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Marketing Strategy of Crown Books Corporation

Marketing Strategy of Crown Books Corporation

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Marketing Strategy of Crown Books Corporation
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Anjali Khurana
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Marketing Strategy of Crown Books Corporation - December 16th, 2010

Crown Books was a bookseller based in Largo, Maryland. It was founded in the Washington, D.C., metro area by Robert Haft in 1977. Crown Books (retail) is of no relation to Crown Books (publisher), although the former carried inventory from the latter.

Public Company
Incorporated: 1981
Employees: 3,370
Sales: $287.7 million (1997)
Stock Exchanges: NASDAQ
SICs: 5942 Book Stores

Company Perspectives:

Crown Books Corporation is one of the nation's leading book retailers, operating 168 book stores in seven metropolitan areas nationwide. Crown Books is committed to delivering Stand Out Service, while providing an exceptional selection of products at guaranteed lowest book store prices.

Company History:

One of the four largest retail bookstore chains in the United States, Crown Books Corporation operates almost 200 stores in clusters in and around seven major metropolitan areas ranging from Washington, D.C., to Los Angeles, California. Coast to coast, Crown sells, at a discount, almost everything published between two covers in either its Classic Crown Books stores or its larger Super Crown Books locations. The Maryland-based Dart Group owns a controlling interest in the company, holds leases to the company's corporate offices, and provides the bookstore chain with some administrative services. Crown Books and its employee network are dedicated to "Stand Out Service"; most Crown locations are open seven days per week.

Classic Crown Books stores carry fiction, nonfiction, the latest bestsellers, cookbooks, children's books, and a large selection of magazines. New York Times bestseller titles are sold at 40 percent below publisher's suggested retail for hardcover editions and discounted 25 percent in paperback. Other books are priced at between 10 percent and 25 percent below suggested retail. Even greater savings can be had by consumers purchasing Crown's selection of publisher's over-stock titles, reprints, and former bestsellers. Special order services are also available. Eighty percent of the company's book orders are shipped directly from the publisher, while regional warehouses distribute bulk orders of bestsellers and other popular titles to each Crown retail location.

While Classic Crown Books stores, which afford customers between 2,000 and 3,000 square feet of book selection, have been the backbone of the company since its founding in 1977, they have begun to be gradually phased out in favor of the larger, more competitive, superstore format adopted by the company in 1990. Stocking up to 80,000 titles--10 times the number carried in Classic Crown stores--Super Crown Books locations supplement the Classic Crown holdings with a large line of greeting cards, games, computer software, and an assortment of gift items. Each superstore provides between 12,000 and 35,000 square feet of retail space, is equipped with computerized point-of-sale/inventory management systems, and is designed to maximize efficiency and economize space usage. Store interiors are standardized, allowing new Super Crown locations to be opened to retail traffic rapidly. The costs associated with opening a new store were estimated by the company at $800,000 in 1997.

Crown locations are clustered around seven metropolitan areas: Washington, D.C., Los Angeles, Chicago, San Francisco, San Diego, Houston, and Seattle. Most Crown stores are located in strip shopping centers and urban streets rather than in enclosed shopping malls and are positioned in clusters to maximize advertising dollars and reduce distribution costs. While the company operates stores nationwide--all pricing, inventory, and advertising decisions are made at the company's corporate offices in Landover, Maryland--efforts are made to respond to local and regional literary tastes. Most advertising is done through the newspaper. Author appearances and book signings are also organized to further enhance stores' visibility and attract new customers, while many stores also feature children's story hours and reading groups. As with many other retailers, the company's sales are seasonal, with the fourth quarter substantially higher due to the holiday shopping season. All store locations are leased.

1980s Finds Rapid Growth in Bookstore Chains

Founded in 1977 by Robert M. Haft under the umbrella of the Haft family-owned Dart Group, Crown Books was incorporated in Delaware in 1981. In 1985 the bookstore chain expanded its line to include audio tapes, as well as video products that related to authors whose books it carried. By fiscal 1986, which ended January 31, Crown was posting net income of $6.68 million. In June of the following year, encouraged by the company's success, the Dart Group increased its interest in Crown Books to 52.4 percent by purchasing Crown shares from Thrifty Corp. for $37 million, or $13.45 per share. Net income for 1987 would be $5.5 million, a decline of 21 percent over 1986 levels.

By 1989 net income had rebounded, rising to $9.98 million, while in fiscal 1990 it would crest at $10.33 million. April 1990 proved to be an unusually profitable month for the bookseller, as Crown reported a 12 percent jump in sales during that 30-day period. By year-end 1991 the company would chart a slight increase in net income over 1990 levels.

While the 1980s had witnessed a phenomenal 76 percent growth rate in book retailers nationwide, the recession ringing in the 1990s would quickly stunt such growth. However, Crown management remained optimistic, citing the imminent release of several books by popular authors to give flagging sales a shot in the arm. Still, net income for fiscal 1992 dropped to $10.35 million, lower than the previous year's level.

Company Reevaluates Sales Strategy in Early 1990s

With the advent of its Super Crown Books locations, as well as the boom in sales volume of competitors like Borders, Barnes & Noble, and Books-a-Million, the company reevaluated its Classic Crown locations and determined that several of the smaller stores would become increasingly unprofitable as the trend toward larger bookstores continued. In 1993, under the guidance of Glenn E. Hemmerle, president and CEO of the company from October 1992 through June 1994, Crown prepared the financial groundwork for closing several of its smaller stores by scheduling charges of related restructuring costs--unrecoverable lease payments, depreciation of leasehold improvements, etc.&mdashàinst yearly earnings over an extended period. While from 1993 to 1997 the total number of Crown retail stores in its seven metropolitan-area clusters declined from 247 to 168, the number of Super Crown Books locations rose by 94 stores, offsetting the closing of 182 smaller Classic Crown stores and resulting in a net increase in the chain's actual retail sales area. By 1997 only 10 of the stores scheduled to be closed still remained open; completion of the company's planned restructuring was anticipated by 2005. In addition, the company annually charged against net income a reserve for stores that it deemed unprofitable; by early 1997, 56 such stores were earmarked for closure.

Mid-1990s Dominated by Family-based Litigation

A personal battle within the Haft family would dominate much of 1993 and beyond. In the wake of divorce proceedings initiated by his wife, Gloria Haft, family patriarch and Dart Group chairman of the board Howard H. Haft attempted to distance one of his sons from the family business, transferring power, money, and position to another. Prior to its June 1993 annual meeting, the Dart Group announced major changes in the company's board of directors. Notably absent from the suggested list of Crown Books board of directors candidates was former chairman of the board Robert M. Haft, founder and president of the company. Later that month, Robert M. Haft was formally fired from his positions within the company by his father, Howard H. Haft. After the firing, upper management positions were abandoned and refilled with some regularity, draining the company of both management skills and cash. Younger brother Ronald S. Haft, who had allied himself with his father in divorce-related matters, was given majority ownership in the family-owned Dart Group. This would include the company's majority stake of Crown Books, the voting rights which the elder Haft retained by proxy. Meanwhile, Robert M. Haft vowed to remove himself entirely from all family-related business endeavors.

Despite the family litigation, the company managed to continue to do business in 1993, although it posted net income of only $4.28 million on sales of $240 million. A charge of $4.1 million was taken against revenues as a result of planned store restructuring.

Expansion Efforts Slow in 1994

Despite its desire to expand its retail base, Crown was forced to slow its expansion plans as a result of the continued squabbling between members of the Haft family. Although seven Super Crown stores were opened during the first half of 1994, it seemed a slow start when compared to the 33 stores that had opened a year earlier. Net income also lagged; the company posted a loss of $210,000 for the year due to restructuring-related charges. Sales for 1994, however, were $275.12 million, showing a 1.4 percent gain over 1993 levels. Fortunately, the company had large cash balances on which to draw and were able to cushion what would otherwise have been a tremendous drain on expansion-related capital.

In October 1994, E. Steve Stevens was promoted to Chief Operating Officer and Senior Executive Vice-President, becoming President and Chief Executive Officer in December 1995. By early 1995 Stevens, whose job experience included several executive positions with other national retail stores, announced that he planned to accelerate the restructuring pace by closing 100 smaller Classic Crown Books and opening 28 larger superstores.

The family feud playing out among Haft family members appeared close to resolution by May 1994. However, four months later a jury awarded Robert M. Haft $34.1 million in compensation for a breach of contract by Dart Group and Crown Books. Several lawsuits and countersuits were filed by other members of the Haft family as each jockeyed for a controlling interest in family-controlled companies. By 1996 Crown found itself listed as co-plaintiff in a lawsuit brought against Herbert H. Haft by the Dart Group charging fraud and breach of fiduciary duty with regard to business transactions made during the course of Haft's divorce and resulting power struggle. Interestingly, Crown had been named as a co-defendant in similar lawsuits filed by shareholder groups as early as 1993.

Fortunately, a Standstill Order was entered in Delaware court in 1995, restricting certain relevant actions of the Dart Corporation until such time as all legal matters were resolved; by mid-1997 a conditional settlement had been reached with Herbert H. Haft whereby Haft would relinquish his position and voting rights in the Dart Group in exchange for approximately $41 million. This settlement was still pending late in 1997.

Large Bookstore Chains Control Retail Market by 1995

Nineteen ninety-five would prove to be a mixed year for the bookstore chain. In mid-January Crown would once again find itself in the news as the Securities and Exchange Commission began investigating the Dart Group, which holds a controlling interest in the company. Part of the SEC investigation involved Crown Books's failure to disclose information regarding financial difficulties at one of the company's subsidiaries. The investigation, sparked by an executive memo, led to a 21 percent drop in the price of company stock. The month was crowned by a net loss in revenue of $19.38 million, much of it due to expenses related to litigation. Sales kept strong, however, at $305.6 million.

Across the industry, 1995 sales at book superstores Barnes & Noble, Borders, Crown, and Books-a-Million jumped 45 percent collectively, signaling that somebody in the United States was indeed still reading books. This signal, while encouraging to large-scale chains, was coupled with bad news for smaller booksellers: by 1997 market share among the four major bookstore chains had increased from its 1996 level of 42.8 percent to almost 50 percent. Half of the books purchased in the United States were now sold through superstore chains. To counter this trend, small booksellers wishing to stay in business would begin to aggressively promote such things as personalized service, ambiance, and specialized book collections.

Fiscal 1996 found the company posting net income of $3.7 million against sales of $283.4 million, a drop of 7.2 percent over 1995 levels. During the year CEO Stevens directed the closing of 38 Classic Crown locations while opening 16 of the company's larger discount stores. By February 1996 the company operated 172 stores, 84 of them Super Crown locations. The company also continued to grow its newest base in Texas, which had begun with three stores in 1993; despite the financial problems stemming from the Haft family litigation, it would have eight Super Crown outlets open for business in and around Houston by 1997.

Enhancements Continue Despite Fiscal Losses

Despite the company's continued efforts to enhance its retail space and increase customer satisfaction, management-related costs continued to take a large bite out of the profits made from increasing sales volumes. Costly restructuring efforts, which involved both the opening and closing of certain locations, caused a $1.8 million loss in the first quarter of 1997 ending May 4, 1996. However, Crown continued to open new locations, signing lease agreements for nine new stores in early 1997. Fiscal 1997 sales were $287.73 million while the company once again posted a loss, this time of only $860,000. Restructuring charges of almost $5 million offset part of the company's earnings. Sales at Super Crown Books units accounted for 78.4 percent of the year's total sales, confirming the company's decision to restructure its retail base into these larger stores.

Late in 1996, in an effort to make its vast recordkeeping requirements less costly and time-consuming the company eliminated its original system and implemented a new, closed-loop information system capable of correlating operations and decision support functions. Solutions to such problems as inventory shortages, pricing changes, order cancellations, and interstore stock transfers could now be quickly accessed, along with immediate knowledge of any changes to bottom-line profits.

By 1997 Crown employed 1,490 full-time and 1,880 part-time associates in its retail stores, corporate offices, as well as at its three distribution centers. The company also began an aggressive college recruitment program to ensure that its sales staff were knowledgeable and up-to-date on literary and popular trends. Exceptional performance continued to be recognized and rewarded through internal promotion within store-level management teams. And store layouts continued to be enhanced with such things as a centrally located Muze for Books kiosk system that allowed customers in 58 stores to scan book and audio/video reviews, plot synopses, and recommendations to ensure that their selection met their needs. Such enhancements, which were planned for every Crown location, have continued to occupy the attention of company management in their effort to achieve a loyal customer base in an increasingly competitive industry.

Principal Subsidiaries: Crown Books East Corporation; Crown Books West Corporation; Super Crown Books Corporation; Crown Books National Corporation.
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