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Charlotte Russe Holding, Inc.

Charlotte Russe Holding, Inc.


4645 Morena Boulevard
San Diego, California 92117
U.S.A.
Telephone: (858) 587-1500
Toll Free: (877) 266-9327
Fax: (858) 587-0902
Web site: http://www.charlotterusse.com

Public Company
Incorporated:
1975 as Lawrence Merchandising Corporation
Employees: 8,328
Sales: $681.5 million (2006)
Stock Exchanges: NASDAQ
Ticker Symbol: CHIC
NAIC: 448120 Women's Clothing Stores

Charlotte Russe Holding, Inc., is a specialty retailer of women's clothes, footwear, and accessories, aimed at young women in their late teens and early twenties. The Charlotte Russe stores offer fashionable, low-price merchandise and are located primarily in malls. In 2003 the company closed its Charlotte's Room stores and in 2006, sold its Rampage stores. As of July 2007, the company operates more than 400 Charlotte Russe stores in 43 states and Puerto Rico.

FROM BROOKLYN TO SAN DIEGO: 197589

Dan, Frank, and Larry Lawrence grew up in the clothing business, working in their father's clothing store in Brooklyn. They moved west, formed the Lawrence Merchandising Corporation, and in 1975 opened their own store, in Carlsbad, California. They named the 1,500-square-foot store Charlotte Russe after a dessert they remembered from their childhood.

Over the next ten years, the brothers opened six more stores in San Diego County, bringing in sales of $12 million in 1984. They then began to move into other parts of the state. The units grew bigger, to around 5,000 square feet, and continued to be visually dramatic. To attract the trendy young women they wanted as customers, they concentrated on visual displays, location, and packaging. The Lawrences opened stores in heavily shopped malls, taking prime locations and making Charlotte Russe an anchor store. Their windows made the local news, and customers used the distinctive shopping bags, with a psychedelic art deco design of a buxom woman, at the beach and when traveling.

Their first store outside San Diego was huge compared with other Charlotte Russe locations20,000 square feet. Inside, the decor was dramatic: television monitors showing the latest rock and fashion videos and some 65 mannequins. As had become a tradition, customers on opening day were served charlotte russe, a pastry made of custard, whipped cream, and cherry topping. Although the Lawrences spent $750,000 on that new store, their expansion plans were conservative and growth was financed internally.

GROWTH OF THE COMPANY: 199096

In 1990, the Lawrences moved outside California, opening three units in Phoenix, Arizona. By 1991, the company had net sales of about $50 million, with a history of annual sales increasing in double digits. In 1992, despite a slowing retail climate, the company opened stores in Las Vegas, Nevada, and Los Angeles.

The Lawrences also saw a change in their customer base and moved to respond. Women who had shopped at Charlotte Russe while in their teens and 20s were now bringing their daughters in to shop with them. The company broadened their inventory, adding more classic styles and special occasion dressing as well as gift items and shoes at several locations. "We hold on to our customer longer than our competition," Larry told Michael Marlow of WWD (Women's Wear Daily ) in 1995. "We carry a wide range of inventory for ages 14 to 40. We attract women of a certain attitude, not age," he added.

One of the company's strengths, according to wholesales and industry watchers, was that the brothers, especially Danny, who was in charge of buying, kept their focus on their customer and concentrated on clothes and accessories suitable to the southern California and Southwest areas. As one junior manufacturer explained to WWD in a 1994 article: "Charlotte Russe is one of the best. Number one, the stores are very large and give the women a great atmosphere with a comfortable design. Number two, they watch the trends very closely, but don't overdo them. Number three, they watch their selling on a daily basis and number four, their distribution is terrific. Their turnaround time is 24 to 48 hours." California had emerged as a very strong junior retail market, and in 1995, WWD identified Charlotte Russe as one of the three most aggressive junior retail concepts, along with Rampage and Wet Seal.

In April 1996, the company hired Bernard Zeichner as president and CEO. Zeichner had been head of the retail division of Guess? and prior to that was president and CEO of Contempo Casuals. In September, Zeichner and two funds managed by investment firm Saunders Karp & Megrue, L.P. bought Charlotte Russe from the Lawrence brothers.

STARTING A RETAIL COMPANY

Larry Hansel, at age 32, was founder and CEO of Rampage Clothing Co., a California manufacturer that made sportswear and dresses for juniors and children. In 1993, he moved into retail, buying Los Angeles-based Judy's Inc., with its 62 stores, as part of a bankruptcy reorganization plan. Hansel paid $2 million in cash for 80 percent of Judy's stock and assumption of its liabilities. Judy's, which was founded in 1946, had been one of the first retailers to give Hansel an order when he started Rampage.

Originally, Hansel planned to keep the Judy's name and expand the chain. However, the first revamped stores were not successful, because they were not "special," according to Hansel. In 1994, he decided to keep some 40 of the Judy's stores and convert them into Rampage stores. As Hansel explained to the Los Angeles Times, "It's a brand new vision about business. It's done with product and people. The product is more accessible, fresher and presented better. It's more exclusive. We make over half of it ourselves, and we don't sell to other stores." In addition, the stores would reach beyond the junior market of teens and women in their 20s to target women ages 15 to 35.

The first Rampage retail unit opened in Reno in March 1994, quickly followed by stores in Houston and Los Angeles. Inside the stores, wooden floors replaced carpet, the lights were much brighter, and customers could find other merchandise in addition to clothes, including jewelry, shampoo, and vases. Rampage stores, said Hansel, were "urban, raw, sensual, soft" and "a collection of boutiques" under one roof. He also started another boutique chain, Friends, for girls 4 to 13, which sold Rampage's existing children's lines and were located close to a Rampage store.

COMPANY PERSPECTIVES


Through fashion content, merchandise mix and exciting store layouts, design and merchandise presentation, Charlotte Russe projects the fashion attitudes and trends that appeal to a broad range of customers.

FROM BOOM TO BUST FOR RAMPAGE

By 1996, Hansel was talking about taking the company public and had created expansion plans to accomplish that. While the wholesale side of the business was the major contributor to its annual quarter of a million dollars in revenues, the 45 stores (Rampage, Judy's, and Friends) had sales of $65 million, up from $27 million when Hansel bought the 60-store Judy's chain. Plans included closing or converting the remaining Judy's stores; licensing shoes, lingerie, swimsuits, and jewelry; adding a Rampage line of cosmetics; and franchising the retail operation worldwide.

However, within a year, according to the March issue of Chain Store Age, Hansel was "overextended and plagued by inventory problems, fashion misses, high overhead and overstructuring." Rampage Clothing Company and its retail affiliate filed for bankruptcy in June 1997 and began closing or selling the retail units. Charlotte Russe, which had been acquired by Saunders Karp & Megrue the year before, bought 16 Rampage stores for $10.5 million.

THE HOLDING COMPANY

In October 1996, Charlotte Russe president and CEO Bernard Zeichner and investment firm Saunders Karp & Megrue (SKM) bought the California-based Charlotte Russe chain of women's retail stores from the Lawrence brothers, who had founded the chain. SKM owned other retailers, including Dollar Tree Stores and Hibbett Sporting Goods. At the time of the sale, Charlotte Russe had 35 stores in California, Arizona, and Nevada, with annual revenues of about $70 million.

SKM and Zeichner planned to take the chain national, hiring top management with extensive retail experience, consolidating the distribution and corporate operations in San Diego, and upgrading the management information systems. During the first year, Charlotte Russe opened its first store in northern California and moved into the Texas and Florida markets. Net sales for the 1997 fiscal year grew to $81.5 million, an increase of more than 15 percent from fiscal 1996.

Meanwhile, Rampage Clothing, a manufacturer of clothing for juniors and children, and Rampage Retailing, its affiliated chain of stores, had filed for bankruptcy in June 1997. Rampage closed most of its retail business, including its Judy's and Friends units, and in October sold the remaining 16 Rampage stores to Charlotte Russe for $10.5 million. The purchase gave Charlotte Russe Holding a second, distinctive store concept, which it continued to operate under the Rampage name.

INTEGRATION OF RAMPAGE

Integrating the Rampage purchase into its operations put a strain on the company for about six months. Once it established separate buying operations for each chain, moved into a new headquarters building, and opened its larger, more automated distribution center, however, things went more smoothly. Even as the internal changes were going on, Zeichner opened 17 new Charlotte Russe stores, including units in new markets of Georgia and South Carolina. The Rampage chain and new stores helped the company increase its sales a whopping 64 percent, to $134.1 million, despite poorer performance in Charlotte Russe stores that had been open at least a year.

The company continued its subsidiaries' focus on a broader customer base than the traditional junior market, targeting women 15 to 35. Each chain had its own strong brand identity, and the company's "test-andreorder" approach to merchandising allowed the in-store testing of small quantities of merchandise and the placing of larger orders when customers had indicated, with their purchases, what they liked. Unlike most of its competitors, the company dealt primarily with American manufacturers, which made it possible to get the clothes it wanted in a relatively short time.

Another difference between Charlotte Russe Holding and other mall-based specialty retailers was store size. The company's stores averaged 7,500 square feet, about twice the space of most of its competitors. The interiors of the two chains aimed to accomplish different objectives. At Charlotte Russe, the "Where You Fit In" theme offered distinct and separate areas of "lifestyle collections"casual, career, and club wear, shoes, lingerie, and accessoriesto create a multi-boutique. Dressing rooms had couches and colors were soft and feminine. That arrangement appeared to attract and encourage shopping by both juniors, ages 15 to 21, and older women, ages 25 to 35.

KEY DATES


1975:
Lawrence brothers open first Charlotte Russe store, in Carlsbad, California.
1990:
Charlotte Russe moves into Arizona.
1992:
Company expands into Nevada.
1994:
Clothing manufacturer Rampage Clothing Co. opens first retail outlet.
1996:
Investment firm SKM buys Charlotte Russe.
1997:
Company buys Rampage, with 15 stores nationwide.
1999:
Charlotte Russe Holding goes public.
2003:
Company closes Charlotte's Room stores.
2006:
Company sells Rampage stores.

At Rampage, whose tagline was "Bold, Sexy, Modern," merchandise was grouped by color and fashion trends. Hardwood floors and metal fixtures stressed the "urban" message under bright lights. Prices in both chains were lower than at competing women's stores, and more than 80 percent of the merchandise carried house labels. The chains turned over their inventory 12 times a year, a rate that was up to three times greater than most of its competitors. A final benefit of this two-pronged approach was that items that proved to be hot at Rampage soon showed up at Charlotte Russe.

GOING PUBLIC AND TESTING A NEW CONCEPT

In October 1999, Charlotte Russe Holding, Inc., went public, with its stock bringing $11 per share. The company had more than doubled its size since 1996 and was operating 96 stores in 15 states and Puerto Rico. Earnings had increased an average 27 percent annually and sales were growing 40 percent a year. The initial public offering netted about $13.5 million, which was used to pay down debt under the company's revolving credit facility.

A month later, the company introduced a new concept, Charlotte's Room. Two new, 3,500-square-foot stores opened in Los Angeles and Phoenix, aimed at young women ages 11 to 17. Although the new units offered some clothes and accessories, the focus was on furnishings, including bedding, rugs, bean bags, and lamps. "If it doesn't work, we can just walk away from it," Zeichner told Investor's Business Daily at the end of the year. A second new venture was the development of a web site that would, according to the company, create "a unique 'pop-culture' experience for our customer that blends music, fashion and entertainment."

Through mid-2000, Charlotte Russe Holding continued to read the trends right. Zeichner announced that the company would open more stores than originally planned for fiscal 2001, with a more aggressive expansion of Rampage. New stores were important to the company, because they drove additional profits. In an April 2000 WWD article, Zeichner explained, "Since our stores do well over $2.2 million each, we are not looking for strong comparable increases, and our new stores open up with a return investment of over 90 percent."

CONTINUED GROWTH: 200105

During 2001 and into 2002, the company continued its slow and steady growth. Even as the specialty apparel retail environment grew difficult in 2002, Charlotte Russe continued to perform better than most of its competitors. Part of its success was due to a marketing philosophy that followed the customer's wants rather than decreeing a trend. The stores stocked small quantities of various merchandise and would reorder what sold. With over 600 vendors, many of which were domestic, the company could respond to the buying trends of their customers in less than two months. The company also made sure it had the infrastructure, such as distribution centers, it needed to grow in place before opening more stores.

Other factors included offering a wide assortment of merchandise that targeted a range of young women of different ages who had money to spend, having a distinctive and recognizable look in each of the three store concepts, and making impulse buying a specialty. That was accomplished by having lots of small items around the stores in addition to the apparel, so that shoppers usually left buying something. Before the end of 2002, there were 160 Charlotte Russe stores, 42 Rampage stores, and 10 Charlotte's Room stores in 28 states.

The company continued to expand, with new stores generating significant cash flow almost immediately. However, in 2003, the company hit a rough patch that lasted into 2004. Profits dropped by over 50 percent in one quarter along with a significant drop in year-to-year sales in existing stores. Fewer shoppers were coming through malls and competition was growing. The company decided, after testing the concept for four years, that Charlotte's Room was not bringing in enough sales. That finding led to the closing of all the Charlotte's Room stores. In July, the company promoted Mark Hoffman to succeed Bernard Zeichner as CEO. Zeichner remained chairman of the board. The company also brought in two new general merchandising managers, one for each of the remaining divisions. Finally, in 2004, the retailer saw its first increase in same store sales in almost three years.

2005 AND BEYOND

Challenges and trends in the retail industry were not related only to styles. Competition increased from big box discount retailers such as Target and Wal-Mart, which introduced what the industry came to refer to as "cheap chic," and garnered 17 percent of apparel sales in 2004, up from 11 percent in 1998. In addition, apparel prices dropped 31 percent in ten years.

Rampage stores continued to struggle, and during the first half of 2006 lost $9 million. In July, Charlotte Russe Holding sold 44 of its 64 Rampage stores to competitor Forever 21 Retail for $14 million. Of the remaining stores, it converted four to the Charlotte Russe name and closed the rest.

Then there was the most recent European import, "fast fashion." This referred to getting ideas from top designers into stores in six to ten weeks instead of nine months. The European stores using this model also focused on having specific items in a store, not a designer's entire line. Charlotte Russe, with its large stable of domestic vendors, already had a short turnaround time, making it possible to change merchandise in the store every month.

With Rampage no longer in the picture, the company was able to focus on one brand. In 2007, it showed concrete signs of a turnaround, and planned to open more new locations. As with every specialty retailer, success would depend on being able to predict fashion trends, especially ones that could differentiate the Charlotte Russe name from competitors.

Ellen D. Wernick

PRINCIPAL COMPETITORS

Wet Seal Inc., Forever 21.

FURTHER READING

Allen, Mike, "Charlotte Russe Stores Sold to N.Y. Investors," San Diego Business Journal, October 28, 1996, p. 7.

Atkinson, William, "Specialty Apparel Retail Survivors," Shopping Center World, May 1, 2002.

Carlton, Rachel, "A World of Her Own. (Charlotte's Room)," Display and Design Ideas, November 2001, p. 34.

"Charlotte Russe to Sell Off 44 Rampage Stores," just-style.com, June 30, 2006.

Cox, Michael D., "Chic Charlotte Russe Outlets Planned at Four Valley Malls," Arizona Business Gazette, May 4, 1990, p. 15.

Ellis, Kristi, "Charlotte Russe on the Fast Track," WWD, April 27, 2000, p. 9.

, "Rampage in State of Evolution," WWD, May 23, 1996, p. 6.

Fidelholtz, Sara, "Rampage CEO Hansel Buys Judy's Chain," WWD, February 1, 1993, p. 2.

Frazier, Mya, "The Latest European Import: Fast Fashion," Advertising Age, January 9, 2006, p. 6.

Ginsberg, Steve, "Charlotte Russe Flies High in Orange County," WWD, August 16, 1985, p. S21.

Glover, Kara, "Rampage Hits the Malls as Retailer Repositions Moribund Judy's Chain," Los Angeles Business Journal, September 26, 1994, p. 26.

Goldman, Melanie, "Charlotte Russe Prepares for a Rampage," Shopping Center Business, May 1999.

Green, Frank, "Charlotte Russe Is Hip to What Customers Want," San Diego Union Tribune, December 5, 1999, p. I6.

"Homespun Hoopla Gives Small Stores High Profile," WWD, October 31, 1983, p. C20.

Johnson, Greg, "Wet Seal Offers to Buy 21 Rampage Stores," Los Angeles Times, July 29, 1997, p. D12.

Kletter, Melanie, "Hot Retailers Try to Stay 'Cool,'" WWD, June 1, 2000, p. 15.

Marlow, Michael, "West Coast Junior Chains: Trend Catchers," WWD, June 29, 1995, p. 6.

Much, Marilyn, "Clothier Finds Bigger Stores Mean Better Strategy," Investor's Business Daily, December 7, 1999.

Riggs, Rod, "Charlotte Russe, Despite Bad Time, Will Go Forward with Expansion Plans," San Diego Union, February 22, 1992, p. C1.

, "Charlotte Russe Eyes Growth," San Diego Union, June 20, 1989, p. E1.

, "It's Not a Dessert, but a Total Look," San Diego Union, February 24, 1985, p. I1.

"Staying Ahead of the Curve: Charlotte Russe Concepts Have Growth Potential," Chain Store Age, November 2003, p. 38.

Turk, Rose-Marie, "An Eye for Style," Los Angeles Times, June 2, 1994, p. E1.

Vrana, Debora, and Kara Glover, "Judy's Chain May End Chapter 11 with New Owner," Los Angeles Business Journal, January 25, 1993, p. 8.

Weitzman, Jennifer, "Analysts' Views Vary for Charlotte Russe," WWD, January 29, 2004, p. 17.

, "Charlotte Russe Leave the 'Room,'" WWD, March 27, 2003, p. 14.

, "Charlotte Russe Net Falls 51%, Mark Hoffman Elevated to CEO," WWD, July 18, 2003, p. 13.

, "Charlotte Russe Springs into the Black," WWD, April 16, 2004, p. 14.

Welsh, Alice, "Rating the Retailers: The Junior Market," WWD, November 17, 1994, p. 8.

Young, Kristin, "Charlotte's Fast Trends, Slow Growth," WWD, June 25, 2001, p. 9.

"Zeichner Group Buys Charlotte Russe," WWD, October 21, 1996, p. 17.

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Charlotte Russe Holding, Inc.

Charlotte Russe Holding, Inc.

4645 Morena Boulevard
San Diego, California 92117
U.S.A.
Telephone: (858) 587-1500
Fax: (858) 587-0336
Web site: http://www.charlotte-russe.com

Public Company
Incorporated:
1975 as Lawrence Merchandising Corp.
Employees: 1,992
Sales: $177.5 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: CHIC
NAIC: 44812 Womens Clothing Stores

Charlotte Russe Holding, Inc. is a specialty retailer of womens clothes, aimed at women between the ages of 15 and 35. The company operates two different chains of apparel stores, Charlotte Russe and Rampage. The Charlotte Russe stores target women who want established fashions at reasonable prices; Rampage stores offer higher priced, more cutting-edge clothes and accessories. In 1999 the company began testing a third concept, Charlottes Room, offering accessories and home fashions. As of April 2000, the company operated a total of 113 stores in 17 states and Puerto Rico.

From Brooklyn to San Diego: 1975-89

Dan, Frank, and Larry Lawrence grew up in the clothing business, working in their fathers clothing store in Brooklyn. They moved west, formed the Lawrence Merchandising Corp., and in 1975 opened their own store, in Carlsbad, California. They named the 1,500-square-foot store Charlotte Russe after a dessert they remembered from their childhood.

Over the next ten years, the brothers opened six more stores in San Diego County, bringing in sales of $12 million in 1984. They then began to move into other parts of the state. The units grew bigger, to around 5,000 square feet, and continued to be visually dramatic. To attract the trendy young women they wanted as customers, they concentrated on visual displays, location, and packaging. The Lawrences opened stores in heavily shopped malls, taking prime locations and making Charlotte Russe an anchor store. Their windows made the local news, and customers used the distinctive shopping bags, with a psychedelic art deco design of a buxom woman, at the beach and when travelling.

Their first store outside San Diego was huge compared with other Charlotte Russe locations20,000 square feet. Inside, the decor was dramatic: television monitors showing the latest rock and fashion videos and some 65 mannequins. As had become a tradition, customers on opening day were served charlotte russe, a pastry made of custard, whipped cream, and cherry topping. Although the Lawrences spent $750,000 on that new store, their expansion plans were conservative and growth was financed internally.

Growth of the Company: 1990-96

In 1990, the Lawrences moved outside California, opening three units in Phoenix, Arizona. By 1991, the company had net sales of about $50 million, with a history of annual sales increasing in double digits. In 1992, despite a slowing retail climate, the company opened stores in Las Vegas, Nevada and Los Angeles.

The Lawrences also saw a change in their customer base and moved to respond. Women who had shopped at Charlotte Russe while in their teens and 20s were now bringing their daughters in to shop with them. The company broadened their inventory, adding more classic styles and special occasion dressing as well as gift items and shoes at several locations. We hold on to our customer longer than our competition, Larry told Michael Marlow of WWD in 1995. We carry a wide range of inventory for ages 14 to 40. We attract women of a certain attitude, not age.

One of the companys strengths, according to wholesales and industry watchers, was that the brothers, especially Danny, who was in charge of buying, kept their focus on their customer and concentrated on clothes and accessories suitable to the southern California and Southwest areas. As one junior manufacturer explained to WWD (Womens Wear Daily) in a 1994 article, Charlotte Russe is one of the best. Number one, the stores are very large and give the women a great atmosphere with a comfortable design. Number two, they watch the trends very closely, but dont overdo them. Number three, they watch their selling on a daily basis and number four, their distribution is terrific. Their turnaround time is 24 to 48 hours. California had emerged as a very strong junior retail market, and in 1995, WWD identified Charlotte Russe as one of the three most aggressive junior retail concepts, along with Rampage and Wet Seal.

In April 1996, the company hired Bernard Zeichner as president and CEO. Zeichner had been head of the retail division of Guess? and prior to that was president and CEO of Contempo Casuals. In September, Zeichner and two funds managed by investment firm Saunders Karp & Mergue, L.P. bought Char-lotte Russe from the Lawrence brothers.

Starting a Retail Company: 1993-95

Larry Hansel, at age 32, was founder and CEO of Rampage Clothing Co., a California manufacturer that made sportswear and dresses for juniors and children. In 1993, he moved into retail, buying Los Angeles-based Judys Inc., with its 62 stores, as part of a bankruptcy reorganization plan. Hansel paid $2 million in cash for 80 percent of Judys stock and assumption of its liabilities. Judys, which was founded in 1946, had been one of the first retailers to give Hansel an order when he started Rampage.

Originally, Hansel planned to keep the Judys name and expand the chain. But the first revamped stores were not successful, because they were not special, according to Hansel. In 1994, he decided to keep some 40 of the Judys stores and convert them into Rampage stores. As Hansel explained to the Los Angeles Times, Its a brand new vision about business. Its done with product and people. The product is more accessible, fresher and presented better. Its more exclusive. We make over half of it ourselves, and we dont sell to other stores. In addition, the stores would reach beyond the junior market of teens and women in their 20s to target women ages 15 to 35.

The first Rampage retail unit opened in Reno in March 1994, quickly followed by stores in Houston and Los Angeles. Inside the stores, wooden floors replaced carpet, the lights were much brighter, and customers could find other merchandise in addition to clothes, including jewelry, shampoo, and vases. Ram-page stores, said Hansel, were urban, raw, sensual, soft and a collection of boutiques under one roof. He also started another boutique chain, Friends, for girls 4 to 13, which sold Rampages existing childrens lines and were located close to a Rampage store.

From Boom to Bust for Rampage: 1996-97

By 1996, Hansel was talking about taking the company public and had created expansion plans to accomplish that. While the wholesale side of the business was the major contributor to its annual quarter of a million dollars in revenues, the 45 stores (Rampage, Judys, and Friends) had sales of $65 million, up from $27 million when Hansel bought the 60-store Judys chain. Plans included closing or converting the remaining Judys stores; licensing for shoes, lingerie, swimsuits, and jewelry; a Rampage line of cosmetics; and franchising the retail operation worldwide.

However, within a year, according to the March issue of Chain Store Age, Hansel was overextended and plagued by inventory problems, fashion misses, high overhead and over-structuring. Rampage Clothing Co. and its retail affiliate filed for bankruptcy in June 1997 and began closing or selling the retail units. Charlotte Russe, which had been acquired by Sanders Karp & Megrue the year before, bought 16 Rampage stores for $10.5 million.

The Holding Company: 1996-97

In October 1996, Charlotte Russe president and CEO Bernard Zeichner and investment firm Sanders Karp & Megrue (SKM) bought the California-based Charlotte Russe chain of womens retail stores from the Lawrence brothers, who had founded the chain. SKM owned other retailers, including Dollar Tree Stores and Hibbett Sporting Goods. At the time of the sale, Charlotte Russe had 35 stores in California, Arizona, and Nevada, with annual revenues of about $70 million.

SKM and Zeichner planned to take the chain national, hiring top management with extensive retail experience, consolidating the distribution and corporate operations in San Diego, and upgrading the management information systems. During the first year, Charlotte Russe opened its first store in Northern California and moved into the Texas and Florida markets. Net sales for the 1997 fiscal year grew to $81.5 million, an increase of more than 15 percent from fiscal 1996.

Meanwhile, Rampage Clothing Co., a manufacturer of clothing for juniors and children, and Rampage Retailing, its affiliated chain of stores, filed for bankruptcy in June 1997. Rampage closed most of its retail business, including its Judys and Friends units, and in October sold the remaining 16 Ram-page stores to Charlotte Russe for $10.5 million. The purchase gave Charlotte Russe Holding a second, distinctive store concept, which it continued to operate under the Rampage name.

Company Perspectives:

Through our fashion content, merchandise mix, exciting store layout and design, and striking merchandise presentation, we project fashion attitudes that appeal to customers from a broad range of socioeconomic, demographic and cultural profiles. In addition, our breadth of merchandise enables our customers to assemble coordinated and complete outfits that satisfy many of their lifestyle needs. Our success is dependent upon our ability to anticipate, identify and capitalize upon the fashion preferences of our target customers.

Integration of Rampage: 1998-99

Integrating the Rampage purchase into its operations put a strain on the company for about six months. Once it established separate buying operations for each chain, moved into a new headquarters building, and opened its larger, more automated distribution center, however, things went more smoothly. Even as the internal changes were going on, Zeichner opened 17 new Charlotte Russe stores, including units in new markets of Georgia and South Carolina. The Rampage chain and new stores helped the company increase its sales a whopping 64 percent, to $134.1 million, despite poorer performance in Charlotte Russe stores that had been open at least a year.

The company continued its subsidiaries focus on a broader customer base than the traditional junior market, targeting women 15 to 35. Each chain had its own strong brand identity, and the companys test-and-reorder approach to merchandising allowed the in-store testing of small quantities of merchandise and the placing of larger orders when customers had indicated, with their purchases, what they liked. Unlike most of its competitors, the company dealt primarily with American manufacturers, which made it possible to get the clothes it wanted in a relatively short period of time.

Another difference between Charlotte Russe Holding and other mall-based specialty retailers was store size. The companys stores averaged 7,500 square feet, about twice the space of most of its competitors. The interiors of the two chains aimed to accomplish different objectives. Charlotte Russe, Where You Fit In, offered distinct and separate areas of lifestyle collectionscasual, career, and club wear, shoes, lingerie, and accessoriesto create a multi-boutique. Dressing rooms have couches and colors are soft and feminine. That arrangement appeared to attract and encourage shopping by both juniors, ages 15-21, and older women, ages 25-35.

At Rampage, whose tag line was Bold, Sexy, Modern, merchandise was grouped by color and fashion trends. Hard-wood floors and metal fixtures stressed the urban message under bright lights. Prices in both chains were lower than at competing womens stores, and more than 80 percent of the merchandise carried house labels. The chains turned over their inventory 12 times a year, a rate that was up to three times greater than most of its competitors. A final benefit of this two-pronged approach was that items that proved to be hot at Rampage soon showed up at Charlotte Russe.

2000 and Beyond

In October 1999, without a dot-corn or an Internet strategy to its name, Charlotte Russe Holding, Inc. went public. The company had more than doubled its size since 1996 and was operating 96 stores in 15 states and Puerto Rico. Earnings had increased an average 27 percent annually and sales were growing 40 percent a year. The IPO netted about $13.5 million, which was used to pay down debt under the companys revolving credit facility.

A month later, the company introduced a new concept, Charlottes Room. Two new, 3,500-square-foot stores opened in Los Angeles and Phoenix, aimed at young women ages 12-20. Although the new units offered some clothes and accessories, the focus was on furnishings, including bedding, rugs, bean bags, and lamps. If it doesnt work, we can just walk away from it, Zeichner told Investors Business Daily at the end of the year. A second new venture was the development of a web site that would, according to the company, create a unique pop-culture experience for our customer that blends music, fashion and entertainment.

Through mid-2000, Charlotte Russe Holding continued to read the trends right. Zeichner announced that the company would open more stores than originally planned for fiscal 2001, with a more aggressive expansion of Rampage. New stores were important to the company, because they drove additional profits. In an April 2000 WWW article, Zeichner explained, Since our stores do well over $2.2 million each, we are not looking for strong comparable increases, and our new stores open up with a return investment of over 90 percent. With those strong cash flows, a good economy, and continued accu-rate trend reading, Charlotte Russe Holding was moving to be a 500-store national chain.

Principal Divisions

Charlotte Russe; Rampage.

Principal Competitors

Limited, Inc.; Wet Seal Inc.; Arden B; bebe stores inc.

Key Dates:

1975:
Lawrence brothers open first Charlotte Russe store, in Carlsbad, California.
1990:
Charlotte Russe moves into Arizona.
1992:
Company expands into Nevada.
1994:
Clothing manufacturer Rampage Clothing Co. opens first retail outlet.
1996:
Investment firm SKM buys Charlotte Russe.
1997:
Company buys Rampage, with 15 stores nation-wide.
1999:
Charlotte Russe Holding goes public.

Further Reading

Allen, Mike, Charlotte Russe Stores Sold to N.Y. Investors, San Diego Business Journal, October 28, 1996, p. 7.

Cox, Michael D., Chic Charlotte Russe Outlets Planned at Four Valley Malls, Arizona Business Gazette, May 4, 1990, p. 15.

Ellis, Kristi, Charlotte Russe on the Fast Track, WWD, April 27, 2000, p. 9.

, Rampage in State of Evolution, WWD, May 23, 1996, p. 6.

Ginsberg, Steve, Charlotte Russe Flies High in Orange County, WWD (Womens Wear Daily), August 16, 1985, p. S21.

Glover, Kara, Rampage Hits the Malls as Retailer Repositions Moribund Judys Chain, Los Angeles Business Journal, September 26, 1994, p. 26.

Goldman, Melanie, Charlotte Russe Prepares for a Rampage, Shop-ping Center Business, May 1999.

Fidelholtz, Sara, Rampage CEO Hansel Buys Judys Chain, WWD, February 1, 1993, p. 2.

Green, Frank, Charlotte Russe Is Hip to What Customers Want, San Diego Union Tribune, December 5, 1999, p. 16.

Homespun Hoopla Gives Small Stores High Profile, WWD (Womens Wear Daily), October 31, 1983, p. C20.

Johnson, Greg, Wet Seal Offers To Buy 21 Rampage Stores, Los Angeles Times, July 29, 1997, p. D12.

Kletter, Melanie, Hot Retailers Try To Stay Cool, WWD, June 1, 2000, p. 15

Marlow, Michael, West Coast Junior Chains: Trend Catchers, WWD, June 29, 1995, p. 6.

Much, Marilyn, Clothier Finds Bigger Stores Mean Better Strategy, Investors Business Daily, December 7, 1999.

Riggs, Rod, Charlotte Russe, Despite Bad Time, Will Go Forward with expansion PlansSan Diego Union, February 22, 1992, p.C1.

Charlotte Russe Eyes Growth, San Diego Union, June 20, 1989, p.E1.

, Its Not a Dessert, But a Total Look, San Diego Union, February 24, 1985, p. I1.

Turk, Rose-Marie, An Eye for Style, Los Angeles Times, June 2, 1994, p.E1

Vrana, Debora, and Kara Glover, Judys Chain May End Chapter 11 with New Owner, Los Angeles Business Journal, January 25, 1993, p. 8.

Welsh, Alice, Rating the Retailers: The Juniour Marker, WWD, November 17, 1994, p.8.

Zeichner Group Buys Charlotte Russe, WWD, October 21, 1996, p. 17.

Ellen D. Wernick

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