K & G Men’s Center, Inc.

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K & G Men’s Center, Inc.

1225 Chattahoochee Avenue, Northwest
Atlanta, Georgia 30318
U.S.A.
(404) 351-7987
Fax: (404) 351-8038

Public Company
Incorporated: 1990
Employees: 360
Sales: $88.10 million (1996)
Stock Exchanges: NASDAQ
SICs: 5611 Men’s and Boy’s Clothing Stores

K & G Men’s Center, Inc. is a rapidly growing chain of no-frills, discount-priced men’s clothing stores. Since its founding in 1989, the company has stayed with a highly successful strategy of offering men’s suits, sportswear and accessories at bargain prices in stores that are only open Friday through Sunday. Since the company’s initial public stock offering in 1996, K & G has been opening stores at a rapid pace and has seen its stock price more than double.

Founded in 1989

K & G founder Stephen Greenspan had been involved in the Atlanta, Georgia area clothing liquidation business since 1982. When, in 1989, an opportunity arose to liquidate a large number of men’s suits as the result of a bankruptcy, he organized a special weekend sale at a warehouse location. The resulting gross sales of $120,000 gave him the idea of trying the weekend-only concept out on a regular basis. Greenspan’s first store utilized cheap rental space in an industrial park, offered limited amenities and service, and used little in the way of advertising. What it did have was quality, often name-brand goods at near wholesale prices. With men’s suits in the middle price range typically costing between $300 and $500, K & G shoppers could realize a significant savings when the same or similar outfits could be purchased at the discounter for between $80 and $150. K & G took advantage of the fact that male shoppers generally disliked spending time shopping, primarily shopped for clothes on weekends, and were especially attracted to bargains. The company’s annual sales for its first full year of business, 1990, were $7.5 million.

With the success of his first store, Greenspan found he was soon being approached by other retailers who were anxious to form partnerships to open more stores. Within two years three more outlets were opened, two in Dallas and one in Linden, New Jersey. The “K & G” name was used east of the Mississippi, while western locations went under the name “T & C”. The stores stocked suits, ties, tuxedos, sport coats, dress slacks, dress furnishings, sportswear and other men’s accessories. Sales of suits, sport coats and dress slacks accounted for more than half of sales. Each store offered on-site tailoring services which charged for alterations. The typical store had concrete floors, suspended fluorescent lights and little in the way of atmosphere. Clothing was displayed on racks or piled up on folding tables. Customers came, not for the decor, but because the K & G and T & C outlets offered relatively current styles at a considerable discount.

Unlike some other large clothing discounters, the wares offered at K & G were not out of season, “distressed,” or out of fashion. Executive Vice-President Charles Cooper was responsible for 90 percent of the purchasing. Cooper aggressively pursued manufacturers’ closeouts, cancellations and overruns in the New York market, as well as making direct purchases from some manufacturers. While most of the clothing offered by K & G was brand name merchandise, a certain amount was unbranded, either supplied by lesser-known manufacturers or by brand name makers who required K & G to remove their brand labels. In order to keep its accounts with brand name suppliers, K & G seldom advertised brands directly, preferring to list only apparel prices and potential savings in the newspaper ads which it typically ran on Thursdays in sports sections.

The Early 1990s: A Successful Formula Leads to Expansion

The success of K & G’s “Weekend Warriors” concept, as it had been dubbed, led to other retailers copying the formula, and a number of stores with names like National Apparel Liquidators, Clothing Warehouse, Ronny’s Weekend Outlet, and Suit Mart opened in large cities around the country. In addition, more high profile large men’s clothing chains such as Today’s Man and Men’s Wearhouse also offered discounted men’s wear in less spartan surroundings. In spite of growing competition in discount men’s wear, K & G’s sales continued to grow, and the company kept expanding, opening a second store in Atlanta, and one in Indianapolis, Indiana by mid-1993. Around this time Greenspan reported that annual sales were nearing the $30 million mark.

Critical to K & G’s success was the company’s high turnover of goods, and lack of distribution facilities. While typical men’s retailers might only turn over their merchandise twice a year, K & G was seeing two or more times this level of product flow. Because its stores were only open Fridays, Saturdays and Sundays, the store spaces were used as warehouses the rest of the week, and the company needed no central distribution facilities. Goods were drop-shipped directly to the outlets. The stores’ reduced number of business hours saved on payroll expenses as well.

The company also benefited from the sense of urgency created by its limited hours and warehouse atmosphere. Customers were often lined up outside the doors before stores opened, and bought more items per visit than at a typical store, as they seemed to feel they were taking advantage of a sale. In reality, K & G never had special sales, offering the same deep discounts at all times. The store offered a huge selection of suits in different styles and sizes, as well as a wide variety of accessories to choose from. The fact that men disliked shopping worked to the company’s advantage, as a customer lured to the store by a deep discount on a name brand suit was also likely to pick up some shirts, ties or other accessories, to avoid having to shop elsewhere. K & G also experimented with including other related merchandise, such as shoes, in its product mix at selected outlets. If an item was successful in one location it was added to the rest.

Additional stores were opened by the end of 1995 in Boston, Cincinnati, Denver, and Kansas City, Kansas. Annual sales for 1994 amounted to just under $50 million, and reached $60 million in 1995. While K & G was experiencing impressive annual growth, other companies in the men’s wear business, particularly more traditional independent men’s dress wear retailers, were hurting. The market for suits softened as the increasing proportion of baby boomers infiltrating the business world relaxed the standards of dress. “Casual Fridays” became commonplace, with some companies even adopting a casual dress code throughout the week. Those men who still wore suits on a regular basis were increasingly likely to buy them at a discounter like K & G. The percentage of suits in the overall product mix at the company had slipped to about 45 percent of sales from over 50 percent in the company’s first years. K & G kept pace with the market, offering a wide range of sportswear and other more casual styles.

Going Public in 1996

K & G announced its initial public offering of stock in early 1996, with 1.7 million shares offered on the NASDAQ exchange. The IPO was successful, and the stock rose steadily in value. Shortly after going public, K & G announced that new stores would be opening in Baltimore and Washington, D.C., where two outlets were planned. In Atlanta, where it had moved its original store across the street to larger quarters, the company opened a third location. K & G’s formula for success was little changed from its original concept, with stores still remaining open Friday through Sunday and merchandise offered at deep discounts in a stripped-down environment. The company had now added a state-of-the-art computer system which could be used to link directly with suppliers. CEO Greenspan predicted that K & G would open 15 to 20 new stores within the next several years. The company was looking only at areas with a population of one million or greater. Other criteria for a prospective location were proximity to major expressways and a well-known cross street, 15 minutes or less driving distance from the bulk of the population, and plenty of parking.

The hosting of the 1996 Summer Olympic Games by Atlanta, the company’s home base, gave K & G an opportunity for extra exposure. The month of July was usually a slow one in the retail trade, and the influx of visitors attending the Olympics gave the company the opportunity for added sales and free national exposure. K & G stores in Atlanta remained open seven days a week during the event. The company had always been somewhat flexible with the “Weekend Warrior” concept, usually opening on Mondays when they were business holidays, and staying open throughout the week during the Christmas shopping season. Because K & G spent relatively little on advertising, the company’s greatest marketing tool had always been word of mouth, and it was hoped that tourists drawn by the Olympics would shop at K & G and help spread the word.

Company Perspectives:

We strive to continue to stay focused on what makes us different and successful. In December, 1989, we pioneered a new customer-focused retail concept. K & G provides its customer with first-quality, in-season merchandise in a no-frills shopping environment at what we call “Impossible Prices.” Our successful formula combines low mark-ups on current season merchandise with the lowest operating cost structure in the industry. K & G’s costs are low because we locate stores in destination sites typically in warehouse districts; the stores are open only on Friday, Saturday and Sunday, which further lowers the operating costs of the stores; and our satisfied customers provide us with word-of-mouth advertising, which reduces the amount we spend on advertising. We believe we still have substantial growth opportunities. The K & G concept is proven and is working in different geographic regions of the country.

By the end of 1996 K & G had opened a total of six more new stores, in Baltimore, Atlanta, Columbus, Ohio, Long Island, New York, and two in Washington, D.C. Annual sales had again increased, growing to over $88 million. An additional stock offering of 1.2 million shares was made in November of that year, with shares trading at year’s end at more than double the initial offering price.

K & G continued to thrive even as some other men’s wear discounters were going out of business, as Today’s Man did in 1996. K & G was particularly attentive to its customers’ changing needs. In response to the 1990s trend favoring traditional masculine symbols, K & G added a 1,000 square foot cigar humidor to its flagship Atlanta store, with plans to expand to other stores if the concept proved successful. Ultimately, Greenspan’s formula for success was based on the bottom line. The company’s goods were typically priced at between 30 and 70 percent less than department and specialty store prices, but K & G had the lowest operating costs in the business.

In 1997, new locations continued to appear with regularity. Stores opened in the first few months of the year in Cleveland, Ohio and Cherry Hill, New Jersey, with a total of 8 projected to open by year’s end. The typical size of K & G stores opened during the mid-1990s was 16,000 to 20,000 square feet. Inventory would include around 10,000 suits, 12,000 shirts and 15,000 ties, as well as a variety of related goods. Sportswear now accounted for over a quarter of the company’s sales. Each store still maintained a tailoring operation, with alterations done within an hour.

As it approached the end of the 1990s, and its first decade in business, K & G Men’s Center had seen steady, rapid sales growth and had expanded from a single store to a chain of close to 20. The company’s stock offering in 1996 had been an instant success, and its track record of successful expansion was unblemished. The pioneer of the “Weekend Warrior” men’s clothing store category appeared to be on a roll, with a bright future ahead.