Lamonts Apparel, Inc.

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Lamonts Apparel, Inc.

3650 131st Ave. S.E.
Bellevue, Washington 98006
U.S.A.
(206) 644-5700
Fax: (206) 746-3172

Public Company
Incorporated: 1985
Employees: 2,000
Sales: $237.92 million (1994)
Stock Exchanges: NASDAQ
SICs: 5611 Men’s & Boys’ Clothing and Accessory Stores; 5632 Women’s Accessory & Specialty Stores; 5651 Family Clothing Stores; 5661 Shoe Stores

Laments Apparel, Inc. retails brand-name family apparel and accessories through a chain of about 40 stores in the northwestern United States and Alaska. The company attracts middle-income, suburban consumers with its brand-name apparel and value pricing, filling the gap between discount merchandisers and traditional department stores. After experiencing financial difficulties for several years, Lamonts filed for Chapter 11 bankruptcy in January 1995 and was trying to reemerge going into 1996.

Lamonts Apparel started out in 1967 as a division of the M. Lamont Bean Co., a diversified holding company that was founded in 1923. Other enterprises in the holding company at the time included Earnst Hardware and Pay on Save drug stores. The apparel division that would later become Lamonts Apparel, Inc., began with three stores in Seattle, Washington. The stores carried an array of family apparel, including children’s clothing. The success of the first three clothing shops prompted the company to expand with a fourth store in Spokane, Washington, in 1970. In 1975 Lamonts expanded into Alaska before opening its first outlet in Idaho in 1976 and then in Oregon in 1978.

Lamonts succeeded during the 1970s and early 1980s by offering a range of clothing—including many popular brand names—and a value orientation. Service and displays were scaled down in comparison to large department stores, for example, as part of an effort to minimize overhead and keep prices relatively low. In a way, therefore, Lamonts was a forerunner to the discount retailers that proliferated during the 1970s and 1980s. Lamonts particularly made a name for itself in its local markets with a broad selection of children’s clothing. Children’s apparel eventually became the core of the Lamonts stores and represented more than 25 percent of total annual sales in some units.

By the early 1980s Lamonts was a small but successful chain of family apparel stores operating in four states. The chain operated as a small division of the sprawling Pay ’n Save Corp. retail empire. By then, Pay ’n Save was operating more than 300 stores through various subsidiaries in ten western states. Believing that some of Pay ’n Save’s companies were performing below their potential, brothers Julius and Eddie Trump (no relation to New York mogul Donald Trump) purchased a controlling interest in the corporation in 1984. One year later, the Trumps formed a new company dubbed Northern Pacific Corp. That New York-based group was created to purchase, for roughly $200 million, almost all of the assets of three Pay ’n Save subsidiaries: Schuck’s Auto Supply, BiMart, and Lamonts. The Trumps created Northern Pacific because they wanted to have more direct control over those entities.

Lamonts operated as a subsidiary of Northern Pacific that was known as the LH Group, Inc. Under the direction of the Trump brothers, Lamonts initiated an aggressive expansion campaign designed to boost its exposure throughout the Northwest and Alaska. To that end, Lamont’s poured millions of dollars into the company to add new stores throughout the late 1980s. The company achieved much of that growth under the direction of Leonard M. Snyder, the chief executive who the Trumps brought in to run Lamonts in 1987. Snyder was a retail veteran with more than 20 years in the industry. He had previously served as vice-president and executive group manager at Allied Stores Corp. and as president and chief executive of Donaldson’s Department Stores. Snyder was joined at the helm by Frank E. Kulp, who served as president and later director of the company. Kulp had served 17 years with Federated and Allied Department Stores.

By the time Snyder joined Laments, the company had expanded its network to include 31 stores in four states. Between 1987 and 1989, though, the organization would add about 20 additional outlets and expand into Montana and Utah. Indeed, by late 1989 Lamonts was operating 50 stores in six states and was planning to expand at a rate of about 20 percent annually during the early 1990s. In addition to increasing the size of the chain, new management went to work restructuring and improving operations. Snyder believed that the stores had lost their focus and were trying to serve too many niches in the market. So he eliminated most of the chain’s nonapparel items and jettisoned poorly performing categories like maternity wear and mens’ big and tall clothing. Furthermore, Snyder had every store in the chain remodeled and updated with nicer displays.

Management’s goal during the late 1980s was to narrow its target market, improve per-store profitability, and capitalize on the recognized Lamonts name by expanding in existing, as well as new, markets. Lamonts’ target market was professionals aged 25 to 55 who earned $35,000 to $40,000 annually. Its stores were located in suburban shopping malls and in retail centers near middle-income neighborhoods, often in smaller towns. The stores averaged about 40,000 square feet in size, but ranged from 20,000 to more than 60,000 square feet. The goal was to offer many of the brand-name fashions sold at traditional department stores, but at lower prices. Key brands included Levi’s, Osh-Kosh, Claiborne, and Arrow, as well as merchandise marketed under the Lamonts house brands of Cascade Classics, Traditions, Studio Age, and Cues.

As a result of Lamonts’ chain expansion and improvement in per-store sales, revenues surged from about $150 million when the Trumps purchased the chain to about $170 million by 1987. By 1990, moreover, the enterprise was generating annual revenues of about $250 million from 49 stores. Unfortunately, the company’s bottom line had failed to keep pace with sales gains. In fact, Lamonts profits had been sporadic throughout the mid- and late 1980s, and by the early 1990s the company was posting successive quarterly losses. Management attributed the deficits to short-term growth, which required heavy investments. Indeed, records showed that the Trumps injected about $122 million into the company between 1984 and 1989. One result of that investment, however, was that Lamonts accrued substantial debt, particularly following the rapid expansion drive launched in 1987.

After posting a painful loss of $1.8 million for the quarter, the Trump brothers sold Lamonts in September 1989 to Aris, Inc. Aris had started out in 1985 as Texstyrene Corporation. The corporation was formed to purchase the assets of Texstyrene Plastics Inc., a manufacturer of expandable polystyrene beads, foam cups and containers, and packaging materials. The new company divested the assets of the styrene business and changed its name to Aris Corporation late in 1988. Aris purchased Lamonts, its sole operating unit, from Northern Pacific and in 1991 changed its name from Aris to Lamonts Corp. (and in 1992 to Lamonts Apparel, Inc.). The purchase helped to buoy Lamonts because it brought a fresh injection of investment capital into the retail chain. Aris paid $ 135 million for the chain, but Northern Pacific financed part of the purchase and the Trumps retained about 20-percent ownership in the company.

Lamonts continued to lose money in the early 1990s. But the new owners weren’t concerned about the losses, because the company seemed to have plenty of cash to meet its operating expenses. In fact, at the time of the purchase they had planned to lose money for a few years as they continued to invest money to grow the chain and to pay down the company’s giant debt load. Lamonts opened its 50th Lamonts Apparel store in 1991. More importantly, it introduced a new apparel concept called Lamonts for Kids. Lamonts for Kids represented management’s effort to capitalize on the retailer’s traditional strength; children’s apparel. The outlets were smaller—about 10,000 to 13,000 square feet—than normal Lamonts stores, and carried a complete selection of the most popular branded merchandise as well as the company’s own ‘Lamonste’ brand for infants. Lamonts opened two Kids stores in 1991—one in Idaho and another in Utah—and three more in 1992.

As Lamonts continued to expand, its financial performance deteriorated. The problems were multifaceted. Chief among the setbacks was a general downturn in the retail industry that had severely battered many of Laments’ competitors. At the same time, however, Lamonts was facing increasing pressure from other sectors of the retailing industry. Since the early 1980s, in fact, Lamonts had been operating in a rapidly changing industry. Importantly, discount retailers like Target and Wal-Mart had been increasing their share of the market while larger department store operators had been diversifying away from their traditional niches and treading on some of Lamonts’ territory. Critics claimed that Lamonts had failed to keep pace with market changes and was operating with an obsolete strategy. The company’s big losses did little to quell that criticism; Lamonts lost $8.5 million in 1990, $11.7 million in 1991, and then a whopping $19.3 million in 1992, despite a steady increase in sales.

Lamonts restructured its financing in 1992 in an effort to reduce the hemorrhage of cash related to its debt service. The move did little to stem the deficit. After posting a net loss of $10.8 million in 1993, the company began scrambling to reorganize and slow its move toward insolvency. The number of stores in the Lamonts chain peaked at 57 early in 1994. Before the end of the year, though, Lamonts shuttered four Lamonts Apparel shops and the five Lamonts for Kids outlets, which had failed to perform as expected. The failure of the Lamonts for Kids venture contributed to a net loss for 1994 of about $44.5 million from decreased sales of $238 million. Shortly before the end of the year Lamonts brought in a new chief executive to try to turn the company around. Snyder and Kulp vacated their posts to pursue other business interests.

To whip the floundering retail chain into shape, Lamonts hired Alan Schlesinger. Schlesinger had worked in retailing for 33 years. Most recently he had worked as a senior vice-president for retail giant May Co. Department Stores. Prior to that he had helped to turn around Ross Stores Inc. That company had lost $41 million in 1986. Schlesinger arrived in 1987 and helped the company post more than $100 million in net income during his three-year stay. He accomplished the feat by implementing a new operating strategy and refocusing the company on key market niches. He hoped to implement similar changes at Lamonts. “We’ve got to set ourselves apart,” Schlesinger said in the November 23, 1994, Journal American, adding, “We can’t be all things to all people in less than 50,000 square feet.… We need to change.”

Under Schlesinger’s command, Lamonts began a concerted effort to cut costs throughout the organization and to change its inventory. The company dumped several product lines, such as cosmetics, that didn’t complement its core strengths. Schlesinger planned to emphasize children’s clothing and moderately priced brand name apparel for the entire family. Partly because of a continued lag in sales late in 1994, Lamonts filed for Chapter 11 bankruptcy in January 1995. Lamonts was able to use the bankruptcy to get out of some costly store leases and to reduce its debt service payments with rearranged financing. It also announced plans to close some of the approximately 48 stores that it was operating in early 1995, about half of which were located in Washington. The company hoped to emerge from bankruptcy within 12 to 18 months.