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Deb Shops, Inc.

Deb Shops, Inc.

9401 Blue Grass Road
Philadelphia, Pennsylvania 19114
U.S.A.
Telephone: (215) 676-6000
Fax: (215) 698-7151
Web site: http://www.debshops.com

Public Company
Incorporated:
1932
Employees: 3,700
Sales: $303.78 million (2004)
Stock Exchanges: NASDAQ
Ticker Symbol: DEBS
NAIC: 448120 Women's Clothing Stores

Deb Shops, Inc., operates retail clothing stores that supply its young, trendy shoppers with moderately priced fashions. Its main brand, DEB, serves primarily junior-sized women between the ages of 13 and 18, offering coordinated sportswear, dresses, coats, shoes, lingerie, and accessories, most under private labels. By 2005, there were 314 DEB stores, mostly in the East and Midwest; 140 of these offered plus-sized clothing, and 17 of the DEB stores had Tops 'N Bottoms departments. Deb Shops also operated 17 stand-alone Tops 'N Bottoms stores, and three CSO outlet stores. Members of the company's founding families control about 68 percent of Deb Shops stock. The company is known for its fashion-forward yet budget-conscious appeal, lean inventories, and aversion to debt.

Early History

In 1932, Philip Rounick and Aaron Weiner opened their first store in Philadelphia, Pennsylvania. JOY Hosiery offered customers a wide variety of hosiery and foundations at reasonable prices. In 1939, nylon stockings came on the market and JOY Hosiery added them to its stock.

The 1940s saw the regulation of nylon use, as it was required for parachutes and other equipment for World War II. The government also regulated how much fabric could be used in clothing and banned the use of zippers and other metal fasteners. Despite nylon's limited availability, JOY Hosiery was able to obtain enough product to continue to stay in operation.

After the war and into the 1950s, JOY grew steadily, opening new stores in various Philadelphia neighborhoods. As restrictions were lifted on clothing manufacturing, a much wider selection became available. JOY reduced its offerings of lingerie and began selling moderately priced sportswear. The merchandise mix rapidly became 50/50, and remained so through the 1950s.

1960s and 1970s: A New Focus

Marvin Rounick, Philip's son, joined the company in 1961. In 1965 Warren Weiner, Aaron's son, came on board. During the 1960s the suburbs around Philadelphia grew rapidly as families moved out of the core city. To serve their shopping needs, developers built malls and shopping centers. JOY tested those waters by opening suburban stores in shopping malls; their new concept provided a bigger store and a larger selection of merchandise. The 1960s also saw the introduction of pantyhose, which eliminated the need for garter belts. With the growth of the women's movement, many young women stopped wearing girdles or bras. As a result, hose and lingerie became a smaller part of JOY's merchandise mix. It was also during this period that young people became a larger part of the consumer base, and the unisex look began to develop.

One thing that occurred during this time greatly influenced the company's financial strategy. "We had some financial problems," president and CEO Marvin Rounick recalled in a 1986 article in Chain Store Age Executive. "And the banker who handled us retired and a new banker came in to replace him. We went to him for money and he told us we weren't a good credit risk." When the company nearly folded after their bank dropped them, Rounick vowed to keep the company debt free.

In the early 1970s the younger Rounick and Weiner took a more active role in the company's management and made three decisions that changed the company completely. First, they closed most of the original neighborhood stores and quickly opened larger units in shopping malls. Second, they concen-trated on sportswear and dresses for the junior customer and eliminated merchandise in other sizes. Merchandise ranged from peasant tops and skirts in the early 1970s to the "Annie Hall" look of men's suits and ties. By 1975, the company had sales of $9.5 million and earnings of $400,000.

In the late 1970s, the company acquired DEB, a New Jersey junior apparel chain. Marvin Rounick was named president and chief executive officer in 1979.

The 1980s

Deb Shops began the 1980s with 59 stores. Within two years, it had 121 stores, sales were more than $70 million, and earnings were up to $5.5 million. Warren Weiner rejoined the company in 1982, having left in 1975, and was named executive vice-president and treasurer. The following year the company went public, raising nearly $27 million. According to a 1983 Forbes article, the funds went for spending money for Rounick, his brother Jack, and Weiner, the major shareholders in the company. "We were wealthy before," Rounick said in the article. "It's just that now we can spend it." Deb Shops had no debt and expansion continued to be paid for from its working capital.

The company's target was primarily young women, 13 to 21 years old, with a small number of customers in their 20s and 30s. Rounick was successful because of his pricing strategy and tight inventory. He sold his dresses and other apparel at low-to-mid prices, below those of more upscale, designer clothing, and cut the prices immediately if an item was not selling after two weeks. If the sale prices did not move the item, he shipped it to one of the company's CSO (Chain Store Outlet) stores where it was sold at a steep discount. The fast movement of the stock meant customers could expect up-to-date, trendy merchandise. That freshness, combined with inexpensive prices, attracted young shoppers.

Despite the company's success, Rounick realized he had to make some adjustments to his marketing strategy in response to changing demographics: Predictions forecast that by 1990, there would be 14 to 15 percent fewer women aged 14 to 24. Unlike many of its competitors, Deb did not abandon its specialization in junior customers looking for moderately priced clothes. Rounick's answer was to market junior as a size, not an age group. Under this strategy, the company would follow customers as they grew up, serving both teens and their mothers. Accordingly, in 1983 the company started selling basic as well as trendy junior clothing.

In addition to offering a wider variety of styles, the company made some decorating changes to attract older shoppers: Its green, white, and purple color combination became purple, raspberry, and white; and lower pile purple carpeting replaced the stores' purple shag. Gone, too, were the enclosed storefronts. Instead, windows were installed to show the merchandise and draw customers in.

Another part of Rounick's marketing strategy was to encourage add-on shopping by selecting merchandise that was coordinated with something else in the store. DEB displayed its merchandise in coordinated, layered groupings, complete with accessories. As Willard Brown, an analyst with First Albany, told Chain Store Age Executive in a 1986 article, "Every top is coordinated with every pair of pants; and if you buy the top and pants, then they have a handbag that goes with them, too. So every time Rounick sells one piece of merchandise, he's put himself into the position to sell another piece."

The marketing changes worked. Within two years, customers at DEB stores, while still concentrated in a 13 to 25 age group, ranged in age up to 40, and sales in 1985 increased to $147.1 million.

The company was opening between 30 and 40 new stores a year, with most in regional shopping centers in major metropolitan areas. As these malls increased their rents, however, Deb began looking to mid-sized markets and secondary markets adjacent to a major town. The company also started opening stores in less expensive strip shopping centers. "They [strip center stores] are not doing the same business as the malls," Rounick explained in Chain Store Age Executive, "but because of the reduced costs we found we can make money in the first year." By 1989 the company had stores in 67 strip centers. Stores ranged in size from 5,000 to 10,000 square feet, with the average store occupying 6,000 square feet.

The movement into strip centers was only one cost-cutting effort the company initiated during the last part of the 1980s. The women's clothing business in general softened, and sales dropped. The reason appeared to be customer dissatisfaction with what the designers offered them. In 1987, Deb's profit margin dropped as customers waited for markdowns and sales before buying.

Company Perspectives:

Our basic merchandising philosophy is to provide our customers with the latest, updated, fashionable merchandise at the most competitive prices possible. Looking forward, management believes in learning from its success and staying with the formula that has generated steady and growing earnings per share for the last few years: driving the profit-ability of Deb Shops overall store base, and entering new markets. Fortunately, the company has never been in a more advantageous position to execute this strategy as its balance sheet is one of the strongest in the industry. Finally, as Deb Shops continues to expand nationally, the merchandising team remains focused on staying ahead of trends and fashion direction while responding to the ever changing needs of our consumer. This is best exemplified by the recent increase in plus merchandise which now is included in over 30% of our stores. At the core, this flexibility, focus, and execution is what really defines the business and as always, the overriding goal is to become "the place to shop" for teenage girls, particularly over the next decade.

Rounick's response was to improve inventory control in order to cut costs and to sell more clothes at full price. In 1988, Deb expanded its warehouse space to 280,000 square feet and installed a computer-controlled sorting and distribution system. The new distribution system and the company's point-of-sale merchandise data system helped managers analyze and respond to what customers were buying. Inventories arrived at the stores twice a week and store displays were changed each week. Although the company continued to mark down slow-moving merchandise, there was less of it. As a result of cost cutting, although sales for 1988 were down 2 percent to $194 million, earnings increased 15 percent to $13.7 million. During 1988, Deb expanded beyond the Midwest, opening stores in Washington, Oregon, and California, and ended the year with 316 stores in operation.

In 1989, the company continued to expand, using its own capital to open 31 new stores. It also began increasing its private-label business in order to improve its profit margins. Its profitability and $71 million in equity was very attractive. According to an August 14, 1989 article in Barron's, there were rumors that Milton Petrie, who owned the competing Petrie Stores Corporation and more than 15 percent of Deb stock, might attempt a hostile takeover of Deb. Nothing came of it. For the year, the company set record net sales of $202 million and reached its peak earnings of $17.6 million.

Trying New Things in the 1990s

During the early part of the decade, Deb continued to expand, opening DEB stores in Colorado, Idaho, New Mexico, Oklahoma, and Texas. The company also acquired Tops 'N Bottoms, a New York chain selling name-brand clothing for young men and women at moderate prices. In addition to the smaller (2,300 to 3,400 square feet) stand-alone stores in the chain, the company opened Tops 'N Bottoms departments in several DEB stores. The number of stores operated by the company peaked in fiscal year 1992, with 373 open as of January 31, 1993. That year also saw the company's highest sales, $229.5 million. But earnings fell by 18 percent.

In 1993, Deb introduced its private-label credit card, which also served as a mechanism to contact customers by direct mail. The company opened 11 new stores, but saw sales decline by 4 percent. Sales continued to decline, even with reduced costs as underperforming stores were closed. In 1994 the company opened eight new stores and had a net loss for the first time. In April that year, management spent $16.8 million in cash to buy back the block of stock owned by Petrie Stores Corporation. With that acquisition, insiders, including Martin and Jack Rounick and Warren Weiner, owned 75 percent of the company stock.

Sales continued to drop in 1995 and the company opened only one new store while closing 33 DEB units and one Tops 'N Bottoms store. Rounick introduced shoes into 200 DEB stores to generate new business and stimulate sales. That move added approximately $4.6 million to sales for the year, but continued customer resistance to offerings in women's clothing resulted in total sales of only $176.7 million and an earnings loss of $4.2 million.

On October 20, 1995, the company bought Atlantic Book Stores for $4.47 million. "The apparel industry has seen a downturn in the last three to five years, and one of the strategies to stem the tide of our decline is to diversify," Deb's chief financial officer Lewis Lyon told the Philadelphia Inquirer.

Martin Simon, who was 72 when he sold his company to Deb, had started his book business around 1980 by selling used books to department stores. At the time of the sale, the Atlantic Books chain consisted of 14 stores. Three were full-service warehouse stores, between 12,000 and 26,000 square feet large. These specialized in remainder books at greatly discounted prices while also offering bestsellers, new titles, and magazines. The Atlantic Book Warehouse stores were located in Montgomeryville, Pennsylvania; Cherry Hill, New Jersey; and Dover, Delaware. The other 11 stores were located in resort towns along the coasts of New Jersey and Delaware. These units were much smaller, between 1,000 and 2,000 square feet, and sold primarily remainder books and some new titles.

Deb indicated that it planned to expand the chain by adding warehouse stores in high-traffic areas. Because of the warehouse concept, the company did not anticipate any direct competition with other discount chains such as Waldenbooks, Barnes & Noble, and Borders.

In its apparel business, Deb announced that it was shifting from its all-junior concentration. By April 1996, the company expected to introduce plus sizes into one-third of its stores. Up to 19 DEB stores were to be converted to plus size stores called DEB PLUS and about half of the Tops 'N Bottoms departments in DEB stores would become plus size departments.

Deb Shops' diversification efforts appeared to build on the company's responsiveness to demographic changes and its retail operations and distribution expertise. The fact that the company was debt free and had more than $51 million in cash at the beginning of 1996 gave it some measure of flexibility and staying power as it made its changes.

Renewed Focus in 1996

Probably the company's most important strategic move in the mid-1990s was returning its focus to the junior market. "We found you couldn't cater to the teenage customer and the older customer in the same shop," chief financial officer Lewis Lyons explained to the Philadelphia Inquirer regarding a renewed emphasis on teen fashions.

Key Dates:

1932:
JOY Hosiery, precursor of DEB Shops, opens in Philadelphia.
1975:
Revenues are $9.5 million.
1980:
The company has 59 stores.
1982:
Sales are $70 million; the company has 121 stores.
1983:
The company raises $27 million in an IPO.
1985:
Sales are $147 million.
1992:
Sales are $230 million.
1994:
The company posts its first net loss.
1996:
Plus sizes are added to certain DEB stores.
1997:
The company returns to profitability after renewed focus on juniors.
1999:
The web site is launched.
2004:
Online ordering capability is added to the web site.

Lyons told a financial forum covered by WWD that the more feminine styles of the latter 1990s were easier to deliver to teens than the grunge look. In December 1995, Deb Shops had hired former Petrie Stores Corporation. CEO Allan Laufragben as its chief merchant to help keep it on top of teen fashion trends.

Teenage girls were a relatively attractive segment of the apparel market due to their increasing spending power, lack of expenses, and passion for clothes. Their numbers also were increasing faster than other segments of the population. There was no shortage of competitors in this market, however, ranging from other specialty retailers to giant discount department stores.

Deb Shops closed 100 underperforming stores as it regained its footing. Said Lyons, many had originally been opened to produce top line growth to satisfy Wall Street's expectations. The company was also remodeling stores and opening new ones. The model store was 5,000 to 6,000 square feet with annual volume of at least $1 million.

The company's cash horde sustained it through the lean times. After losing about $11 million in three years, Deb Shops returned to profitability in fiscal 1997 with a net income of $6.6 million on sales of $205 million. There were a couple of great years before the next economic slowdown. By fiscal 1999, net income was up to $24.5 million on sales of $270 million.

A number of specialty apparel retailers did not survive the turmoil of the 1990s. One of them was rival Petrie Retail. Deb Shops acquired nine of the bankrupt chain's stores in February 1998.

Deb Shops launched a web site in January 1999. It was limited to descriptions of select merchandise at first (originally prom dresses), but added online ordering capability in February 2004.

Beyond 2000

Deb Shops was fast becoming a national presence. It opened 23 new stores in 2001, though the annual pace soon slacked off to half that.

Deb Shops decided to focus on its expanding core business and sold Atlantic Books back to its founder, Mark Simon, in the fall of 2001. The deal was worth $5 million; the chain then had annual sales of $18 million at its 11 stores.

Sales were $318 million in the 2002 fiscal year, and slipped to about $300 million a year in the 2003 and 2004 fiscal years. After a half-dozen years of success, the chain was hit by a slowing economy, lousy weather, and some poor fashion choices, according to Chain Store Age. The company was still making money, however, and was able to remain debt free. Net income rose 40 percent to $18 million in fiscal 2005. By this time, Deb Shops had 323 locations (including six Tops 'N Bottoms stores and three CSO outlets).

Principal Subsidiaries

Joy Shops, Inc.

Principal Operating Units

DEB; Tops 'N Bottoms.

Principal Competitors

Charlotte Russe Holding, Inc.; Gap Inc.; Hot Topic Inc.; Limited Brands, Inc.; Target Corporation; The Wet Seal, Inc.

Further Reading

Angrist, Stanley W., "So Far, So Good," Forbes, October 24, 1983, p. 144.

Belden, Tom, "Philadelphia Retailer Deb Shops Under Fire for Stock Options Plan," Philadelphia Inquirer, May 30, 2003.

, "Philadelphia-Based Retailer Keeps Up with Target Teenage Demographic," Philadelphia Inquirer, July 3, 2001.

Bergen, Jane, "Thriftiness, Flexibility Mark Survivors Among Small Philadelphia Merchants," Knight Ridder/Tribune Business News, November 30, 1996.

Brammer, Rhonda, "Sizing Up Small Caps: Down, But Not Out," Barron's, January 30, 1995, p. 19.

"Bubble Gum By Night, Apple Pie By Day," Chain Store Age Executive, May 1986, pp. 35-39.

Byrd, Jerry W., "Philadelphia's Deb Shops to Buy Atlantic Book Shops, Inc.," Philadelphia Inquirer, October 23, 1995.

"Deb Shops a Trendy Competitor: Retailer's Fresh Fashion and Low Prices Woo Young Shoppers," Chain Store Age, November 2003, pp. 44f.

Milliot, Jim, "Atlantic Books Sells for $5 Million," Publishers Weekly, December 24, 2001, p. 11.

, "Founder Buys Back Atlantic Books," Publishers Weekly, October 29, 2001, p. 9.

Slovak, Julianne, "Companies to Watch," Fortune, January 1, 1990, p. 89.

Tanaka, Wendy, "Retailers Tweak Inventories in Hopes Producing a Merry Holiday Season," Philadelphia Inquirer, November 26, 2004.

Von Bergen, Jane M., "Demographics Prove Right for Two Philadelphia-Based Retailers," Knight Ridder/Tribune Business News, November 18, 1999.

Warner, Susan, "Especially Amid Economic Downturns, Teen Market Glitters for Retailers," Philadelphia Inquirer, December 19, 2000.

Wyatt, Edward A., "Looking Good: Deb Shop Fashions a Neat Gain in Earnings," Barron's, August 14, 1989, pp. 15, 17.

Young, Vicki M., "Deb Shops' Fountain of Youth," WWD, December 16, 1999, p. 10.

                                             Ellen D. Wernick

                                   update: Frederick C. Ingram

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Deb Shops, Inc.

Deb Shops, Inc.

9401 Blue Grass Road
Philadelphia, Pennsylvania 19114
U.S.A.
(215) 676-6000
Fax: (215) 969-2830

Public Company
Incorporated:
1932
Employees: 2,600
Sales: $178.4 million (1995)
Stock Exchanges: NASDAQ
SICs: 5621 Womens Clothing Stores; 5632 Womens Accessory & Specialty Stores; 5611 Mens and Boys Clothing Stores; 5942 Book Stores

Deb Shops, Inc. is a diversified company operating three chains of retail stores, with sales of $178.4 million in 1995. The largest chain, DEB, serves primarily junior-sized women between the ages of 13 and 40, offering coordinated sportswear, dresses, coats, shoes, lingerie, and accessories. As part of the companys 1996 reorganization, it added plus sizes to DEBs merchandise selection. At the beginning of 1996, the chain operated in 38 states, with most stores in the East and Midwest, and consisted of 292 DEB stores, one JOY store, and five CSO (Chain Store Outlet) stores.

The company also has two wholly owned subsidiaries. The Tops N Bottoms chain carries moderately priced apparel for both young men and women, much of it unisex. In January 1996, there were 10 Tops N Bottoms stores in four states. Atlantic Book Shops sells used books, publishers overstocks, and hard-to-find titles at steep discounts. The chain, which Deb Shops purchased in 1995, consists of three book warehouses in Pennsylvania, New Jersey, and Delaware and 11 retail stores in resort areas in Delaware and New Jersey. Members of the companys founding families control about 75 percent of Deb Shops stock.

Early History

In 1932, Philip Rounick and Aaron Weiner opened their first store in Philadelphia, Pennsylvania. JOY Hosiery offered customers a wide variety of hosiery and foundations at reasonable prices. In 1939, nylon stockings came on the market and JOY Hosiery added them to its stock.

The 1940s saw the regulation of nylon use, as it was required for parachutes and other equipment for World War II. The government also regulated how much fabric could be used in clothing and banned the use of zippers and other metal fasteners. Despite nylons limited availability, JOY Hosiery was able to obtain enough product to continue to stay in operation.

After the war and into the 1950s, JOY grew steadily, opening new stores in various Philadelphia neighborhoods. As restrictions were lifted on clothing manufacturing, a much wider selection became available. JOY reduced its offerings of lingerie and began selling moderately priced sportswear. The merchandise mix rapidly became 50/50, and remained so through the 1950s.

1960s and 70s: A New Focus

Marvin Rounick, Philips son, joined the company in 1961. In 1965 Warren Weiner, Aarons son, came on board. During the 1960s the suburbs around Philadelphia grew rapidly as families moved out of the core city. To serve their shopping needs, developers built malls and shopping centers. JOY tested those waters by opening suburban stores in shopping malls; their new concept provided a bigger store and a larger selection of merchandise. The 60s also saw the introduction of pantyhose, which eliminated the need for garter belts. With the growth of the womens movement, many young women stopped wearing girdles or bras. As a result, hose and lingerie became a smaller part of JOYs merchandise mix. It was also during this period that young people became a larger part of the consumer base, and the unisex look began to develop.

One thing that occurred during this time greatly influenced the companys financial strategy. We had some financial problems, President and CEO Marvin Rounick recalled in a 1986 article in Chain Store Age Executive. And the banker who handled us retired and a new banker came in to replace him. We went to him for money and he told us we werent a good credit risk. When the company nearly folded after their bank dropped them, Rounick vowed to keep the company debt free. That policy never changed.

In the early 1970s the younger Rounick and Weiner took a more active role in the companys management and made three decisions that changed the company completely. First, they closed most of the original neighborhood stores and quickly opened larger units in shopping malls. Second, they concentrated on sportswear and dresses for the junior customer and eliminated merchandise in other sizes. Finally, to reflect the companys new emphasis, they changed the name of their stores to DEB. Merchandise ranged from peasant tops and skirts in the early 70s to the Annie Hall look of mens suits and ties. By 1975, the company had sales of $9.5 million and earnings of $400,000. In 1979, Marvin Rounick was named president and chief executive officer.

The 1980s

Deb Shops began the 1980s with 59 stores. Within two years, it had 121 stores, sales were more than $70 million, and earnings were up to $5.5 million. Warren Weiner rejoined the company in 1982, having left in 1975, and was named executive vice president and treasurer. The following year the company went public, raising nearly $27 million. According to a 1983 Forbes article, the funds went for spending money for Rounick, his brother Jack, and Weiner, the major shareholders in the company. We were wealthy before, Rounick said in the article. Its just that now we can spend it. Deb Shops had no debt and expansion continued to be paid for from its working capital.

The companys target was primarily young women, 13 to 21 years old, with a small number of customers in their 20s and 30s. Rounick was successful because of his pricing strategy and tight inventory. He sold his dresses and other apparel at low-to-mid prices, below those of more upscale, designer clothing, and cut the prices immediately if an item was not selling after two weeks. If the sale prices didnt move the item, he shipped it to one of the companys CSO (Chain Store Outlet) stores where it was sold at a steep discount. The fast movement of the stock meant customers could expect up-to-date, trendy merchandise. That freshness, combined with inexpensive prices, attracted young shoppers.

Despite the companys success, Rounick realized he had to make some adjustments to his marketing strategy in response to changing demographics: predictions forecast that by 1990, there would be 14 to 15 percent fewer women aged 14 to 24. Unlike many of its competitors, Deb did not abandon its specialization in junior customers looking for moderately priced clothes. Rounicks answer was to market junior as a size, not an age group. Under this strategy, the company would follow customers as they grew up, serving both teens and their mothers. Accordingly, in 1983 the company started selling basic as well as trendy junior clothing.

In addition to offering a wider variety of styles, the company made some decorating changes to attract older shoppers: its green, white, and purple color combination became purple, raspberry, and white; and lower pile purple carpeting replaced the stores purple shag. Gone, too, were the enclosed storefronts. Instead windows were installed to show the merchandise and draw customers in.

Another part of Rounicks marketing strategy was to encourage add-on shopping by selecting merchandise that was coordinated with something else in the store. DEB displayed its merchandise in coordinated, layered groupings, complete with accessories. As Willard Brown, an analyst with First Albany, told Chain Store Age Executive in a 1986 article, Every top is coordinated with every pair of pants; and if you buy the top and pants, then they have a handbag that goes with them, too. So every time Rounick sells one piece of merchandise, hes put himself into the position to sell another piece.

The marketing changes worked. Within two years, customers at DEB stores, while still concentrated in a 13 to 25 age group, ranged in age up to 40, and sales in 1985 increased to $147.1 million.

The company was opening between 30 and 40 new stores a year, with most in regional shopping centers in major metropolitan areas. As these malls increased their rents, however, Deb began looking to mid-size markets and secondary markets adjacent to a major town. The company also started opening stores in less expensive strip shopping centers. They [strip center stores] are not doing the same business as the malls, Rounick explained in the Chain Store Age Executive article, but because of the reduced costs we found we can make money in the first year. By 1989 the company had stores in 67 strip centers. Stores ranged in size from 5,000 to 10,000 square feet, with the average store occupying 6,000 square feet.

The movement into strip centers was only one cost cutting effort the company initiated during the last part of the 1980s. The womens clothing business in general softened, and sales dropped. The reason appeared to be customer dissatisfaction with what the designers offered them. In 1987, Debs profit margin dropped as customers waited for markdowns and sales before buying.

Company Perspectives

Our basic merchandising philosophy is to provide our customers with the latest, updated, fashionable merchandise at the most competitive prices possible.

Rounicks response was to improve inventory control in order to cut costs and to sell more clothes at full price. In 1988, Deb expanded its warehouse space to 280,000 square feet and installed a computer-controlled sorting and distribution system. The new distribution system and the companys point of sale merchandise data system helped managers analyze and respond to what customers were buying. Inventories arrived at the stores twice a week and store displays were changed each week. While the company continued to mark down slow-moving merchandise, there was less of it. As a result of cost-cutting, although sales for 1988 were down 2 percent to $194 million, earnings increased 15 percent to $13.7 million. During 1988, Deb expanded beyond the Midwest, opening stores in Washington, Oregon, and California, and ended the year with 316 stores in operation.

In 1989, the company continued to expand, using its own capital to open 31 new stores. It also began increasing its private-label business in order to improve its profit margins. Its profitability and $71 million in equity was very attractive. According to an August 14, 1989 article in Barron s, there were rumors that Milton Petrie, who owned the competing Petrie Stores, Inc. and more than 15 percent of Deb stock, might attempt a hostile takeover of Deb. Nothing came of it. For the year, the company set record net sales of $202 million and reached its peak earnings of $17.6 million.

The 1990s and Beyond

During the early part of the decade, Deb continued to expand, opening DEB stores in Colorado, Idaho, New Mexico, Oklahoma, and Texas. The company also acquired Tops N Bottoms, a New York chain selling name-brand clothing for young men and women at moderate prices. In addition to the smaller (2,300 to 3,400 square feet) stand-alone stores in the chain, the company opened Tops N Bottom departments in several DEB stores. The number of stores operated by the company peaked in fiscal year 1992, with 373 open as of January 31, 1993. That year also saw the companys highest sales, $229.5 million. But earnings fell by 18 percent.

In 1993, Deb introduced its private label credit card, which also served as a mechanism to contact customers by direct mail. The company opened 11 new stores, but saw sales decline by four percent. Sales continued to decline, even with reduced costs as underperforming stores were closed. In 1994 the company opened eight new stores and had a net loss for the first time. In April that year, management spent $16.8 million in cash to buy back the block of stock owned by Petrie Stores Corporation. With that acquisition, insiders, including Martin and Jack Rounick and Warren Weiner, owned 75 percent of the company stock.

Sales continued to drop in 1995 and the company opened only one new store while closing 33 DEB units and one Tops N Bottoms store. Rounick introduced shoes into 200 DEB stores to generate new business and stimulate sales. That move added approximately $4.6 million to sales for the year, but continued customer resistance to offerings in womens clothing resulted in total sales of only $176.7 million and an earnings loss of $4.2 million.

On October 20, 1995, the company bought Atlantic Book Stores for $4.47 million. The apparel industry has seen a downturn in the last three to five years, and one of the strategies to stem the tide of our decline is to diversify, Debs chief financial officer Lewis Lyon told The Philadelphia Inquirer.

Martin Simon, who was 72 when he sold his company to Deb, began his book business by selling used books to department stores. At the time of the sale, the Atlantic Books chain consisted of 14 stores. Three were full-service warehouse stores, between 12,000 and 26,000 square feet large. These specialized in remainder books at greatly discounted prices while also offering bestsellers, new titles, and magazines. The Atlantic Book Warehouse stores were located in Montgomery ville, Pennsylvania; Cherry Hill, New Jersey; and Dover, Delaware. The other 11 stores were located in resort towns along the coasts of New Jersey and Delaware. These units were much smaller, between 1,000 and 2,000 square feet, and sold primarily remainder books and some new titles.

Deb indicated it planned to expand the chain by adding warehouse stores in high traffic areas. Because of the warehouse concept, the company did not anticipate any direct competition with other discount chains such as Waldenbooks, Barnes & Noble, and Borders.

In its apparel business, Deb announced it was shifting from its all-junior concentration. By April 1996, the company expected to introduce plus sizes into one-third of their stores. Up to 19 DEB stores were to be converted to plus size stores called DEB PLUS and about half of the Tops N Bottoms departments in DEB stores would become plus size departments.

Deb Shops diversification efforts appeared to build on the companys responsiveness to demographic changes and its retail operations and distribution expertise. The fact that the company was debt-free and had over $51 million in cash at the beginning of 1996 gave it some measure of flexibility and staying power as it made its changes.

Principal Subsidiaries

Atlantic Book Shops, Inc.; Tops N Bottoms, Inc.

Further Reading

Angrist, Stanley W. So Far, So Good, Forbes, October 24, 1983, p. 144.

Brammer, Rhonda, Sizing Up Small Caps: Down, But Not Out, Barrons, January 30, 1995, p. 19.

Bubble Gum By Night, Apple Pie By Day, Chain Store Age Executive, May 1986, pp. 35-39.

Byrd, Jerry W., Philadelphias Deb Shops to Buy Atlantic Book Shops, Inc., The Philadelphia Inquirer, October 23, 1995.

Slovak, Julianne, Companies to Watch, Fortune, January 1, 1990, p. 89.

Wyatt, Edward A., Looking Good: Deb Shop Fashions a Neat Gain in Earnings, Barrons, August 14, 1989, pp. 15, 17.

Ellen D. Wernick

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