Charming Shoppes, Inc. History

Address:

450 Winks Lane
Bensalem, Pennsylvania 19020
U.S.A.

Telephone: (215) 245-9100
Fax: (215) 633-4640

Public Company
Incorporated: 1969 as Fashion Bug, Inc.
Employees: 18,000
Sales: $1.2 billion (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: CHRS
NAIC: 44812 Women's Clothing Stores

Company Perspectives:

Guided by our customers and our own expertise as a fashion specialist for women, we will continue to provide a shopping experience that generates sales and profitability. Key Dates:

Key Dates:

1940:: Morris and Arthur Sidewater open first Charm Shoppes in Philadelphia.
1950:: Sidewater brothers enter business partnership with David and Ellis Wachs; Charming Shoppes stores open in Norristown, Pennsylvania, and Woodbury, New Jersey.
1960:: Fashion Bug opens in Audubon, New Jersey.
1971:: Charming Shoppes goes public.
1987:: David Wachs becomes company chairman and CEO.
1995:: Dorrit J. Bern becomes president and CEO.
1999:: Charming Shoppes acquires Catherine Stores Corp.

Company History:

Charming Shoppes, Inc. is a leading retailer, specializing in women's apparel. Founded in 1940 with a single store in Philadelphia, Charming now operates over 1,200 stores in more than 40 states. The stores are large by apparel industry standards (averaging 8,000 square feet) and are usually located in strip malls rather than major shopping centers. The stores target middle income shoppers and specialize in junior, misses', and large-size women's apparel, including sportswear, outerwear, intimate apparel, and accessories. A public company since 1971, Charming Shoppes is a member of the Fortune 500.

The 1940s and 1950s: A New Kind of Women's Clothing Store

On September 13, 1940, Morris and Arthur Sidewater opened the first Charm Shoppes store, in Philadelphia. In the 1930s, Morris (Moe) had been a buyer for Associated Merchandising in New York and Arthur (Artie) performed as a dancer on tour with Red Skelton. Apparently, Moe and Artie had long talked about opening up a women's clothing store and, with borrowed money, opened up Charm Shoppes. The two ambitious businessmen had rough going in the beginning, bringing in only $480 in sales in the first week of business. In addition, they received legal notice that very same week that they had to change their store's name because the name 'Charm' was already registered. Rather than give up the business completely, the Sidewaters agreed to add 'ing' to their name.

Shortly thereafter, the new store became a thriving business. By the end of the decade the Sidewater brothers were discussing expansion. In order to open up and manage the new stores, Moe and Artie took on additional partners, with each partner managing his/her own store. In these early days, the two Sidewater brothers did their own advertising, a task at which they proved quite effective; with his previous experience as a buyer, Moe Sidewater displayed a keen understanding of fashion trends.

In 1950 the Sidewaters began a lifelong business relationship with Artie's good friend, David Wachs, and David's brother, Ellis. The four formed the Sidewater/Wachs alliance and opened stores in Norristown, Pennsylvania, and Woodbury, New Jersey. Both stores were promoted with grand openings that featured local celebrities. The Woodbury store was the largest retail establishment in the town at that time.

Expanding into the Suburbs: The 1960s and 1970s

By 1960 the four partners were ready to open the first Charming Shoppes store in a large suburban shopping center. Sensing that suburban shopping would be the wave of the future, Sidewater/Wachs felt the new stores should operate under a new name. The first Fashion Bug was introduced into the Black Horse Pike Shopping Center in Audubon, New Jersey, that year. This sparked a period of tremendous growth for the company as it added Fashion Bug stores to an additional eight shopping centers throughout Pennsylvania, New Jersey, and New York.

In 1971 the four primary partners decided to take Charming Shoppes public. By this time the company had 21 stores, 18 partners, and accelerated growth rates in sales, with further potential yet untapped. Moe had taken over the primary tasks of management and systems control and, in looking toward cost cutting, had begun to computerize the operations; all credit charges and payments were consolidated onto a computer system installed in the company headquarters. The company centralized its bookkeeping and credit operations, in addition to centralizing the Fashion Bug charge accounts, thus making it possible to charge merchandise in any store. The company became a pioneer in the use of computerized cash register (point-of-sale) terminals that offered direct control over inventory.

After the computerization of much of the company's operations the company experienced its highest growth rates in its history. By the late 1970s, Charming Shoppes had 60 stores. To accommodate this accelerated growth, the company opened an additional buying office in Bensalem, Pennsylvania, that housed offices and a distribution center. The distribution center, innovative for its time, gave Charming greater control over its inventory and was soon imitated by Charming's competitors.

The centralization of operations also included a reorganization of the buying operations. Up until this time, each store manager acted as the buyer for that store. But due to the more complicated and diverse clothing markets, buyers now had to become specialists, individuals trained to select a particular type of clothing. To accommodate this trend, Charming centralized buyers into one buying division, with each buyer reporting to a specific clothing department and helping the distribution center ship out new merchandise to the stores. The larger stores also led the company to expand its display and interior design staff.

The company continued to grow during this period of reorganization. By the end of the 1970s the number of stores increased from 60 to 100 and the company again moved its headquarters to a larger location, its present Bensalem offices, a 400,000-square-foot facility. Growth continued unabated into the 1980s, as the number of stores increased sixfold in comparison with the previous decade. The company streamlined its distribution process in order to improve the flow of merchandise.

Changing Fashions in the 1980s

The increasing complexity associated with managing the Charming Shoppes network of stores led to a management overhaul. For its first 30 years of existence, the entire 900-store network was essentially managed by the partnership of the four brothers from two families, the Wachs and the Sidewaters. By 1987, however, the company leadership saw the need to reevaluate its management and decision-making strategy for the future. This involved a reorganization of the managerial hierarchy.

In an attempt to remedy the perceived stagnation of management, David Wachs took over in 1987 as chairman and CEO and implemented a restructuring geared toward attracting professional expertise and recapturing the company's core market constituency: middle income women, aged 25 to 45, seeking a range of apparel, from dresswear to sportswear.

Wachs, according to the Wall Street Journal, 'took over at the opportune time for change. Like other women's apparel retailers, Charming Shoppes ... saw demand plunge for its once-popular sportswear, leaving it laden with costly inventories. Accompanying this consumer turnoff to tired fashions and miniskirts were other pesky problems: price rises from overseas suppliers hurt by the falling U.S. dollar, and uncertainty of supplies from abroad.' The Journal went on to laud the company's efforts at reorganization, asserting that the Charming Shoppes 'merchandising prowess faltered as too many chefs played with its marketing recipe.'

The management 'revolution' was also viewed as necessary since management expertise was crucial to future growth. This shakeup, referred to by the Wall Street Journal as a 'blood transfusion,' broke up the family control that had previously determined long-term marketing strategy.

Charming Shoppes remained in a solid competitive position, in spite of its difficulties. The company's fiscal 1993 sales were up by more than 15 percent. According to a report in Women's Wear Daily, the company ended fiscal 1993 with net income of $81.1 million on sales of more than $1.1 billion, a marked improvement from just ten years before, when net income was just $12.1 million on sales of $174.3 million.

According to some industry analysts, Charming's success was largely a function of its strip mall locations, its direct control over its distribution and sourcing, and its private label credit card program. These factors remained crucial: Developers were projected to build more strip malls; the company sourced 75 percent of its own goods, eliminating the need for middlemen; and its credit card program promoted customer loyalty and multiple purchases.

Most importantly, in the words of Charming Shoppes CEO and Chairman David Wachs, in the women's retail market, 'we are the low-cost operator.' In the end, for a given quality level, the lowest cost producer continued to have the competitive advantage. The low cost strategy depended heavily on the strip mall sites; rents were historically about 40 percent lower at strip malls than large shopping centers, and the strip mall sites offered greater growth potential, according to some analysts. Further, the company's reliance on strips, which often included exclusive rental contracts, excluded much of the competition in the women's apparel industry.

Another way in which Charming Shoppes was able to maintain its competitive cost structure was via its vertical integration. The company, which already sourced a high percentage of its own goods in the early 1990s, planned on increasing this figure to 75 to 80 percent over the next few years. In pursuit of this increased efficiency, which further contributed to the low cost strategy, Charming capitalized its operations, investing in the latest electronics technology for clothing pattern design, computerized inventory control, and design.

Investors' analysis of the expected future earnings were optimistic in the early 1990s, and Charming planned to expand to 2,000 stores, according to Wachs. This expansion would include new merchandising efforts into the sportswear and ready-to-wear departments, with special emphasis on men's wear.

Recovering from the Retail Disaster of the Mid-1990s

Unfortunately, Wachs's ambitions never bore fruit. The year 1993 marked the beginning of a serious decline in sales for the retail industry, and Charming Shoppes was not immune to the economic slump. A general decrease in spending on women's clothing, combined with tighter competition, resulted in a drop in the company's sales of over 18 percent for the first seven months of 1995. Reports in October of operating losses of 20--30 cents a share caused Charming Shoppes stock to plummet, and by year's end the company had suffered a total loss of $139 million.

The company took steps to turn things around in August, when it hired Dorrit J. Bern as its new president and CEO. Bern had already made a name for herself in the industry as a vice-president at Sears, where she had played an integral role in revamping the women's clothing line. One of her first major actions as head of Charming Shoppes came in December, when she closed 290 of the company's most unprofitable stores. After the dust settled, in February 1996 Bern initiated a major restructuring project. Up to that time, the company had relied on overseas sourcing for 70 percent of its total purchases. Bern proposed that this proportion be reduced to 50 percent, and redirected the company's 'timely fashion' purchases--clothes that reflected the most current styles&mdashø the domestic market, allowing its merchants more time to anticipate trends, and subsequently reducing the volume of 'unfashionable' items left over in inventory. Meanwhile, the foreign sourcing operations began focusing exclusively on basic purchases.

The initial blow to the company was hard. The restructuring resulted in the layoff of more than 2,500 employees and the closing of several factories overseas. Store closures continued throughout the following year, with over 270 retail locations going out of business in 1996. However, while total sales continued to decline over the course of the year, sales-per-store actually rose five percent in 1996. Also, while total sales showed no appreciable improvement in 1997, the company did enjoy a net gain of almost $20 million, its first profit in three years.

Bern immediately directed these earnings toward the creation of new business opportunities for the company. In January 1998 Charming Shoppes purchased 28 stores in Texas and Louisiana from Petric Retail, Inc. In 1999 the company completed two key acquisitions that would help ensure its role as a major player in the women's large size apparel niche. The first came in July, when it purchased the Modern Woman chain, comprised of 137 stores in 25 states, for $10 million. In November Charming Shoppes acquired Catherine Store Corp. for $150 million, bringing in an additional 436 stores. By January 2000 Charming Shoppes owned 1,740 retail stores nationwide. The company continued to maintain an aggressive growth strategy for the future, with plans to open 106 new stores in 2000, followed by an additional 140 stores in 2001 and 160 in 2002; the ultimate goal was to open 1,000 new stores within five years. The company reported record earnings for the second quarter of 2000, and sales for the year were projected to exceed $1.6 billion, an increase of 33 percent over the previous year. Considering the company's dramatic turnaround since 1995, it appeared that with Dorrit Bern, Charming Shoppes was in very good hands heading into the 21st century.

Principal Operating Units: Fashion Bug; Catherine's Plus Sizes; Added Dimensions.

Principal Competitors: The Limited, Inc.; Target Corporation; Wal-Mart Stores, Inc.

Charming Shoppes, Inc. History

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