Finding silver lining in economic clouds

Stores: As most retailers suffer, closeout chains are planning expansions and piling up revenue.

October 02, 2001|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

At the Big Lots store in Dundalk, shoppers can pick up corn flakes for $2.49 or a recliner for $299. They'll find Christmas wreaths, Barbie dolls, crockpots and vacuum cleaners, all for less than they'd expect to pay elsewhere.

That's why Dee Blankenship of Dundalk shops at the nation's largest closeout retailer.

"It's affordable," said the mother of three, who was shopping in the toy department. "I buy stuff for my little son, and if he rips the wheels off, it's not the end of the world."

Shoppers might be keeping a tight hold on their wallets these days, but the sluggish economy isn't hurting closeout retailers such as Big Lots.

The Columbus, Ohio-based chain, which purchases most of its merchandise from manufacturers with excess inventory, has 1,322 stores in 48 states and $3.5 billion in annual sales and is expanding aggressively. In the Baltimore area, the chain plans to open about 15 stores over the next three years.

"During challenging economic times, manufacturers will end up with numerous canceled orders from other retailers," said Al Bell, vice chairman and chief administrative officer of Big Lots Inc. "That has historically created a great closeout opportunity for us. It has really increased the availability of closeout merchandise in the marketplace.

"We're seeing tremendous opportunities on the buy side of our business now, as retailers cancel orders and manufacturers feel pressure to realize some revenue out of the products produced for the canceled order," Bell said. "We are a retailer that never goes out of fashion."

Because of deals the chain gets directly from manufacturers, it can sell items for 20 percent to 40 percent less than can discount stores such as Wal-Mart and Target, Bell said. Big Lots supplements its closeout goods - anything from paper plates to towels to computer keyboards - with staples that are always on its shelves, about 600 basic household goods.

Virginia Gurney shops at Big Lots for paper products and pet supplies while her husband, Raymond, looks for tools and garden supplies.

"You don't know what you're going to find, but you find some good buys," said Gurney, who is retired and lives in Highlandtown.

Big Lots has four stores in the Baltimore area - in Glen Burnie, Dundalk, Edgewood and Westminster. Usually, the stores open in buildings vacated by other retailers, supermarkets that close or chains that have gone bankrupt, such as Bradlees and Caldor.

While other retailers have struggled recently, those who sell some or a majority of closeout items, such as Family Dollar Stores and Dollar General, and discount stores, such as Wal-Mart Stores Inc., have fared well, said Tony Howard, a retail analyst with Hilliard Lyons in Louisville, Ky.

"Our belief is that will continue and they'll take business away from department stores and mall-based stores, like the Gap," Howard said. "With the economy real tough as it is, people are looking for bargains."

Big Lots has been going through a repositioning since May, when its parent company, Consolidated Stores Corp., announced that it would spend $60 million over two years to renovate stores and convert all its closeout store brands to the Big Lots name. Consolidated, which purchased Mac Frugal's Bargains Closeouts Inc., then the No. 2 closeout retailer, in 1997, runs stores under the Odd Lots, Pick-n-Save and Mac Frugal's banners.

Though the cost of changes has had a negative impact in the near term, the chain should start to see benefits by next year, Howard said.

Besides Big Lots, other closeout retailers in the expansion mode include Dollar Tree Stores Inc., which purchased Dollar Express Inc. last year; Family Dollar Stores Inc.; and 99 Cents Only Stores. Others that sell a mix of goods purchased in manufacturer closeout deals include National Wholesale Liquidators, which has a store in the former Caldor in Reisterstown Road Plaza, and Ollie's Bargain Outlet Inc., which has a half-dozen stores in the Baltimore area.

Dollar Tree, which sells all items for $1 or less, is expanding locally and nationally. It has more than 50 stores in the Baltimore area under the names Dollar Tree, Dollar Express and Dollar Bill, and is looking for more sites, said Michael Patz, of KNLB Inc., the real estate brokerage firm helping the chain expand in Maryland.

"We're filling in holes ... and re-positioning stores" - closing outdated smaller stores and opening larger ones, he said.

Matthews, N.C.,-based Family Dollar, which is mainly a discount store but gets 10 percent of its merchandise through opportunistic buys including closeouts, opened 452 stores in the fiscal year that ended Sept. 1. In August, the chain opened 50 new stores, bringing its total store count to more than 4,000. It opened its 59th Maryland store last week, in Baltimore on East Northern Parkway.

The 99 Cents Only Stores, a City of Commerce, Calif., chain that carries 45 percent closeout items and sells nothing above 99 cents, is also growing. The chain is opening new stores at a rate of 25 percent a year in Southern California, Nevada and Arizona, said Eric Schiffer, president of the chain.

"We think our stores are recession resistant," Schiffer said. "We generate a tremendous amount of traffic and do very well in upscale areas. Our best store is right next to Beverly Hills."

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