Pamida Holdings Corporation

views updated

Pamida Holdings Corporation

8800 F Street
Omaha, Nebraska 68127
U.S.A.
(402) 339-2400
Fax: (402) 596-7326

Public Company
Incorporated: 1963 as Pamida, Inc.
Employees: 7,200
Sales: $712.7 million (1995)
Stock Exchanges: American
SICs: 5331 Variety Stores; 6719 Holding Companies, Not Elsewhere Classified

Owner of a leading discount general merchandise chain, Pamida Holdings Corporation operates 181 stores in 15 mid-western, north central, and Rocky Mountain states. From its inception, Pamida targeted small, rural communities as the preferred location for its discount stores, quickly expanding into trading areas with populations below 15,000. Able to expand with virtually no local discount competition, Pamida flourished during its inaugural decade, establishing a foundation that would support the company during the 1970s, 1980s, and into the 1990s. By the mid-1990s, the company operated 40 in-store pharmacies as a complementary money-earner to its mainstay business of selling apparel, toys, home furnishings, housewares, stationery, and other merchandise.

Much of what defined Pamida during the 1990s was established during the 1960s, when the company’s founders devised a strategic plan that would underpin the success and proliferation of their discount, general merchandise stores for decades to come. From its origination, Pamida established itself as a regional chain focused exclusively on small, rural markets, targeting trading areas and towns too small to support stores operated by large, national chains. By establishing a presence in a host of small communities with populations ranging between 5,000 and 15,000, Pamida avoided the pernicious pressures of competition and quickly secured a solid position in what previously had been largely untapped markets.

For the implementation and refinement of the winning strategy, the company was indebted to its founders, D.J. Wither-spoon and Lee Wegener, two men of divergent business philosophies and contrasting personalities who, despite their differences, orchestrated the development of Pamida during its make-or-break formative years. One referred to himself as a “cotton picker from Texas,” while the other was a self-described “corn picker from Nebraska.” Chiefly responsible for creating the Pamida empire that dominated rural America during the 1990s was Witherspoon, the “cotton picker from Texas,” whose magnetic charm, energetic spirit, and sanguine business perspective pervaded Pamida’s operation for nearly 20 years. Witherspoon’s effusive and infective optimism would carry Pamida through its most crucial decade of existence, enabling the son of a West Texas migrant farmer to realize riches and success that belied his humble origins.

Born in 1912, Witherspoon graduated from Southwestern State Teachers College in 1936. He taught mathematics and coached football at Leveland, Texas’ high school before moving to Omaha, Nebraska in 1938, ready to start a new career. After his arrival in Omaha, Witherspoon, along with his father-in-law Lewis Turner, founded Gibson Products Company, which warehoused and sold novelties to “wagon jobbers,” or people who travelled across the country selling merchandise from trucks. By the late 1940s, after roughly a decade of stewarding the fortunes of Gibson Products, Witherspoon began selling cosmetics, medicines, and similar products to grocery stores, operating as a “rack-jobber” during the post-war years.

After more than a decade in the rack-jobbing business, Witherspoon unwittingly made a pivotal move in 1962 toward the establishment of Pamida by acquiring Marks Distributing Company, a wholesaler of rack-jobbing items such as socks, housewares, and underwear. Though Witherspoon’s connection to the rack-jobbing business would play a substantial role in the founding of Pamida, more important was the beginning of a business relationship engendered by the purchase of Marks Distributing. One of the employees of Marks Distributing was “a corn picker from Nebraska,” Lee Wegener, a two-year employee with more than 20 years experience in the retail industry. Together, Witherspoon and Wegener would create one of the fastest-growing chains of discount stores in the United States during the 1960s, employing a business philosophy that represented a fusion of their distinct personalities.

Witherspoon was compulsive, inspirational, and irrepressibly ambitious. Wegener, in contrast, was cautious, reserved, and conservative in his approach to business. As Wegener explained to Fortune magazine after Pamida had developed into a 170-unit chain spread across an 11-state area, “If it wouldn’t have been for me, we’d have gone broke, and if it wouldn’t have been for him [Witherspoon] we’d have only about 20 stores.” The two men were opposites, but with Witherspoon providing the motivational drive to propel the company forward and with Wegener prudently checking and redirecting Pamida’s expansion, their differences synthesized into an enormously successful business enterprise that was predicated on their one common bond: familial roots imbedded in rural America.

After their introduction following Witherspoon’s 1962 acquisition of Marks Distributing, the two soon-to-be founders of Pamida worked together traveling the countryside as rack-jobbers until a disheartening day in the fall of 1963. A sales presentation the two had made to a potential customer in Chariton, Iowa had yielded disappointing results, shaking Witherspoon’s and Wegener’s confidence in the rack-jobbing business. They felt their sales pitch had been strong, but the customer was not convinced. Discouraged, the pair mused about their future prospects as they drove through Iowa after their failure. When they passed through Knoxville, Iowa and noticed an empty furniture store abutting the town’s courthouse square, however, their future became clear; Witherspoon and Wegener decided to enter the discount business. The empty furniture store would serve as the proving ground for their new venture.

Foreshadowing the rapid expansion that would unfold, Witherspoon and Wegener rented another store 25 miles away in Oskaloosa, then hurriedly set about preparing the Knoxville store for its grand opening. Shelves were constructed, walls were painted, and suppliers were located for items like work clothes and auto accessories that were not available through Witherspoon’s and Wegener’s rack-jobbing business. In November 1963, the doors to the Knoxville store were opened to the public, creating a remarkable surge of excitement among the town’s residents. Sales after the first day hovered around $5,000, or six times the amount Witherspoon and Wegener had calculated as the weekly break-even point for their fledgling store. Crowds during the day were nearly uncontrollable, forcing Witherspoon and Wegener to bar entry into the store, letting shoppers enter one by one as customers exited the store. The opening was a tremendous success, exceeding even Witherspoon’s most optimistic expectations. When the Oskaloosa store opened three weeks later, it recorded similar success, attracting crowds of patrons who were lured by Witherspoon’s and Wegener’s unique format.

At the time of the Knoxville and Oskaloosa store openings, rural America had been largely ignored by the country’s national discount chains. For the residents of the nation’s smaller communities, the opportunity to purchase merchandise at bargain prices generally required taking a long trip to the bigger cities, a trek that farm families would endure to realize the advantages of bargain shopping. Beginning with the openings of Witherspoon’s and Wegener’s discount stores in Knoxville and Oskaloosa, however, such journeys became unnecessary, enabling the residents of the two small towns to shop for bargains at home. Inside the stores were popular items usually found in drugstores and hardware stores, plus clothing and automotive accessories, all under one roof. It was a winning combination—low prices, one-stop shopping convenience, and an inventory tailored to the needs and tastes of farming communities—that enjoyed resounding success, educing Witherspoon and Wegener to open additional stores in small, rural communities.

Expansion came quickly following the initial success of the two stores in Knoxville and Oskaloosa. By the end of 1964, Pamida’s first full year of operation, sales amounted to $8.5 million. Four years later, annual sales had climbed to $28 million, with 45 stores in Iowa, Minnesota, Kansas, Missouri, Wisconsin, and Nebraska composing the Pamida chain. Although the stores were owned and operated by Pamida, a name derived from the first two letters of Witherspoon’s three sons, Pat, Mike, and David, individually they operated under the names “Gibson Discount Center,” “Super D Discount Center,” and “Top Brands Discount Center.” By 1969, the year Pamida, Inc. became a publicly owned company, there were 72 stores operating under various names, all of which contributed to Pamida’s nearly $44 million in annual sales at the time.

As Pamida entered the 1970s, expansion continued at a robust clip, outpacing the rate of growth recorded by the national discount chains. The strategy of targeting small, rural midwestern towns with populations ranging between 5,000 and 15,000 was proving to be highly effective, positioning the company as perhaps the most successful regional discount-store chain in the country. With cost-conscious Wegener assiduously monitoring the company’s daily operation and Witherspoon exhorting employees and management forward, uninterrupted, energetic growth had been achieved without sacrificing profitability. By the early 1970s, when annual sales had eclipsed $ 100 million, Pamida was consistently ranking as the largest moneymaker per dollar of sales in the country, with its 169 stores enjoying a near-monopoly position in an 11-state region from Kansas and Missouri to the Canadian border and into Wyoming and Idaho.

Like the first two stores in Knoxville and Oskaloosa, nearly all of Pamida’s units were acquired from existing businesses. Of the 169 stores in operation in 1972, only 18 were new structures. The rest were converted garages, skating rinks, theaters, and grocery stores, creating an eclectic assortment of stores that matched the motley group of store managers employed by the company, many of whom came from working backgrounds far afield from discount store management. Witherspoon’s management style, described by colleagues as “inspirational,” had created a loyal, hard-working retinue of Pamida employees, nearly all of whom shared Witherspoon’s and Wegener’s rural roots. Among the store managers who presided over the operation of individual Pamida units were former welders, gas station attendants, mental hospital attendants, bartenders, policemen, mechanics, and used-car dealers, each lured to make the leap into discount store management by the infectious enthusiasm generated by Witherspoon.

No two Pamida-owned stores were alike, but all shared one characteristic: enviable success. By the early 1970s, the Pamida chain was roughly as large as it was during the mid-1990s, at least in terms of the number of units operated by the company. In the years ahead, the number of stores operated by the company would increase only marginally. Its sales volume and the size of its stores, however, would continue to grow. Slowly, yet inexorably, large, national chains such as Wal-Mart Stores and Super Valu Stores began to encroach upon increasingly smaller markets, threatening to invade the small towns dominated by Pamida.

Although the population of the towns in which Pamida operated averaged 8,700 (too small for a national discount chain to survive), Witherspoon and Wegener responded to the potential incursion by their much larger competition by increasing the size of their stores. Beginning in the early 1970s, Pamida began replacing its existing stores, which averaged 8,500 square feet in selling space, with new stores three to four times as large. As the decade unfolded and Pamida’s sales volume steadily swelled, the emphasis moved to converting existing stores into larger stores rather than on increasing the number of units operated by the company.

By the beginning of the 1980s, after shoring up its market presence during the 1970s, Pamida stood well-positioned for the new decade, its grip still firm on rural, midwestern America. Sweeping changes in the ownership of Pamida and in its management lay ahead, though, beginning in 1981, when the nearly 20-year era of Witherspoon and Wegener leadership came to an end. The two founders had spent nearly two decades orchestrating the growth of their entrepreneurial venture, creating an impressive and highly successful business. But by the beginning of the 1980s they were ready to end their association with the company. In 1981, Witherspoon, who owned the majority of Pamida’s stock, sold the company to its employees through an employee stock ownership plan financed with borrowed money. The $55 million transaction ranked Pamida as the largest company on the New York Stock Exchange ever to be purchased by its employees.

Pamida operated as an employee-owned company for the first half of the 1980s, until another switch in ownership occurred in 1986. In July, top management and CitiCorp Capital Investors, Ltd. acquired a principal financial interest in Pamida, paying $168 million for control over the 164-unit chain. By this point, annual sales hovered around $500 million, up from $333 million three years earlier. Despite the signs of vitality, however, the company began to reel from mounting debt in the wake of the management-led leveraged buyout.

The financing involved in the two ownership changes had saddled Pamida with sizeable bills as the company entered the late 1980s, exacerbating the deleterious effect of competition from large, national chains. Although Pamida had always avoided direct competition with the Wal-Marts of the discount world, decades of expansion by regional and national chains had left only the smallest markets without at least one general merchandiser of Pamida’s ilk. Consequently, debt and increasing competitive pressures forced Pamida to take action during the late 1980s. Merchandising layouts were revamped, with a greater emphasis placed on higher profit apparel items, and inventory and sales performance data were computerized and centralized. After these changes were effected, Pamida once again became a publicly owned company in 1990, enabling it to raise much needed cash.

More intensive efforts to relieve the nagging problems associated with Pamida’s debt were taken in March 1993, when the company restructured its debt, ceding it greater financial stability and providing it with sufficient means to continue expansion. Once the restructuring was complete and management was reorganized, Pamida moved forward, striving to reduce its involvement in saturated markets and to increase the square footage of its stores. Prototype stores in 1994 were in excess of 40,000 square feet (considerably larger than the existing average store size of 28,000), and for the past several years had been outfitted with in-store pharmacies.

As Pamida entered the mid-1990s, management was seeking to reduce the company’s exposure to large, national discount chains. In 1992 Pamida competed against Wal-Mart stores in 45 percent of its markets, but by late 1995, after closing several stores, the percentage had declined to 34 percent and was expected to continue its decline into the late 1990s. Future plans called for bolstering apparel, jewelry, and accessories sales, which accounted for 22 percent of sales in 1995, with a long-term objective set at increasing the apparel mix to 28 percent of total sales. By placing a greater emphasis on apparel and apparel-related items and continuing to increase the number of Pamida units, the company hoped to build upon the $712.7 million generated in sales in 1995, and to boost revenues past $ 1 billion by 1997.