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Supply Chain Management of Jay Jacobs, Inc. -
January 12th, 2011
Jay Jacobs, Inc. operates a chain of fashion stores that sell contemporary men's and women's sportswear and outerwear, including fashion denim, dress and casual pants and tops, dresses, coats and jackets, and related accessories. In 1995, when the company emerged from Chapter 11 bankruptcy protection, there were 145 Jay Jacobs stores spread across 21 western and northwestern states, the majority of which were located in regional shopping malls. Although the company recorded meteoric growth during the 1980s, its fortunes soured during the early and mid-1990s, reducing the number of stores it operated roughly by half.
When 28-year old Jay Jacobs opened his first retail women's clothing store in downtown Seattle in 1941, the first link to what would become the Jay Jacobs chain of retail clothing stores was established. Although the company later would operate nearly 300 stores in more than 20 states, decades would pass before anyone would refer to Jay Jacobs' enterprise as a chain. The company did not open its second store until a decade after the first, and the third store did not open its doors until the second had already celebrated its tenth anniversary of existence. It was not until the mid-1970s--more than 30 years into the company's history--that Jay Jacobs, Inc. could rightly be referred to as a chain. With ten stores in operation in 1974, the company represented a discernible yet modest force in the Pacific Northwest retail fashion industry, but by the end of the decade the chain would begin to expand with decided aggression, increasing exponentially the number of stores it operated throughout the western United States.
During this formative period, the company established its reputation as a local retailer of women's sportswear in the Seattle area and led a purposefully quiet existence. Though the company's merchandise would mimic the vagaries of the fashion world, changing with the times and trends, Jay Jacobs management remained steadfast in its pursuit of young female customers, a type of customer Jay Jacobs stores would cater to from the 1940s to the 1990s. Inside the company's first store, which constituted a 40 feet by 60 feet main room with two balconies and a basement, moderately priced young women's clothing graced the shelves and racks, including dresses, sportswear, coats, and suits. Other Jay Jacob stores, as they slowly emerged onto the Pacific Northwest retail clothing scene, targeted the same type of customer with like merchandise, until men's clothing was added to the company's stores in 1970. Despite Jay Jacobs, Inc.'s foray into men's fashion, the company would continue to derive the overwhelming majority of its sales from young women's clothing after 1970, carving a niche for itself in the region's retail clothing industry and lending an easily recognizable identity to Jay Jacobs stores.
Chiefly responsible for creating and implementing Jay Jacobs, Inc.'s successful retail concept was its founder, Jay Jacobs, whose control over the company was resolute. Together with his wife Rose, who helped with selecting merchandise and served as the company's comptroller, Jay Jacobs closely watched over the operation of his original store and others to follow, orchestrating the development of Jay Jacobs, Inc. into a retail chain. In so doing, Jay Jacobs' name, which was emblazoned across his stores, became known throughout the Seattle area, but the founder of one of the region's most thriving retail operations kept largely to himself, distancing himself from other business leaders in Seattle's fashion community. Known for being a fierce handball competitor, Jay Jacobs was a fixture on Seattle handball courts for more than 30 years, but outside the court he fraternized little with other retailers or business people, exhibiting a personality that earned him a reputation as being a hard-working, private man.
As much as Jacobs avoided the public spotlight, so did his company eschew any unnecessary outside attention. During the company's first four decades of existence, it operated as an intensely private organization, never announcing or confirming annual sales figures. As an example of its commitment to privacy, the company operated a 3,500-account wholesale division for five years before more than a handful of outside observers learned of the company's diversification.
This secrecy would eventually be lifted somewhat as the number of Jay Jacobs stores proliferated during the 1980s. By that time, the reins of command had been passed to Jay Jacobs' son-in-law Doug Swerland, who earlier had married his boss's daughter Shelley. Swerland was named president of Jay Jacobs, Inc. in the late 1970s, inheriting a company that had been profitable every year since 1941. During Swerland's tenure, the number of Jay Jacobs stores increased exponentially, as the founder's son-in-law blanketed regions where the company already maintained a presence with additional stores and extended the company's geographic reach into virgin territories, transforming Jay Jacobs, Inc. into a genuine western United States retailing force.
In describing the corporate strategy that shaped Jay Jacobs' growth during the first half of the 1980s, Swerland told the Puget Sound Business Journal that the company would "open up a new market, saturate it, and dominate it." It was a succinct and apt description of Jay Jacobs, Inc.'s actions during Swerland's first half-decade of leadership, for the company expanded quickly, establishing a host of new stores in previously unoccupied territory and, as a result, held a firm grip on a wide-ranging area of operation. By the mid-1980s, the company had tripled in size over the previous five years, operating, in 1986, 103 stores scattered throughout Washington, Oregon, California, Idaho, Montana, Utah, Wyoming, Alaska, and Hawaii. In contrast to the sedate pace of expansion recorded during the previous four decades, the explosive growth of the 1980s represented a glaring aberration, with the company at one point in 1985 opening a new store an average of every 11 days.
Much of Jay Jacobs, Inc.'s growth had occurred in California, where the company first entered the northern half of the state, then began receiving inquiries by southern California shopping mall developers interested in having the rapidly growing chain expand in their direction. When the company purchased 24 Marsi's stores in 1984, the door south was opened and Jay Jacobs stores began popping up quickly. Elsewhere, the company's stores also appeared in rapid succession, and scored enviable success, leading industry observers to refer to the Jay Jacobs chain as one of the most successful and profitable retailers in the country. Moreover, the company began touting itself as the largest independent fashion retailer on the West Coast. With the company's retail business booming, Swerland branched into the wholesale side of the fashion business and quietly organized a separate division within Jay Jacobs, Inc.'s corporate structure that by the mid-1980s sold two lines of women's clothing, D.D. Sloane and J. Jordan, to stalwart retailers such as Bloomingdale's I. Magnin, and fellow Seattle-based Nordstrom's. Combined, the retail and wholesale businesses belonging to Jay Jacobs, Inc. helped push annual sales upward as the company's expansion progressed, jumping from an estimated $35 million in 1983 to between $60 and $75 million in 1985.
The 1980s were heady years for Jacobs (who continued to serve as his company's chairman), Doug Swerland, and the 1,400 employees who worked for the company. Confidence ran so high that the company opened an experimental store called Concepts in the mid-1980s that focused on more upscale customers than the traditional Jay Jacobs 15- to 25-year old target customer and loomed as a potential new chain for the company. Perhaps most encouraging, the company's prodigious expansion did not appear to tarnish its coveted reputation. In a survey sponsored by Women's Wear Daily, a leading fashion trade publication, Jay Jacobs, Inc. was found to be "most in tune with consumer preference, most aware of how each resource operates, and having the most professional buying and merchandising executives," attributes frequently lost during rapid expansion.
As Jacobs and Swerland looked back on the expansion that had swelled the unit size of their company to more than 100, they could also take heart in the fact that all of the expansion had been financed internally, with the successful operation of existing stores breeding the addition of new stores. The company had relied on short-term bank loans only to build inventory.
However, 1986 was the last year the pair could proclaim their independence, for further expansion lay ahead. Jay Jacobs, Inc. would establish roughly as many new stores during the latter half of the 1980s as it had during the first half of the decade, which meant the company needed capital from sources other than itself. In 1986, anticipating its future financial needs, Jay Jacobs, Inc. began the process of converting to public ownership, then made its initial public offering in mid-1987, thereby putting to an end its staunchly-held privacy.
By the end of the decade, there were 179 Jay Jacobs stores spread across 13 states, as the momentum built up during the first half of the 1980s carried over into the second half of the decade. About the only negative development suffered by the company as it entered the 1990s was its floundering wholesale division, which recorded an operating loss of $314,000 during the first fiscal quarter of 1990. Jay Jacobs, Inc. closed the division later in the year, but even the company's failure in the wholesale fashion business elicited praise from analysts, who were pleased by the company's abrupt exit since it meant greater attention could be paid to the nearly 200 Jay Jacobs retail stores. In the wake of the company's decision to desist marketing wholesale clothing, the price of its stock rose steadily, while sales for the year eclipsed $100 million, reaching $111.7 million, from which the company recorded $3.1 million in net income.
Flush with success, the company added eight stores in the Chicago and Milwaukee areas in March and April 1990--the first Jay Jacobs stores located east of the Rocky Mountains--then mapped out ambitious plans to saturate the region with additional stores. In the summer months of 1990, company officials announced plans to establish 30 new stores in the Midwest, intent on shoring up its position in and around Chicago and Milwaukee and following the strategy articulated by Swerland during the early 1980s. For everyone associated with the company, including employees, management, and stockholders, the future appeared to hold the coming of great developments for the company. Within two years, however, everything would change, as Jay Jacobs, Inc. began a deleterious financial slide. Less than two years after that, the company would file for bankruptcy, dashing the hopes of those who had much to look forward to in 1990.
Store expansion continued during the early 1990s, despite a recessionary economic climate, bringing the total number of Jay Jacobs stores in operation to 288 by the beginning of 1993. The total was an all-time high for the company and one it would not eclipse anytime in the near future. During the ensuing months, the number of Jay Jacobs stores fell sharply, as the company began to close unprofitable stores, particularly in southern California where the Jay Jacobs chain was recording its most serious losses.
The sudden unprofitability of Jay Jacobs, Inc., which began in 1992, was a complete turnaround from the robust years of the 1980s, and the cause was difficult to pinpoint. A recession during the early 1990s crippled many businesses, particularly retailers like Jay Jacobs, Inc. Exacerbating the effects of the harsh economic climate was the company's more than decade-long expansion program, which some critics regarded as too rapid and therefore the root of its financial woes. Others charged that founder Jay Jacobs had never given his son-in-law sufficient control over the company and had lost touch with the ever-changing trends of fashion. Whatever the cause, the company was reeling from declining business, forcing all those involved to search for a solution forthwith.
Swerland attempted to broaden the age of range of Jay Jacobs, Inc.'s target customer, hoping to attract older customers with more career-oriented clothing. However, by November 1993 Swerland was gone, opting to resign from the company as its losses mounted. In Swerland's place, Craig Bohman followed as president, capping off a 17-year career with the company during which he served as a treasurer, executive vice-president, chief financial officer, and director before securing his final promotion. Like Swerland, Bohman sought to attract slightly older customers to the dwindling number of Jay Jacobs stores, and like Swerland, Bohman's tenure as president ended with his resignation from Jay Jacobs, Inc., though Bohman served as president for a much shorter duration.
By the time Bohman vacated his post in May 1994, the number of Jay Jacobs stores in operation had dropped to 257. Concurrent with Bohman's departure, Jay Jacobs, Inc. filed for relief under Chapter 11 of the U.S. Bankruptcy Code, ushering in a difficult period of transition and reorganization for the company that would serve as a test of management's mettle. As a consequence of its financial slide, the company had lost the trade support of its vendors, making it difficult for the company's stores to get merchandise. Filing for Chapter 11 provided a solution for this pernicious problem, helping the company to get out of leases at unprofitable store sites. So Jay Jacobs, Inc. attempted to move forward under court protection, with a familiar figure to lead the company through its first several months under Chapter 11. Jay Jacobs, 81 years old at the time, took back the titles of president and chief executive officer in July 1994, then sought to reverse the damage caused, as he perceived it, by overambitious expansion.
Jacobs controlled two-thirds of the company's stock when he filled the void created by Bohman's departure, giving the octogenarian founder tremendous control over the nominally public company. But after two months he relinquished his posts to yet another new president and chief executive, the company's fourth leader in less than a year. Rex Steffey joined the company in September 1994, bringing hope that Jay Jacobs, Inc. could emerge successfully from bankruptcy. With Rex Steffey at the helm, such hope was justified primarily because the company's new president and chief executive had helped Indianapolis-based retail chain Paul Harris Stores Inc. wrest free from bankruptcy in 1992, accruing experience he brought to bear on Jay Jacobs, Inc. beginning in the fall of 1994.
Like his predecessors, Steffey decided to abandon the market niche Jay Jacobs, Inc. had occupied for decades, opting to steer away from junior-sized women's clothing for teenagers and young women and instead attract older clientele with private-label casual wear and career clothing. The objective was to lure customers in their 20s rather than high school-age customers. As management strove to bring about this change, it also labored at developing a reorganization plan to bring Jay Jacobs, Inc. out of bankruptcy. Many stores were closed, while others were converted to off-price units, leaving the company with 145 stores by November 1995, when Jay Jacobs, Inc. announced the U.S. Bankruptcy Court had approved the company's plan of reorganization.
As Jay Jacobs, Inc. plotted its course for the future, the company planned to open 25 new stores in 1996 and focus those openings on its most profitable concept during the mid-1990s: a combination men's and women's clothing format. Though the early 1990s had proven to be an exceedingly turbulent period for the company, it was determined to move forward, supported by a marketing strategy that emphasized increased private label merchandise, the development of its own products, and staying attuned to prevailing fashion trends.
Principal Subsidiaries: Green Light Fashions, Inc.; J.J. Distribution Company.