Fabri-Centers of America Inc.

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Fabri-Centers of America Inc.

5555 Darrow Road
Hudson, Ohio 44236-4054
U.S.A.
(216) 656-2600
Fax: (216) 463-6675

Public Company
Incorporated: 1951 as Cleveland Fabric Shops, Inc.
Employees: 17,600
Sales: $677.28 million (1995)
Stock Exchanges: New York
SICs: 5949 Sewing, Needlework & Piece Goods

With sales of $677.28 million, nearly 1,000 fabric stores in 48 states, and an estimated 18 percent of the retail fabric market, Fabri-Centers of America Inc. is the country’s largest fabric retailer. The company’s Jo-Ann Fabrics and Crafts, Cloth World, and New York Fabrics and Crafts superstores carry wide selections of fabric, notions, and craft goods. The chain boasts nearly double the sales and locations of its nearest competitor, Hancock Fabrics. Led by third-generation president and CEO Alan Rosskamm, descendants of the founding families continued to own about one-fourth of the publicly-traded firm’s stock into the mid-1990s. Having survived a dramatic shakeout in the retail fabric industry, Fabri-Centers set its sights on becoming a “category killer” in the late 1990s.

Founding and Early Development

The chain was founded in 1943 by two German immigrant families, the Rohrbachs and the Reichs. The Reichs had an importing business dealing in Swiss cheese, anchovy paste and pickles, and they invited their friends to start selling fabric in their suburban Cleveland storefront. When Berthold Rohrbach died that same year, his 30-year-old daughter, Alma Zimmerman, went to work full-time at the store with Hilda Reich. Hilda’s daughter, Betty, joined the family affair in 1947, and she and Alma opened the chain’s second store in Cleveland soon thereafter.

Betty married Martin Rosskamm in 1948, and he quit his upper-level management position at a knitting mill to join the fabric company. Cofounder Hilda Reich continued to supervise a Fabri-Center store until her death at the age of 87 in 1986. Alma, her husband, Freddy, and Betty continued to serve on the board of directors into the mid-1990s, but it was Martin Rosskamm who became a driving force behind the chain’s continuous expansion throughout the Midwest. Seeking a less geographically exclusive name to take the chain into the Pittsburgh area, the families created Jo-Ann by merging two of their children’s names: Jo from Joan Zimmerman and Ann from Jackie Ann Rosskamm. Fabri-Centers’ small specialty stores, which were often located in the regional shopping malls that sprung up in the postwar era, competed well with the fabric departments of larger general merchandise stores. The chain incorporated as Cleveland Fabric Centers, Inc. in February 1951, changing its name to Fabri-Centers of America, Inc. in 1968 and going public the following year.

Facing a Changing Market in the 1970s and 1980s

The retail fabric market began to decline in the 1970s, as more women went to work outside the home, and home sewing declined. At the same time, however, department stores and mass merchandisers were eliminating their fabric and notions departments, reducing the net number of retail fabric outlets by almost half from 1977 to 1983. This market contraction allowed Fabri-Centers and other leading specialty chains to continue to capture sales and share despite the overall market reduction. Top executives would look back on the 1970s as “glory days,” when growth was relatively easy and profitable. By 1983, Fabri-Centers boasted over 600 stores under the Jo-Ann, Showcase of Fine Fabrics, and House of Fine Fabrics names in 33 states. As president and CEO through 1985, Martin Rosskamm guided a doubling of Fabri-Centers’ annual sales, from $120.9 million in fiscal 1979 (ended January 31 of that year) to $226.9 million in fiscal 1985. Profits increased robustly during that period as well, from $4 million to $7.2 million, and the chain’s share of the national retail fabric market increased to over 5.5 percent as it advanced to the number-two rank.

This period lulled the chain into a false sense of security that would come back to haunt it in the mid- and late-1980s. In a 1995 interview with Financial World’s Lore Croghan, Martin’s son Alan Rosskamm acknowledged that “We were outassorted, outpromoted and undersold.… There were fundamental industry changes that we had been slow to recognize.”

That’s when the company found its profit margins squeezed by rising costs and a maturing market. Fabric retailers had historically been recession-resistant—stung by the high cost of retail clothing, many women flocked to fabric stores to make their own clothes during economic downturns—but when the economy went sour in the early 1980s, manufacturers of ready-to-wear apparel slashed their own prices, eradicating any “homemade” savings and taking the wind out of fabric retailers’ sails. Rampant price-cutting in the retail fabric industry exacerbated the effects of the early 1980s recession. When Alan Rosskamm succeeded his father as president and CEO of the company in 1985, Fabri-Centers’ net profit margin was less than.5 percent. While sales continued to rise, from $209.4 million in fiscal 1984 to $239.4 million in fiscal 1987, net income declined from $4.5 million to $1.7 million. The slide culminated in a net loss of $4.9 million on $266.7 million sales in fiscal 1988. It was the first loss in the chain’s 45-year history. The new president admitted to Delinda Karle of the Cleveland Plain Dealer in May 1988 that “All of a sudden, our business started shrinking and our expenses started rising.”

Transformation and Diversification in the 1990s

Rosskamm launched a multifaceted turnaround plan that year. His was a risky proposition attempted by many of his rivals with varying degrees of success in the late 1980s and early 1990s. A key to the strategy was a wholesale move of its stores from high-rent, relatively small shops in malls to large “superstores” in strip malls. In fiscal 1992 alone, Fabri-Centers opened 121 superstores (with up to 15,000 square feet of space) and closed 108 outmoded locations.

However, Fabri-Centers wasn’t the only chain with growth on its mind—its six major competitors were also adding dozens of big stores, leading inexorably to a glut of the mature market. Casualties of these hard-fought “fabric wars” began to mount: by the mid-1990s, only Fabri-Centers and Hancock Fabrics were left standing. Both House of Fabrics and Piece Goods Shops were mired in bankruptcy, and many of the other former leaders were either bought out or liquidated.

Fabri-Centers came out on top but not without its share of bruises and scars. In an effort to diversify from the stagnant fabric market, which stood at about $4 billion throughout the late 1980s and early 1990s, the company launched Cargo Express, a chain of specialty housewares, in 1984. Spearheaded by Alan Rosskamm, this discount chain sold cutlery, stemware, glassware and other tableware in 18 stores by 1988. In spite of its growth, the concept didn’t record an annual profit until fiscal 1990, and Rosskamm characterized the business as “a breakeven venture” accounting for less than 3 percent of Fabri-Centers’ overall sales in 1992. Heavy discounting and intense competition in the category forced Fabri-Centers to put the 41-store operation on the selling block in 1993. Unable to find a buyer, the executives liquidated the inventory and closed the stores in 1994, taking a $5.2 million loss on the transaction.

Cargo Express’ protracted failure (combined with the generally poor condition of the retail fabric industry) contributed to a sharp and rapid decline in Fabri-Centers’ stock price. The company’s stock fell from a high of $47.25 in January 1992, when Fabri-Centers announced record high earnings of $17.5 million, down to less than $13 by that July. Before the year was out, Standard & Poor’s had lowered its rating of Fabri-Centers’ paper to junk bond status.

CEO Rosskamm reacted quickly, cutting salaries on a sliding scale and eliminating some administrative staffers. Other more fundamental changes that had already been instituted as part of the turnaround program of the late 1980s would be the factors that kept Fabri-Centers at the top of the fabric game in the mid-1990s. Efficiency efforts included construction of a new distribution center and creation of a state-of-the-art computer system that linked operations from the point of sale to the warehouse. From 1987 to 1990, these efforts helped reduce overhead by 20 percent, from 48 percent of sales to 40 percent of sales. The chain also experimented with deep discount Best Fabric Outlets, aired its first television commercials, and launched a custom drapery business.

Fabri-Centers also found a profitable and logical diversification niche in the crafting boom of the 1990s. The craft segment, encompassing everything from seasonal and holiday decorations to home decor, multiplied from $2 billion in 1990 to more than $10 billion by 1995. Along with several other industry observers, CEO Rosskamm attributed the boom to the “co-cooning” trend that found families spending more time at home. Craft goods contributed nearly one-third of Fabri-Centers’ annual sales by that time.

The Rise to the Top

Fabri-Centers solidified its position at the top of the retail fabric heap with the 1994 acquisition of fourth-ranking Cloth World’s 343 stores from Brown Group Inc. The $100 million cash purchase fleshed out Fabri-Centers’ presence in the southern United States, bringing it to 48 states. The transaction increased the chain’s debt (and brought a revisitation of Standard & Poor’s ire), but it also positioned Fabri-Centers to become a “category killer:” a destination store whose enormous selection and low prices draws customers. The chain expected to spend 18 months and up to $45 million to convert the Cloth World stores to the Fabri-Centers format (although they kept their well-established name). CEO Rosskamm called the deal “an enormous growth opportunity for Fabri-Centers.”

Company Perspectives

We will not be satisfied to rest on our accomplishments. Our mission is to provide our customers with the fabric and craft-related products they need to fulfill their creative ambitions. Our goal is to be the leader in our industry.

The chain emerged from its industry’s shakeout in relatively good health. Over the course of the early 1990s, Fabri-Centers’ sales increased 83.3 percent, from $368.6 million in fiscal 1991 to $677.3 million in fiscal 1995. Profits, meanwhile, had not yet regained the $17.5 million record set in fiscal 1991, slipping to a low of $2.2 million in fiscal 1994 and amounting to $11.7 million in fiscal 1995. While Fabri-Centers was considerably larger than second-ranking Hancock Fabrics, according to a February 1995 article in Barren’s, the Cleveland-based chain had a higher debt load, lower market value, and lower profitability, proving that bigger is not always better. Alan Rosskamm, who was in his mid-40s in the mid-1990s, hoped to turn that adage on its ear in the latter years of the decade.