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Supply Chain Management of J. Baker, Inc.
Supply Chain Management of J. Baker, Inc. - January 11th, 2011
J. Baker, Inc., is the leading U.S. retailer of clothing and footwear for the men's big and tall market, which comprises some 16 million consumers. As of October 1999, the company operated 450 Casual Male Big & Tall stores, over 90 REPP Big & Tall stores, some 50 REPP Premier stores, the REPP By Mail catalog, and the ThinkBig.com e-commerce site. In addition, its Work `n Gear division operated 65 retail stores, selling uniforms, healthcare clothing, and utility workwear in 13 states in the Northeast and Midwest. Through its JBI Footwear division, J. Baker is the largest independent operator of self-service licensed footwear departments in discount department stores, operating 866 units.
Early Days: 1920s--1960s
Jacob Baker launched his eponymous business in 1925 or 1927&mdashcounts differ--selling his shoes wholesale to mom-and-pop stores from the rear of his brother's shoe factory in Spencer, Massachusetts. After Jacob's death, the company was taken over by his son Sherman, who soon began selling shoes at retail. As Sherman Baker told David Mehegan of the Boston Globe, 'A couple of women from Springfield stopped by and asked if they could buy some shoes. We sold them some shoes and they came back with their friends. They'd wait in the alley for hours, and they'd take away 25 pairs of shoes.' The company's retail business grew, operating with a small markup and heavy volume.
In 1953 Sherman took J. Baker in a new direction that would eventually become its main source of revenue: operating shoe departments in discount department stores. Under such arrangements, a mass merchandiser hired J. Baker to provide shoes, display racks and staff. In return, the store received a fixed percentage of revenues and did not have to worry about ordering and inventory. In 1958 J. Baker's one-year-old neighbor, Ames Department Stores Inc., licensed the company to run that chain's shoe departments, and as Ames grew, so did J. Baker.
Part of National Shoes: 1968--84
By 1968, Sherman Baker was looking to expand. To raise the money he needed, he sold J. Baker to National Shoes, a chain of full-service shoe stores controlled by the Siegel family. However, National's stores were in urban neighborhoods, not in the suburban malls that were experiencing dramatic growth, and the company was soon losing money. Although Baker became president of National in 1970, the Siegel family remained involved in the decision making. For ten years J. Baker carried the company, offsetting losses from the National stores with revenues from its licensed shoe departments.
In 1980 National's creditors forced both the parent and its subsidiary into bankruptcy. At the time, National Shoe had 210 retail stores, including Delton, A.S. Beck, Joffrey, and National. J. Baker had 237 leased shoe departments. Sherman Baker brought the company out of Chapter 11 protection in 1982, in large part because his suppliers agreed to continue shipping merchandise on extended credit terms. Two years later Baker sold 114 of National's store leases to Butler Shoe Corp. at a large profit, providing enough case to pay off the creditors.
A New J. Baker Inc.: 1985--87
As the stripped-down company regained its financial footing, Baker wanted to buy out the Siegels. With Baker, financier Thomas Lee, and a partnership of the Bass brothers of Fort Worth each taking a one-third equity interest, Baker created Shoecliff Corp., which acquired National and its subsidiary in 1985 through a cost merger at a price of some $31.6 million. The new entity, J. Baker, Inc., was a private company headquartered in the Boston neighborhood of Readville. The transaction was the first in a series for Sherman Baker, who went on to buy successful divisions of other bankrupt companies.
Soon after taking control, Baker started the company's own retail operation, the Parade of Shoes chain of discount shoe stores in New England. These self-service stores charged one price ($13.88) for any pair of women's shoes, with a high percentage of the shoes being leather and most with familiar brand names. J. Baker was joining a discounting movement in the industry that had mushroomed following an oversupply of shoes the year before. Sales for the company's first fiscal year, which ended February 1, 1986, were $116.7 million.
In 1986 J. Baker went public. At the time, the company owned 29 Parade of Shoes retail stores, leased and operated shoe departments in 400 stores in 18 states, and supplied shoes at wholesale to 207 more stores in two other chains. Parade of Shoes operated on the same low-margin/high-volume principle Baker had first used in the early 1940s. The sales volume at the retail stores was among the industry's highest, averaging $250 per square foot compared to the industry's average of between $150 and $200. The chain did very little advertising, depending instead on word-of-mouth to generate sales. The company's revenues for the year grew to $167.8 million
Growing the Shoe Business: 1987--89
With both the retail and licensing divisions of the company generating cash, Sherman Baker announced that the company was considering buying freestanding stores and had already made a bid for Morse Shoe, which eventually went private in a leveraged buyout. Prices at Parade of Shoes rose to $15.88, to offset increases in the cost of imported shoes, and the chain expanded into New York and New Jersey.
In 1987 the company started its second discount chain, Step In Shoes. These self-service stores specialized in low-cost shoes for the entire family. According to a 1998 Forbes article, the establishment of the new chain was a defensive move to keep May Department Store's discount shoe division from gaining ground in New England. By the end of the year the new chain had five stores and Parade of Shoes had grown to 83 locations. Baker then turned his attention to his wholesale and licensing businesses. During 1988 wholesale customers increased to 607 stores with nine chains, and the number of licensed shoe departments operated by J. Baker grew to 598 in 23 discount department store chains.
The year 1989 was one of significant change. The company bought Boston-based Spencer Shoe, which operated 190 leased footwear departments in discount stores in the Northeast, for about $4.5 million in stock. Then Ames Department Stores Inc. replaced its usual five- or six-year licenses with a 20-year lease agreement for J. Baker to operate the shoe departments in all the Ames stores as well as the 315 Zayre stores Ames had just purchased. Between these two events, Sherman Baker selected his designated successor, bringing Jerry Socol, who had been chairman and chief executive of Filene's, to the company as president. Socol soon took on CEO responsibilities as well, while Baker remained chairman. J. Baker ended the year with sales of $399 million and was named the best small company in America by Forbes.
Adding Clothes to the Mix: 1990--91
In 1990, the Boston Globe estimated, one out of every 25 pairs of shoes sold in the United States was sold by J. Baker. Parade of Shoes, now with 125 stores, was growing by about 35 percent a year. The wholesale division reached 118 discount stores. In the licensing area, the company signed a deal with discounter Rose's Stores Inc. to operate shoe departments in all 260 Rose's locations. This brought the number of licensed shoe departments to 1,513. Almost at the same time, however, Ames Department Stores filed for Chapter 11 protection, and eventually closed 231 of its 692 stores. The bankruptcy cost J. Baker about $20 million in lost sales.
According to the Boston Globe, J. Baker had only two serious competitors in the licensing/wholesaling businesses, Morse Shoe and Meldisco, a division of Melville Corp. Even though the two biggest discounters, Kmart and Wal-Mart, had long-term arrangements for their shoe departments, analysts estimated there were 2,500 other discount stores with shoe departments for J. Baker to pursue. In October the company surprised the analysts by announcing that it would buy Massachusetts-based Casual Male Corp.'s chain of 190 big and tall men's clothing stores, which was the only division still operated by the bankrupt company. The chain concentrated on moderately priced casual clothing and accessories for men who were taller than 6 feet 2 inches or with waist sizes of 40 to 66 inches. Most of the stores were in the Northeast, but the chain spread as far as Minnesota and Texas. The purchase, while following Baker's habit of buying successful divisions of bankrupt companies, also fit Socol's preferred strategy of focusing on specialty retailers with strong niches. The price was just $7.2 million to Casual Male Corp.'s creditors over two years. In its first year as part of J. Baker, Casual Male Big & Tall's operating profits were double that amount.
The move to diversify was important, as the company's licensed shoe department business dropped significantly with the Ames bankruptcy and store closings and the announcement by Rose's Stores that they would be closing 25 locations. The 141-store Parade of Shoes chain was also feeling the effects of a weak economy, and at about this time, the company closed its Step In Shoe chain. A year later the company continued its apparel diversification with the purchase of WearGuard's 29-store retail chain, adding work clothes and medical uniforms to its specialty niches. The 40-year old family-owned company founded to sell work clothes to gas station owners had grown to become a leader in catalog sales of work clothes. Under the deal, which cost about $5.5 million in stock, J. Baker acquired the inventory and leases of the stores and a license to use the WearGuard name.
More Shoe Purchases: 1992--94
Despite the move into apparel, selling shoes was still the company's main business. During 1992 the company turned around its flagging Parade of Shoes chain, with annual sales per store jumping from $100,000 in 1991 to $525,000 in 1992. 'You get a warm fuzzy feeling when you look at what they've done with Parade of Shoes,' one analyst told Footwear News in a 1993 article. The winning strategy was to shift from brand names to upgrading the quality of its unbranded leather shoes, increasing prices to $19.98 a pair, and improving the stores' appearance.
In December the company announced it was buying the bankrupt Morse Shoe Inc. for a stock swap worth $58 million, beating out May Department Stores in the process. Morse was the company's nearest competitor in leased shoe departments, and the purchase bought J. Baker the national 480-store Fayva chain, more licensed shoe departments, and a new headquarters in Canton, Massachusetts. In December Ames emerged from bankruptcy and continued to use J. Baker to operate its shoe departments. Revenues for the year reached $532 million with earnings of $11 million.
In 1993 sales jumped 73 percent, to $919 million. Early in the year, the company changed the name of its work clothes chain to Work `n Gear when WearGuard Corp. terminated the licensing agreement it had with J. Baker, citing 'disagreements over royalties and value,' according to the Patriot Ledger. In November, the company bought Ohio-based Tishkoff Enterprises Inc., the parent of Shoe Corp. of America (SCOA), which operated shoe outlets in upscale department stores. J. Baker paid $1.9 million in stock and cash for SCOA, which had sales of $40 million, and gained entry into a new segment of the licensed footwear department business.
But the news that year was not all good. Sherman Baker agreed to pay $713,000 to settle SEC charges that he sold company stock before the announcement of the closing of Ames stores caused the stock price to drop. And the company lost a patent infringement suit over a plastic device that tied pairs of shoes together, eventually paying $4.1 million in damages.
Attempts to Counter Market Weaknesses: 1995--96
Over the next two years, the company continued to expand the Casual Male Big & Tall chain, which accounted for over half of the company's revenues. It added stores, began operating shoe departments in Today's Man stores, and initiated catalog sales. At the same time, things were going poorly in the footwear business. Throughout the industry, over 1,500 shoe stores closed during the winter of 1995--96. Existing Parade of Shoes stores had modest but continuing declines in sales. In September 1995 the company decided to liquidate its Fayva chain, blaming competition from discounters Wal-Mart, Kmart, and Payless ShoeSource and the poor retail environment.
In 1996 the company put SCOA on the market and tried to turn around the slumping Parade of Shoes chain. Company officials and analysts agreed that the chain had alienated its core customer base of working women by introducing young, hip fashions and moving from strip malls to urban locations. Despite efforts to refocus the chain, Parade of Shoes lost money for the year.
Profits in the licensed department division were also declining as discount department stores, including customers Jamesway and Bradlees, sought bankruptcy court protection. In September Jerry Socol left the company. Chief Financial Officer Alan Weinstein was named acting president and CEO, and later took on the positions permanently. At the end of Socol's eight-year tenure, J. Baker operated 1,032 licensed footwear departments in discount department stores, 450 licensed footwear departments in semi-service and full-service department and specialty apparel stores, 200 Parade of Shoes stores, 427 Casual Male Big & Tall stores, and 66 Work `n Gear stores.
Footwear Restructuring: 1997--98
During 1997 and 1998, the company completed the restructuring of its footwear division. In March 1997 it finalized the sale of its Shoe Corporation of America division to division executives and the Parade of Shoes division to Payless ShoeSource, Inc., the largest family footwear retailer in the country. It also downsized its licensed-department business and renamed it JBI Footwear.
In its apparel business, the company opened its first Rx Uniforms stores, hoping to cash in on (or create) a niche market for pastel hospital scrubs. The healthcare wear had started as a small department in the Work `n Gear shops, and grew into a 'store-within-a-store.' As a company official explained in a 1998 Boston Globe article, demand by nurses grew with relaxed dress codes in hospitals and the cut in uniform subsidiaries by health maintenance organizations. Television shows ER and Chicago Hope also contributed to the acceptance of non-white hospital wear. The company designed a new store format, with Work `n Gear and Rx Uniforms each having its own doorway and exterior sign.
In May 1999 J. Baker bought the profitable Repp Ltd. Big & Tall and Repp Ltd. by Mail divisions of the bankrupt shoe and apparel retailer Edison Brothers Stores, Inc., for $31.7 million. The purchase added 133 retail locations in the Midwest and West as well as a catalog business. The traditional clothing in the upscale REPP Ltd. stores also gave J. Baker access to the more affluent customers in the men's big and tall market. Later in the year the company announced retail formats for the discount end of the market (B & T Factory Store, an outlet chain) and for designer collections (REPP Premier Big & Tall).
J. Baker's consolidation as the heavyweight retailer in the big and tall men's market occurred as that $5.5 billion industry was growing at a rate of 11 percent. While still maintaining a major presence in the footwear departments of mass merchandisers, the company appeared to have successfully moved away from its exclusive reliance on selling shoes.
Principal Competitors:J.C. Penney; Sears; Wal-Mart; Kmart; Target; Wearguard/ARAMARK; Life Uniform.
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