Marshalls Incorporated History

Address:

P.O. Box 9030
Andover, Massachusetts 01810
U.S.A.

Telephone: (508) 474-7000
Fax: (508) 474-7159

Division of Melville Corporation
Incorporated: 1923
Employees: 21,000
Sales: $2.8 billion
SICs: 5651 Family Clothing Stores; 5661 Shoe Stores

Company History:

Marshall's Incorporated is one of the nation's leading off-price family retailers. Marshall's stores offer a wide range of apparel for men, women, and children, as well as furnishings for the home. Experiencing steady growth since its inception in the 1950s, the company faced intense competition in the 1990s, the effects of which it sought to offset by tailoring its merchandise to suit customer preferences at each store location, stepping up its advertising program, remodeling some stores and expanding others, and broadening the scope of its product lines to include gourmet foods and giftware.

The company traces its history to 1956, when Alfred Marshall gathered together a band of innovative entrepreneurs on the East Coast. Contemplating the dual postwar phenomena of a boom in the economy and growth in the suburbs, Marshall and associates came upon a way to meet it profitably. Together, they opened a self-service department store in Beverly, Massachusetts, offering apparel and homewares at alluringly low prices.

The concept proved extremely successful; ten years later, Marshalls had become the leading off-price retail chain in the nation. Given the volatility of the American economy in the 1970s, with recession affecting the spending habits of most shoppers, the off-price industry gathered speed. By buying up manufacturers' post-season, over-run, and close-out stock, Marshalls was able to offer fashionable, high-quality "designer" items at prices 20 to 60 percent less than those of the department stores.

The problem with the creative and successful plan, however, was that it inspired many imitators. As Marshalls' sales recipe became a favorite, many other retailers created off-price stores of their own. Moreover, department stores were also fighting for their share of consumer interest and began marking down merchandise as well.

By the mid-1970s, it became clear that for Marshalls to survive the off-price wars, it needed to expand aggressively. The company had earned $3.2 million on sales of $77.1 million in fiscal 1975, but its stores were still mostly limited to the New England area. The stores then averaged around 30,000 square feet and were situated in high-traffic areas such as strip malls and shopping centers.

During this time, Marshalls' potential for expansion attracted the attention of the Melville Corporation. Melville had been known mostly for footwear--most notably, its Thom McAn brand--but by the end of 1976, shoes accounted for only 60 percent of Melville's volume as the company underwent an aggressive diversification program. The country's 32nd-largest retail company at the time, Melville was purchasing specialty chains, including Chess King men's clothing outlets, Foxmoor's chain of women's apparel stores, and the CVS drugstore chain. In February 1976, Melville added Marshalls' 32 stores to its holdings, paying about $40 million for the company. Under the parentage of Melville, Marshall's opened seven more stores in 1976; five in the Northeast, one in Los Angeles, and one in Chicago. That year, with assistance from its latest purchase, Melville reached the $1 billion mark in sales.

The needs of consumers shifted considerably during the mercurial 1980s, and the retail industry had to work quickly to accommodate the changes. At some points, status-conscious label hunters dominated the market; at other times, thrift was the driving influence. Marshalls reached its own $1 billion benchmark in 1983. By that time, it was Melville's largest holding. Moreover, Melville's acquisition during this time of Linens 'n Things, an off-price bedding and table goods chain, would complement its Marshalls operations, which eventually focused more on home furnishings. In 1983, Marshalls announced plans to expand at a rate of roughly 40 stores per year over the next five years, starting with 38 new stores in 1983. The number of Marshalls stores by year's end totaled 175.

The plan, however, proved overconfident. Marshalls' store sales became suddenly sluggish in the mid-1980s. By 1985, Marshalls had slowed its store growth accordingly. Part of the problem was its fiercest competitor, T.J. Maxx, the country's second largest off-price chain. Indeed, one analyst, quoted in Advertising Age, compared Marshalls and T.J. Maxx to Pepsi and Coke, warring for market share and recognition. Moreover, off-price retailers in general no longer dominated the market. They had taken considerable market share away from department stores in the late 1970s and early 1980s, but department stores had rallied by the mid-1980s, and were fighting back with slashed prices on comparable merchandise.

At the same time, discounters were wooing the consumers more interested in bargains than brand names. By 1987, discounters had become the fastest-growing retail segment. For a brief time, Marshalls was caught between the two conflicting strategies to lure in consumers: lower prices or offer more recognizable, and pricier, brands? If its customers were driven equally by a desire for quality, value, and selection, Marshalls had to find a way to balance the three without compromising. Some critics suggested that the company had been compromising on quality for some time.

In 1986, Michael Friedheim took over the direction of Marshalls, when president Gerald Kanter left the company. Friedheim, formerly executive vice-president of Melville, brought merchandising expertise to the drifting company and soon made a decision regarding Marshalls' future. Beginning in 1987, Friedheim and Marshalls opted to eschew the discount route and upgrade its goods. New merchandise was brought in, with higher prices and more recognizable brand names, including clothing of the premium Liz Claiborne brand. Cinching this marketing decision was the realization that Marshalls customers were mostly people with good taste and moderate incomes between $25,000 and $50,000; in short, Marshalls customers sought top brands that often didn't fit their budgets.

This turnaround continued in 1987, when Francis (Frank) Arnone became president and CEO of Marshalls. Arnone had previously served as CEO of two Carter Hawley Hale divisions and brought with him a wealth of executive merchandising experience.

While Marshalls was restocking with slightly higher grade goods, it was also enhancing its misses' apparel category. Women's apparel represented about 60 percent of the stores' volume in 1988. Monthly comparative store sales, an industry measurement of a chain's health, picked up 6.5 percent in 1987, and by the end of 1988 comparative store sales were four percent ahead. The company's plans for expanding its store openings were realized during this time, as about 25 new Marshalls stores were being opening annually.

Also during this time, Arnone noted that Marshalls was selling high volumes of non-apparel items, such as pillows and bedding. To gain the expertise and valuable store space needed to offer full lines of home furnishings, Marshalls purchased all ten of Branden's home-oriented stores from the Dayton Hudson Corporation. Parent Melville sold four of the ten stores to Levitz Furniture Company, but all of Branden's units in Florida and one in Atlanta, Georgia, were retained.

Marshalls set about converting the 50,000 square foot Branden's units to fit a new concept: superstores in which the giftwares and home furnishings departments occupied considerable space. Moreover, the company planned to open 50 additional Marshall's stores in 1989. Facilitating such growth was the acquisition of 12 Channel Home Center sites in 1989. Eight of the sites were on Long Island and the rest were in Connecticut and Massachusetts. The Centers loaned themselves well to Marshalls new superstores.

That same year, Marshalls' war with T.J. Maxx was reaching a boiling point. By summer of 1989, Marshalls had 317 stores in 40 states and intended to open 40 outlets a year for the next five years. T.J. Maxx had 328 stores in 40 states, planned 45 additions annually, and was rapidly closing the gap between itself and the off-price retailing leader. The war was especially visible in competing ad campaigns, as both stores vied for consumers being bombarded with "everyday low price" marketing messages. Marshalls total sales had inched up 9.3 percent in 1988, reaching $1.75 billion. The numbers were slightly misleading, however, as same-store sales increased only slightly more than two percent. Due in part to aggressive advertising, those numbers improved in 1989. But that wasn't enough.

Marshalls accelerated its efforts in the early 1990s through subtle shifts on earlier elected directions: remodeling its stores to attract more upscale customers, through merchandise, size and design. In addition to new superstores, Marshalls began remodeling existing stores. The prototype for the stores featured bright colors, improved signage, new fixtures--an array of measures intended to attract upscale customers through a more fashionable atmosphere.

The new superstores were nearly double the size of Marshalls' regular stores, and the extra room accommodated expanded specialty areas, including departments that had never appeared in some of the original stores. Marshalls traditional departments included misses and junior sportswear, dresses, larger sizes, petites, lingerie, accessories, infants' and children's apparel, a range of men's wear, footwear, domestics, jewelry, and giftware. In the new superstores, however, domestic areas were expanded, and broader clothes lines for women and men were added, including the addition of maternity clothing and men's suits. In addition, there were new departments for boys' wear, fine jewelry, luggage, and health and beauty aids.

The new Marshalls had a layout similar to that employed in department stores. Moreover, the Designers Back Room was inaugurated in a Newton, Massachusetts, Marshalls in 1990. Considered stores-within-a-store, the Designers Back Room was a separate room of about 1,000 square feet, stocked with higher-end designer and bridge label merchandise.

Sales for 1990 hit the $2 billion mark, and the following spring Marshalls had 398 stores in 38 states. A new president and CEO joined Marshall at this time; Jerome R. Rossi had joined the company after serving as chairman of the May Company division of Foley's in Houston. Rossi continued piloting the transformation of Marshalls into a store with a larger home section and upscale goods. It was Rossi's intention to sustain Marshalls growth while maintaining its status as a family store that equally emphasized men's, women's, and children's apparel, footwear, and home furnishings. After several rocky years, the off-price apparel industry had a flush year in 1992, with overall annual results up 13.2 percent to $11.7 billion.

Marshalls was still the pack leader in the early 1990s, but T.J. Maxx was still running a close second. In fact, T.J. Maxx had been edging for the number one spot for the past three years. In 1992, sales for Marshalls were $2.6 million; T.J. Maxx's sales were $2.58 million. Throughout 1992, while Marshalls had concentrated on developing its merchandising strategy and controlling spending, T.J. Maxx was aggressively opening 37 new stores. During the same period, Marshalls' new store openings numbered about eight, after factoring in some closings and relocations. Still, Marshalls was a big earner for Melville that year. Moreover, the parent company was divesting itself of poor performers, including Chess King, so that it could concentrate on core performers like Marshalls and CVS.

Marshalls had moved as far as Hawaii by 1993, the same year it was expanding its downtown presence with new stores in Boston and Portland, Oregon. Marshalls opened 40 new stores in 1994, remodeling about 50 others, refining its focus on a broader range of items and plotting to keep its spot as leader.

Marshalls Incorporated History

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