square feet in size and stocked a variety of in-season sportswear, dresses, career wear, and accessories for women. Approximately 50 percent of the items carried were fashion merchandise, while the remaining 50 percent was comprised of basic wardrobe items. A typical sales transaction totaled about $28.00.

Unlike competing discount stores, Clothestime appealed not only to teens and college students but also to women up to 35 or 40 years old. So the company strategically located its retail establishments in low-rent strip centers anchored by food stores or giant discounters for accessibility to women interested in fashionable—not trendy—merchandise at discount prices. “Our customer is definitely value-driven,” DeAngelo explained in WWD.” She still looks at the fashion aspects of clothes before the price tag, but she can’t afford to pay a lot.”

In 1983, DeAngelo and Ortega made Clothestime a public company, after which rapid growth of the retailer followed. In 1984, for example, Clothestime operated 155 stores. Within three years the chain grew to 338 establishments. Profits in 1987 totaled $12 million.

Merchandising Mistakes

As the decade closed, Clothestime re-approached its merchandising mix. In 1989, the company moved beyond name brands and off-pricing by introducing its own private-label items in addition to higher-priced career wear. The company lost $2.2 million that year and barely balanced profits with expenses in 1990 and 1991. Nevertheless, Clothestime reclaimed its customers by 1992 through a variety of strategies, including commercials on MTV. The chain’s efforts resulted in $260.3 million in sales and $5.6 million in profits for the year.

In January 1993 Clothestime reported a 55.4 percent increase in profits—about $8.7 million. The company’s performance exceeded Wall Street’s expectations, and analysts heralded the chain as the up-and-coming retailer for apparel. Bolstered by this success, Clothestime began improving and expanding its operations.

The Private-Label Program

In order to offer customers more quality merchandise at lower prices, the company enhanced its internal product development operations. The company broadened its private-label program. In 1993, 30 percent of the chain’s merchandise came from national junior brands. The remaining 70 percent originated from Clothestime’s private-label program. The company purchased about two-thirds of the items in the private-label program from manufacturers, then attached a Clothestime label to the merchandise; for example, CIME, Viamax, Star Cody, Best World Brand, or Spoiled Girls. Clothestime’s internal product development group generated the remaining one-third of the private-label merchandise. During this time—as Melanie Cox, assistant general merchandise manager, explained in Chain Store Age Executive and Shopping Center Age —the private-label program became “increasingly important to our image.”

To ensure the success of the private-label program, Clothestime purchased a state-of-the-art computer-aided design system to increase the amount of merchandise generated from its internal product development. Though expensive, the new system was quickly cost justified. It improved the number and quality of in-house designs. The system created and revised designs faster than artists could conceive and draw them. Altering the color of a design, for instance, took only the click of a mouse. In addition, electronic versions of the designs could be transmitted quickly via phone lines. The computer’s designs also were truer to actual garments than those of artists. (Artists often added flourishes to designs that could not be recreated for the physical garments.)

Clothestime’s computer-aided design system also gave exclusivity to its private-label merchandise. It greatly increased the company’s capabilities in re-coloring prints, assigning stitches or shades, or simulating weaves. The system could render two- and three-dimensional designs, as well as download images from its computer to automatic knitting machines in order to transfer an image—such as a painting—from the computer to a garment.

Other Technological Advancements

In addition to the new computer-aided design system, other technological advancements were added by the company in 1993. Clothestime upgraded its point-of-sale system by replacing its NCR terminals with IBM 4683 and 4684 equipment and Dataserv software. The company also instituted improved financial management and merchandise tracking systems. In particular, the chain inaugurated its Clothestime Retail Information System (CRIS) for monitoring merchandise and for automating its buying, distribution, and store operations. This system also utilized IBM equipment.

Expansion on the East Coast and Elsewhere

With advanced technology in place, Clothestime embarked upon a store expansion program. In 1993, the company was one of the more healthy junior apparel chains on the West Coast. Despite the economically depressed market in California, the company’s 220 stores there did well owing to Clothestime’s competitive pricing practices. The company easily assumed market share from other retailers failing in the state’s poor economy. With $30 million in cash and no long-term debt, Clothestime decided to branch out, placing 83 percent of its new units outside of California.

In April 1993, the company launched the first of six stores in the metropolitan New York market. According to DeAngelo’s comments in WWD, the first store in East Hackensack, New Jersey, did better than Clothestime expected. By May, six stores opened in central and northern New Jersey, Long Island, and Westchester County, New York. These new stores reflected 10 percent of the company’s expansion goal of 65 stores for 1993. Expansion at this time was financed through internally generated funds; the company issued no secondary stock offerings. Clothestime planned 100 stores for the New York market by 1998, expanding in clusters in specific areas. “It will probably be about three or four years before we have the name recognition on the East Coast that we have on the West,” De Angelo explained to a WWD writer in 1993, “but we’ll get there. We’re very optimistic that our format will be successful in New York. We’ve seen whatever competition is out there, so we know what we’re getting into.” Clothestime also entered markets in Hawaii and Puerto Rico in 1993.

The overall corporate plan for 1993 called for Clothestime to achieve $1 billion in sales from 1,000 stores by the year 2000. Nevertheless, operations showed signs of slowing just as expansion got underway in 1993.

Advertising Schemes and Dreams

In March 1993, same-store sales increased as they had for the past 29 months, but the very next month same-store sales dropped 3 percent. By the Christmas season, same-store sales dropped 4 percent. At the time, Clothestime attributed the dip to low-profile marketing. The chain depended on word of mouth, radio ads, direct marketing, and print ads in national fashion magazines such as Elle, Glamour, Cosmopolitan, Seventeen, and YM. So, as a company spokesperson told WWD, ”We’re changing our ads to put more of a focus on our affordable pricing, in addition to fashion.”

Company Perspectives:

We will aggressively look to be ’’fashion forward” in our merchandise mix and be competitively priced. Our stores must continue to be modern and portray a “cool” image.

After three years, Clothestime ended its relationship with the Kresser/Craig of Santa Monica, California, advertising agency and started doing more things to be visible. For instance, Clothestime served as one of the sponsors for “VH-1 Honors,” the first live concert televised by the VH-1 television network. (The concert showcased charitable organizations supported by celebrities such as Garth Brooks, Al Green, and Kenny G.) The chain also became a retail client of Muzak Limited Partnership’s ZTV Video Services Division. This service exposed the chain’s customers to in-store videos, with Clothestime ads and promotions incorporated into the programming.

Other Improvements

In addition to revamping its marketing style, Clothestime also initiated chain-wide improvements to its 549 stores in 1994. The retailer redid lighting in 69 stores during the first phase of store improvements that also saved money. For example, a $6,000 retrofit of lighting in store number 584 in Cathedral City, California, yielded close to $7,000 in electricity savings, plus a $1,400 utility rebate. Clothestime changed the four-lamp fixtures in phase-one stores to three T8 lamps and added electronic ballasts and aluminum reflectors. Phase two affected 480 stores, replacing their varied fixtures with standard models. The chain expected completion of the project in December 1995. As Adolph Garcia, manager of store development, construction services, told Energy User News: ”This chainwide project comes after seven years of research. We were looking for ways to save money, and the estimated savings from a nationwide renovation were very attractive.”

Lingerie Time

Clothestime also initiated a chain of off-price intimate apparel stores in 1994. The retailer opened five Lingerie Time stores in May 1994 in Placentia, Dana Point, Huntington Beach, and Anaheim, California, and in Pearl City, Oahu, Hawaii. These stores were situated next to existing Clothestime outlets; in fact, the stores shared connected interiors. Each Lingerie Time was between 2,000 and 5,000 square feet, with expected sales of $200 to $400 per square foot. Lingerie Time carried almost exclusively national brands rather than Clothestime’s private labels. Merchandise—sold at 30 to 60 percent off retail prices—included innerwear, foundations, lingerie, and sleep-wear by Natori, Bali, Vanity Fair, Christian Dior, Maidenform, Lilyette, and Lily of France. Ortega explained Clothestime’s strategy to Discount Store News: ”Unlike the women’s junior business, intimate apparel has been traditionally dominated by brand names. We believe our customers will appreciate finding the brand names they have enjoyed wearing over the years at discount prices.” The average age of Lingerie Time customers also differed from those of Clothestime. Women ages 24 through 45 were the chain’s target customers.

At the first store’s opening, Lingerie Time showed potential for becoming the first national off-price intimate apparel store chain. Twenty-five additional sites had been identified for Lingerie Time stores in 1994. Still, cautious expansion was planned for the chain in 1995—just nine stores in two states.

Steep and Swift Decline

Despite all its efforts, Clothestime continued to decline in 1994. Comparable store sales fell throughout the year, as did operating profits. Merchandise became too trendy and youthful, so the chain lost its 20- and 30-year-old customers. Clothestime again worked to attract customers in the 25- to 28-year-old age group. The company changed its buying staff, added more dresses, and featured more career clothes that doubled as casual wear—for instance, blazers. While these efforts raised quality standards, they did not satisfy the store’s customer base. The chain’s decline continued.

In December 1995, Clothestime began reorganization under Chapter 11 bankruptcy proceedings. During the beginning of 1996, the company’s sales dropped 36.2 percent to $103.2 million. Clothestime closed 170 stores, leaving 360 in the chain. Despite a net loss of $10 million, the company still cut its operating losses from $7.5 million to $4.4 million and hoped to emerge as a stand-alone company. Nevertheless, losses grew to $13.8 million, and more stores closed. During the fourth quarter of 1996, Finance, a New York-based investment banking firm, was hired to sell the chain.

Reorganizing the Company

With no firm buyers since hiring Finance and with creditors anxious for the company’s sale or liquidation, chairman and chief executive officer Ortega resigned in 1997, as did chief operating officer and president Norman Abramson. Chief financial officer and vice president David A. Sejpal assumed leadership of Clothestime and initiated a reorganization plan.

The company’s 10-K claimed that many of its losses were due to a failed advertising campaign that it now considered “sensational, controversial, and aggressive.” (In 1996, Clothestime hired its first spokesperson—Gina Lee Nolan from the Baywatch television series. Television, radio, and print media spots featuring Nolan were supposed to show Clothestime as “a ’cool’ place to shop.”) The company document also reported the closing of 75 additional stores. In March 1997 Clothestime and its creditors reached an agreement on the terms of a plan for reorganization.

Clothestime intended to pay its creditors $.07 on the dollar in cash plus 75 percent of the reorganized company’s stock. The company believed that this arrangement would allow it to emerge from bankruptcy in the summer of 1997. “The filing of our reorganization plan is a tremendous achievement,” commented Sejpal in a press release, “and represents the culmination of months of extremely hard work and sacrifice by our associates, vendors, and creditors. We are delighted to be taking this first step toward Clothestime’s emergence from bankruptcy with our creditors’ committee fully committed to the company’s reorganization.” In June 1996, Clothestime operated 322 stores in 17 states and Puerto Rico.