Ross Stores, Inc. History

Address:

8333 Central Avenue
Newark, California 94560
U.S.A.

Telephone: (510) 505-4400
Fax: (510) 505-4322

Public Company
Incorporated: 1982
Employees: 11,935
Sales:$1.42 billion (1995)
Stock Exchanges: NASDAQ
SICs:5651 Family Clothing Stores

Company Perspectives:

Ross Stores' mission is to offer competitive values to customers by focusing on the following key objectives: achieve an appropriate level of brands and labels at strong discounts throughout the store; meet customer needs on a more regional basis; deliver an in-store shopping experience that reflects the expectations of the off-price customer; manage real estate growth to maintain dominance or achieve parity with the competition in key markets.

Company History:

One of the leading off-price retailers in the United States, Ross Stores, Inc., operates a chain of roughly 300 Ross "Dress for Less" stores in 18 states. Although Ross operates one of the largest chains of its kind in the country, it reached this stature late in its corporate life. When the chain was purchased in 1982 by a group of investors that included Mervin Morris, founder of the Mervyn's chain, it comprised only six units in the San Francisco Bay area. During the ensuing decade, the chain grew robustly under the stewardship of Stuart Moldaw and Don Rowlett who converted the junior department stores to off-price retail units, one of the first of their kind in California. During the mid-1990s, Ross "Dress for Less" stores offered brand and designer name apparel for the entire family at prices 20 percent to 60 percent below the prices charged by competing department stores and specialty shops. Of the 292 stores in operation in early 1996, 134 were located in California, by far the most important market for the company.

Origins

The roots of the Ross retail chain stretch back to 1957, when the first Ross junior department store opened. However, the first definitive year in the company's history occurred nearly 30 years after its birth. In 1982, the year that separated the two distinct eras in Ross' history, two retailers with a wealth of experience in the off-price retail industry purchased the Ross enterprise when the chain comprised six junior department stores in the San Francisco Bay area. With these six stores, purchased with the help of venture capital partners, the two entrepreneurs made no mistake about their intentions, quickly developing a retail empire that would boast 107 stores three years later, 156 stores by the end of the 1980s, and nearly 300 stores by the mid-1990s. The orchestrators of this rapid expansion and the two pivotal figures who erased three decades of sleepy growth to engender a dramatically more dynamic Ross retail chain were Stuart Moldaw and Donald Rowlett, the duo who spearheaded the acquisition of the Ross business in August 1982.

Stuart Moldaw, who became chairman of Ross following the acquisition, was not new to the off-price retail scene. Prior to his involvement with Ross, Moldaw founded Pic-A-Dilly, an off-price retail chain, Country Casuals, and The Athletic Shoe Factory. Rowlett, who was selected as the new president of Ross, was no novice either, having created and developed F.W. Woolworth's off-price subsidiary, J. Brannam, into a 36-unit chain. Together, these two retail veterans had visions of creating a powerful off-price retail chain in an area of the country where the off-price concept was virtually nonexistent. Elsewhere, particularly along the East Coast and in the Midwest, off-price retail stores were enjoying burgeoning popularity during the early 1980s, but in California they were conspicuous by their absence, at least as Moldaw and Rowlett saw it. Considering the pace at which Moldaw and Rowlett expanded the Ross chain shortly after acquiring it, the two were intent on pioneering the concept in California and saturating markets before rival off-price chains recognized the opportunities that existed in California.

Early 1980s: Moldaw and Rowlett Era

Such was the attraction of the six-unit Ross chain to Moldaw and Rowlett--its location in California. Little else, beyond the chain's limited name recognition in the San Francisco area, would contribute to its success for the remainder of the 1980s and the 1990s. Success was realized from the changes instituted by Moldaw and Rowlett, the first of which was recasting the six-unit chain as a different type of retailer. The two shifted the chain's focus away from its junior orientation to create an off-price format stocking branded apparel for men, women, and children, as well as domestics merchandise, shoes, and accessories at sharply reduced prices. Once the stores were dedicated toward attracting a broader customer base and outfitted with a broader merchandise selection, Moldaw and Rowlett made their second decisive move by quickly adding to their store count. Two Ross "Dress for Less" stores were opened in the fall of 1982 and 18 stores the following year, more than tripling the size of Ross in little more than a year.

Much of the physical growth recorded during the first full year of Moldaw's and Rowlett's leadership was accomplished by acquiring existing stores in strip malls and free-standing locations abandoned by other retailers. This acquisition strategy would continue to be used by the company as its geographic scope of operations broadened, severing the chains that had fettered it to Northern California for three decades. By the end of 1983, Ross "Dress for Less" stores were situated in Southern California and the first store beyond the state's borders--a store in Reno, Nevada--was opened, touching off a march across the map that in a few short years would extend the company's presence from coast to coast.

Early in 1984, plans called for the establishment of 20 stores in California, Arizona, Washington, and Oregon, but by the end of the year Ross had opened twice as many, opening stores in California, Washington, Utah, Arizona, Texas, and Oklahoma. Much of the growth realized during the year was realized from the acquisition of 15 stores from the Handyman division of Edison Brothers Stores, which added Ross "Dress for Less" stores in Texas and Oklahoma. The acquisition, completed in July, was concluded in the same month that Ross corporate headquarters were moved to a 494,000-square-foot facility in Newark, California, that also served as the company's distribution center.

From this location in Newark, the company's expansion would be plotted into the 1990s, as the number of stores, each stocking a list of brand and designer names that rivaled most department stores and specialty stores, increased exponentially. Though its merchandise compared favorably with the selection offered by department stores and specialty stores, Ross charged substantially less than traditional retailers, selling its merchandise for as much as 60 percent below competitors' prices. The enormous savings to be realized lured customers through Ross' stores, convincing management, in turn, that the only obstacle checking the company's financial growth was the number of stores it operated. More stores meant more revenue and greater profits, so Moldaw and Rowlett focused their efforts on expansion, making an initial public offering of stock in 1985 to help fund the opening of additional stores. At the time of the public offering, there were 107 Ross "Dress for Less" stores, an impressive total given the company's total store count of six three years earlier, and an extensive operating territory the company could call its own. After entering Washington, Utah, Arizona, Texas, and Oklahoma, in 1984, Ross entered new markets in Colorado, Florida, Georgia, New Mexico, and Oregon in 1985. By the end of the year, sales were up an encouraging 79 percent, swelling to $375.9 million.

Mid-1980s Tumble

The company's record-setting growth in 1985, which included the addition of 41 stores, was followed by an equally impressive 1986, when 39 stores were opened and new markets were penetrated in Maryland, North Carolina, and Virginia. By this point, there were 121 Ross "Dress for Less" stores scattered throughout 16 states, 40 percent of which had been open for less than a year. Fueled by this new growth, annual sales had shot past the $500 million mark by the end of 1986 and future revenue growth seem assured as expansion plans were laid for the company's penetration into new markets. In 1986, however, the company suffered its first major setback when it was forced to shutter 25 unprofitable stores located primarily in Texas and Oklahoma, where anemic economic conditions crimped Ross' profits. For the year, Ross reported a crippling $41.4 million loss, $39.4 million of which stemmed from the stores closures in Texas and Oklahoma.

On the heels of this debilitating loss, the company lost one of its two chief architects when Rowlett resigned from the company in 1987, but it was not long before Ross gained a new architect to rebuild the company and carry it into the 1990s. Following Rowlett's departure, a company veteran, Norman A. Ferber, who was serving as Ross' executive vice-president of merchandising, marketing, and distribution, was appointed as Ross' president and chief operating officer. Less than a year later, in January 1988, Ferber was also named Ross' chief executive officer, taking charge of the company as it was undergoing a series of changes to quickly restore its profitability.

Responding to the $40 million loss in 1986, Moldaw and Ferber drastically cut back on expansion in 1987, opening only 11 stores and situating those stores in markets where Ross "Dress for Less" stores were already located or in close proximity. The days of adding one new state after another to the company's geographic fold were over. Instead of trying to dot the country with store after store, Ross executives focused their expansion in three principal markets, the West Coast, the Washington area, and Florida, and devoted more time to developing a profitable merchandising strategy. Hoping to rescue their company from the red, company officials eliminated the domestics departments in Ross stores and added cosmetics and fragrance departments. Additionally, executives added "high-end" clothing to Ross' merchandising mix, upgrading their inventory with items such as men's sport coats and women's silk dresses.

By the end of 1987, management could point to positive results. For the year, Ross recorded an $11.5 million gain after the more than $40 million loss the year before. Encouraged by their initial success, Moldaw and Ferber continued to refine Ross' merchandising strategy as the 1980s progressed. By 1989, 95 percent of the company's 140 stores contained full cosmetic and fragrance departments staffed with beauty consultants, one of the new and decidedly upscale features adopted by Ross as it repositioned itself for consistent profitability. In the chasm separating discount stores and traditional department stores, off-price retailers occupied the middle ground, but as the 1990s neared Moldaw and Ferber were tipping the balance toward the department store end of the scale by adopting the trappings of more upscale retail outlets. Like many off-price chains, Ross had never divided, or "departmentalized," its retail floor space into merchandise categories to any great extent, but as the company entered the 1990s chrome and wood partitions were used with increasing frequency to delineate various departments. Among the other changes reshaping the chain was a refocused inventory strategy, as Ross "Dress for Less" stores began stocking a lesser variety of merchandise but bolstered their supply of merchandise lines that remained, creating a narrower and deeper inventory for stores to stock.

1990s Expansion

Along with these changes came a renewed commitment to expand the chain. In 1989, when Ross ranked as the third-largest off-price retailer in the country, company officials announced plans to open 100 to 150 stores during the ensuing five years. As the early 1990s progressed, the chain went a long way toward achieving this ambitious goal. In 1990, 29 new stores were opened, giving it a total of 185 stores in 18 states by the end of the year and opening up new markets in Philadelphia and in Boise, Idaho. Another 20 stores were opened the following year, as annual sales jumped from $804 million to $930 million, and another 23 stores were added to the chain in 1992, when sales eclipsed the billion dollar mark, reaching $1.04 billion.

As sales were slipping past $1 billion, Moldaw and Ferber began test marketing a "Home Accents" department, which featured picture frames, china, ceramic ware, and crystal. The concept was introduced in 20 stores early in 1992 and quickly registered sufficient success to warrant its incorporation into other existing Ross "Dress for Less" stores. With 223 stores by the end of 1992, the company planned to put Home Accents departments in nearly all of its existing locations by the end of 1993, giving its a high-profit-margin vehicle to fuel its financial growth in the years ahead. By the end of 1995, when the total number of stores had increased to 292, 282 stores contained Home Accents departments.

Entering the mid-1990s, Ferber, who was named chairman in 1993, was focusing the chain's growth in existing markets. Twenty stores were opened in 1993, another 32 stores in 1994, and 17 stores in 1995, with each successive wave of openings giving Ross a more entrenched market position. With 292 stores by the end of 1995, Ross was collecting nearly $1.5 million a year in sales, having experienced considerable financial growth during the previous decade. Equally as impressive was the company's profitability, which had been strengthened substantially by the changes adopted in the wake of Ross' mid-1980s debacle. In 1995, the company earned more than $43 million, with the average sales per square foot climbing to $230 from an average of $214 million in 1991. That the company recorded this increase during a national recession that crippled many retailers throughout the country boded well for its future, fueling confidence that the "new" Ross was well-positioned to reap the rewards of the late 1990s. As the company prepared for the late 1990s, it gained new management to lead it toward its future. Effective September 1996, Michael Balmuth, Ross' executive vice president of merchandising, was selected as the company's chief executive officer, replacing Ferber, who stayed on as chairman. As the change of command was underway, Balmuth, who joined Ross in 1989 as senior vice-president and general merchandise manager, could look forward to taking the helm of a company with justifiably strong expectations for consistent if not animated growth in the future.

Principal Subsidiaries: Ross Assurance Group, Ltd.

Ross Stores, Inc. History

Company Perspectives:

Company History:

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