Garden Ridge Corporation

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Garden Ridge Corporation

19411 Atrium Place, Suite 170
Houston, Texas 77084
U.S.A.
(2810) 579-7901
Fax: (281) 578-0999

Public Company
Incorporated: 1979 as Garden Ridge Pottery
Employees: 3,125
Sales: $304.7 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: GRDG
SICs: 5331 Variety Stores

Fast becoming a national retailer, Garden Ridge Corporation operates a chain of more than 25 stores scattered throughout the southern and southeastern United States. Strictly a Texas-based retailer until 1995, Garden Ridge accelerated its expansion after a May 1995 conversion to public ownership. Management during the late 1990s projected that the company would operate on a national basis and generate sales in excess of $1 billion by the early 21st century. The impetus for the chain’s rapid expansion during the latter half of the 1990s stemmed from a successful overhaul of the company’s strategy and retail concept during the early 1990s. Spearheaded by the company’s chairman and chief executive officer, Armand Shapiro, the changes focused on revamping and organizing the stores’ floor plan and design. Merchandise, 70 percent of which was private label, was categorized into ten departments: home accents; silk and dried flowers; pottery; crafts; housewares; candles and scents; baskets; party supplies; pictures and frames; and holiday decorations. Roughly 25 percent of the company’s total revenues were derived from silk and dried flower sales. The typical Garden Ridge store measured 125,000 square feet.

Origins

Garden Ridge was founded by a Texas businessman named Eric White, who opened his first store in San Antonio in 1979. Over the course of the next decade, White opened two more of his “Garden Ridge Pottery” stores, establishing each in his home state of Texas. By 1988 White was ready to retire, and he sold his company to a group of investors, marking the end of a relatively serene first decade of business for the three-store chain. Under new ownership, however, Garden Ridge experienced the disruptive and damaging problems commonly endured by start-up companies, as the White era of control proved to be the calm before the storm. Garden Ridge’s new managers were woefully inept, quickly steering the modestly sized business toward financial ruin. The investors were shackled by heavy debt incurred from purchasing the company from White, they implemented ill-conceived changes in the chain’s merchandising strategy, and they failed miserably in an effort to expand. In a matter of months, Garden Ridge was headed toward bankruptcy, prompting the group of investors to put the company up for sale. In 1990 Garden Ridge was sold to a new management team that included two individuals who would be responsible for mounting the company’s comeback; their names were Armand Shapiro and Jack Lewis.

Shapiro arrived at Garden Ridge in February 1990, just after the company reported its latest annual financial totals. The three stores had generated $44 million in sales and lost $2.9 million, providing tangible evidence that sweeping changes needed to be made. Shapiro graduated with a degree in architecture and engineering from New York’s Rensselaer Polytechnic Institute, gaining an academic footing that, in his words, “was great training on how to think, analyze, and solve problems … a great background for retail.” In the early 1980s he joined a computer retail chain based in Houston named Computer-Craft, which he successfully developed into a viable concept before engineering its expansion into a six-state chain as the company’s president. Faced with the challenge of transforming Garden Ridge into a viable concept, Shapiro enlisted the help of another ComputerCraft executive, Jack Lewis. Lewis had spent 25 years working for Sears, Roebuck & Co., dividing his efforts between home fashion buying and marketing and national advertising. In 1989 he was appointed vice-president of ComputerCraft, one year after Shapiro had left ComputerCraft to join a company called Modern Furniture Rentals Inc. as chief operating officer. In 1990 the pair joined forces and began transforming Garden Ridge into a profitable retail chain.

What Shapiro and Lewis had to work with and correct were massive, cluttered stores that confused customers and consequently lost money. The Garden Ridge units were 250,000-square-foot giants stocked with merchandise with diversity that went one step beyond what could be described as eclectic. To most, Garden Ridge’s merchandise was an unfathomable heap. Inside, customers were confronted with disparate merchandise categories that included automotive parts, jewelry, pet supplies, lawn equipment, and toys, all confusingly organized in small, drab rooms. The store layout and merchandising strategy was perplexing, yet surprisingly the Garden Ridge name had cultivated considerable customer loyalty. Customers demonstrated an expectant patience that the store’s concept could somehow be clarified. Said Shapiro: “Jack [Lewis] and I looked at the store and realized customers had a love affair with Garden Ridge. But they were desperately trying to hang on as customers, and they were begging that we listen to them.” The typical Garden Ridge customer was a female between 18 and 54 years old who spent an average of three hours in the stores on a single visit. She was enthusiastic about the merchandise, receptive to the concept—however murky it was—but in the end frustrated and confused.

Strategic Changes in the Early 1990s

Shapiro and Lewis began to implement changes, and as they did so, their individual talents came to the fore. Lewis gained the reputation as the “creative” half of the duo, and Shapiro earned the moniker “Numbers Guy,” although both Lewis and Shapiro disapproved of the characterizations. First, to reduce operating costs, the pair significantly reduced the size of the prototype Garden Ridge, cutting the space down to between 125,000 square feet and 140,000 square feet. Merchandise was focused on home decor items, while pet supplies, toys, jewelry, lawn equipment, and much of the chain’s former diversity disappeared. Advertising spending was increased, as was the buying staff, who traveled overseas to purchase some of the chain’s more exotic, seasonal merchandise. Meanwhile, Lewis, who was responsible for the design of the stores, made some of the most profound changes distinguishing the Garden Ridge of the late 1980s and the Garden Ridge of the 1990s. The goal was to make shopping simpler, to make the warehouse-style stores shopper friendly for the company’s core customer. “Eighty-five percent of our shoppers are women,” Lewis explained, “and we try to appeal to them with everything from colors to fragrances and bright lights.” Toward this end, Lewis redesigned the stores’ interiors, using boldly designed graphics, color accents, and a color-coded system for specialty areas, which were identified further by seven-and-a-half-foot, sculpted foam and masonite signs. Navigation throughout the stores was made far easier as a result, particularly if the customer followed the 26-foot-wide, red “racetrack” on the floor, which directed the customer past seasonal and promotional products. The emphasis on seasonal merchandise, rotated every three to four weeks, was a change as well, intended to keep customers interested and lure them back for return visits. Another change—one of great importance to Lewis and Shapiro—was an emphasis on customer service. The company conducted monthly focus groups, asking shoppers what they wanted, and employees underwent training to help customers with decorating ideas.

After the changes were made, the first prototype Garden Ridge opened in Houston in 1992. Inside, under exposed ceiling structures and bright lights, the store’s merchandise was arranged according to Lewis’s color-coded scheme. Merchandise was organized into ten departments, the most prominent of which was the collection of Garden Ridge silk and florals. Artificial flowers and silk florals occupied roughly 25,000 square feet of the new Garden Ridge store, accounting for a quarter of the revenue generated by the company. The other merchandise categories were as follows: home accents; pottery; crafts; housewares; candles and scents; baskets; party supplies; pictures and frames; and holiday decorations. Of all the merchandise, which comprised more than 80,000 separate items, 20 percent was private label, a percentage that would increase during the middle and late 1990s. As the new store concept was undergoing its first test, Lewis and Shapiro began developing their own Garden Ridge label, a move designed to increase the name recognition of the stores. Lewis explained: “Most of our vendors are importers or small vendors that don’t have high brand recognition. That’s why we’re trying to build up an identity with the Garden Ridge label. I’ve never seen a customer yet that asks for a branded flower or basket or pot.”

Company Perspectives:

An outing to Garden Ridge is more than just a shopping trip. It is a unique adventure into a friendly, entertaining atmosphere that fulfills customers’ emotional needs for home decorating. The company’s buyers and merchandising staff recognize that the home is more than just a place to live. Our stores stimulate home decorating solutions for shoppers who have a passion to decorate with new and fresh ideas. To spark new ideas, our associates assist you in applying your creativity and discovering Garden Ridge.

1995 Public Offering Spurs Expansion

After the Houston prototype store, Shapiro and Lewis opened two more Garden Ridge units during the next two years, establishing both in Texas. The performance of these new units served as a test of the new concept’s viability, determining whether or not customers would embrace the changes made by Shapiro and Lewis. The financial totals recorded at the end of Garden Ridge’s experimental expansion answered in the affirmative. At the end of 1994 the six-store chain collected $64 million in sales and had transformed from a money-loser into a profit-maker, posting $4.6 million in net income. With a proven formula for success, Shapiro and Lewis were confident that the Garden Ridge concept they created was ready for expansion. To finance the chain’s expansion, they converted to public ownership in a May 1995 initial public offering (IPO), raising $39.6 million in proceeds. With the cash obtained from the IPO, all long-term debt was paid off, with $ 11 million left over to fund expansion. Although Shapiro and Lewis continued to fine-tune Garden Ridge’s retail strategy, the essence of the blueprint for expansion was established by the 1995 IPO. In the years ahead the company extended its geographic presence beyond the borders of its state of Texas and began to assume the stature of a national retailer.

Garden Ridge took its first step outside Texas before the end of 1995, when a store was opened in Louisville, Kentucky. The company opened four Garden Ridge units in 1995, lifting sales for the year above the $100 million mark, the first of several prodigious leaps in the company’s revenue total. Chain Store Executive magazine, an industry publication, took notice of the startling success, selecting Garden Ridge as “Home Center Retail Store of the Year” for 1995. A year later, after new store openings extended Garden Ridge’s presence into Oklahoma, Tennessee, North Carolina, and Florida, Ernst & Young selected Shapiro as “Entrepreneur of the Year.” Amid the accolades, Garden Ridge swelled in size, with new store openings lifting sales to $148.1 million at the end of 1996. In 1997, seven new stores were opened, which combined with a ten percent increase in sales at existing stores, increased revenues 52.1 percent above 1996’s total, to $225.3 million. By this point, after a half-decade of unbridled growth and unchecked success, Shapiro and Lewis envisioned the development of a chain five times larger than the company’s size in 1997. They foresaw Garden Ridge as a 100-unit chain capable of generating sales in excess of $1 billion. With growth occurring at an approximate annual rate of 30 percent, few outside observers disputed the feasibility of the pair’s ambitious plans. “We see no limitation in terms of merchandise assortment to create a national chain,” Lewis said. “Most of our merchandise is drop-shipped, so we’re not dependent on a central distribution point, so it gives us flexibility in locating stores in various geographic areas.”

To drive their bid toward their lofty goal, Lewis and Shapiro had a slightly altered prototype as their vehicle for expansion. One of the new stores opened in 1997 was a unit in Lewisville, Texas, a store that was the model for the future. As the chain expanded beyond its ten-state operating territory, future units were expected to be smaller, closer to the 100,000-square-foot range. Inside the stores, new features had proven to be successful in the late 1990s and were expected to be included in future units. Plants and snack bars had made their debut, and the emphasis on customer service had produced in-store arts and crafts classes and cooking lessons. Further, great strides had been achieved in the company’s private label program. By the end of 1997 between 60 percent and 70 percent of the company’s merchandise was private label, bearing what was regarded by a substantial number of customers as the trusted Garden Ridge label.

In 1998 Garden Ridge began working toward its goal of opening six stores during the year, but the year’s most dramatic news came from company headquarters, not from the advancing front line of the chain’s expansion. In October 1998, Lewis resigned from his posts as president and chief operating officer, explaining that he was departing to “pursue other interests.” Garden Ridge’s chief financial officer shed more light on the reasons behind Lewis’s departure, revealing more than Lewis’s terse farewell. “We expect to generate nearly $400 million in sales this year,” she said, “and in the next few years we project a billion in sales. Lewis’s resignation was mutual agreement between Lewis, Shapiro, and the board of directors. Different leadership skills are needed to run a larger entity, and we’re looking for a seasoned retail veteran to come in as president.” Shapiro’s comment on the matter corroborated the chief financial officer’s statement. “Jack and I,” he said, “reached the agreement that this was a good time for him to strike out and do new things.”

In the wake of Lewis’s departure, Shapiro assumed the responsibilities of president in addition to his duties as chairman and chief executive officer. As the end of 1998 approached, an executive search firm was looking for a permanent replacement for Lewis’s presidential post. Meanwhile, the company pushed forward with its plans to develop into a national retailer. Shapiro planned to open seven or eight stores in 1999 and ten or 11 stores in 2000, aiming to grow by 25 percent to 30 percent annually until the company reached the hotly pursued goal of $1 billion in sales. Considering that the company had yet to reach the halfway mark by the end of the 1990s, the 21st century promised to see a proliferation of new Garden Ridge stores opening across the country.