20 Glover Ave.
Norwalk, Connecticut 06856-5620
Fax: (203) 849-2019
Sales: $2.4 billion
Stock Exchanges: New York
SICs: 5311 Department Stores
Caldor Inc. is a leading retailer of upscale discount goods in the northeastern United States. Through its chain of Caldor discount stores, the company sold nearly $2.5 billion worth of goods and employed a work force of more than 20,000 in 1994. Caldor expanded rapidly beginning in the early 1980s to become the fifth largest discount chain in the nation by the early 1990s. A discount industry pioneer, Caldor predates the start of both Kmart and Wal-Mart by more than a decade.
Caldor was launched in 1951 by husband and wife team Carl and Dorothy Bennett; they coined the name “Caldor” by combining both of their first names. Carl’s brother, Harry, was also involved, handling Caldor’s real estate dealings from its inception into the mid-1980s. The original enterprise consisted of a single tiny store for three years before a second small shop was added, marking the start of a chain expansion that would blanket the Northeast by the 1990s. The 1,400-square-foot addition was manned by a small, hard-working staff supervised by Carl.
Despite its early entrance into the retail discount store industry, Caldor faced stiff competition from both old and new competitors. For example, Sears, the largest retailer in the world at the time, operated a store across the street from Caldor’s second outlet. In addition, Eugene Ferkhauf had started his chain of Korvette discount stores just a few years earlier. That venture became hugely successful and elevated Ferkhauf to star status in the industry. In fact, Korvette had served as an impetus for the Bennetts and even helped to pave the way for other discount retailers.
Carl Bennett and his crew were determined to see the fledgling Caldor chain become successful. Bennett carpooled to work in the early days with Luke Kirby, Jr., the fourth employee hired at the new store. Together, they would lug cases of motor oil and other goods into the store from the car and do whatever else was necessary to give the tiny store an advantage over its well-heeled competitors. “We’d run double-truck ads; customers would come and say, ’where’s the rest of the store,’ “Kirby recalled in the February 18, 1985 Discount Store News, stating that “If I had a brother I wouldn’t have worked as hard as I did for Carl.”
Impressed by Kirby’s knack for sales, Bennett had hired him away from a good sales job in a liquor store chain. The 27-year-old Kirby knew that he was taking a huge risk by leaving his safe job—the chain was owned by Kirby’s relatives—but he had a good feeling about Bennett and the new discount store concept. Kirby and Bennett worked well together. They were both savvy and aggressive entrepreneurs who loved to negotiate and take risks. As Bennett slowly expanded the chain during the 1960s and 1970s, Kirby managed the development of the company’s hard goods mix, which accounted for the large majority of sales. His acute knowledge of Caldor’s inventory and buying systems, combined with his knack for dealing with vendors, eventually earned him the title of vice-president of the company.
The 1960s and 1970s were good years for Caldor. The U.S. economy flourished in the wake of the massive postwar population and consumption boom, and the retail sector thrived. Discount stores, in particular, benefitted, as consumers began to recognize the cost benefits associated with economies of scale. By the 1970s, discount retailers like Caldor, Kmart, Wal-Mart, and Korvette were quickly stealing market share from more conventional retailers, such as department stores and specialty stores. The traditional mom-and-pop shop located in the town square was rapidly becoming a memory.
By 1981, Bennett and his team had built Caldor into a major regional discount retail powerhouse on the East Coast. The chain consisted of 63 stores, all of them much larger than the original 1,000-plus square foot outlets, and Caldor’s revenues were approaching $700 million annually. By the early 1980s, however, the retail discount industry was becomingly increasingly competitive and, therefore, consolidated. That trend was intensified by a slowdown in consumer spending during the U.S. economic recession of the late 1970s and early 1980s.
Many of Caldor’s competitors, including Korvette, were pushed out of the market or absorbed into larger retail chains during the late 1970s. In contrast to some of its debt-laden peers, however, Caldor was buoyed both by its regional dominance and by its healthy balance sheet, both of which reflected Bennett’s management style. Unlike some other discount chains, Caldor had remained focused on a few key markets on the East Coast, where its name recognition had maximum impact. Bennett had also been careful to keep debt to a minimum, which reduced opportunities for expansion but helped to ensure solvency.
Attracted to the company’s growth potential and low debt, Associated Dry Goods (ADG) made a bid for Caldor in 1981. ADG, a diversified conglomerate, was already active in the upscale retail sector through other retail holdings, such as its chain of Lord and Taylor stores, and it sought to round out its retail portfolio with a discount chain like Caldor. That year, ADG acquired Caldor, and, although Caldor lost its independence, Bennett was retained under a five-year management contract, as were several other executives, including Kirby.
Under the control and financial backing of ADG, Caldor expanded at a rate of more than 20 new stores annually between 1981 and 1985. It remained focused on the East Coast, opening outlets in New York, Connecticut, Massachusetts, and New Jersey, among other states. As the number of Caldor stores escalated to nearly 100 by 1986, sales surged to about $1.4 billion, or nearly double revenues before the ADG buyout. During the same period, ADG continued to expand through other retail holdings, such as Loehmann’s, a department store retail chain.
While Caldor’s growth during the early 1980s seemed impressive, ADG failed to profit from the acquisition as it had hoped, and Caldor became a drag on its bottom line. In fact, rapid expansion, the absence of a defined growth strategy for the chain, and ADG’s general lack of expertise in discount retailing had resulted in mediocre profitability by the mid-1980s. Critics cited ADG’s failure to market to young families. In addition, the chain’s product mix had become unwieldy, and its signing and display techniques were considered poor in relation to its competition. Furthermore, Caldor’s inventory and sales tracking systems had become obsolete compared to many of its technically advanced rivals.
Evidencing the continuing trend toward industry consolidation, May Department Stores Co. purchased ADG in 1987 in a stock swap valued at $2.7 billion. A major U.S. retail powerhouse headquartered in the Midwest, May Department Stores had a reputation as an aggressive, profitable retailer. Its major holdings included Famous Barr, a chain of upscale department stores, and Venture, a retail discount chain similar to Caldor in both size and market positioning. May named Don R. Clarke chief executive of Caldor and Marc Balmuth president, both of whom had formerly headed up May’s successful Venture chain. Clarke replaced the short-term successor to Bennett, who had left Caldor when his contract expired in 1985; Bennett and his wife, Dorothy, subsequently started a real estate consulting firm in Stamford, Connecticut.
Clarke’s first move at Caldor was to squelch the ambitious growth plans made by its former parent, ADG, which had planned to double Caldor’s outlets to 200 by 1990 and to boost revenues past the $2 billion mark. Instead, May wanted to concentrate on improving the financial performance of the chain. During 1986, Clarke liquidated Caldor’s bloated inventory—at a cost of $30 million—and began to reestablish a profitable mix of goods. Importantly, he initiated an emphasis on soft lines, particularly clothing, thus diminishing the chain’s extreme concentration on hard goods. He also shaped up Caldor’s advertising and promotional programs and developed a plan to renovate Caldor’s older stores.
During 1988, Caldor added only three new stores, bringing its total to 119. Clarke and Balmuth remained focused on improving the performance of the chain and remodeling existing outlets. They reduced the number of managers in each store and used the payroll reductions to lower prices. Computerized systems were implemented to improve efficiency, and electronic scanning guns were installed at all of Caldor’s registers. Changes achieved during the late 1980s significantly improved Caldor’s performance. Caldor generated revenues of $1.6 billion in 1988, about $50 million of which were kept as earnings; May’s aggregate sales during that year were $11.6 billion.
May had increased Caldor’s earnings by more than 300 percent since 1986 and had gone a long way toward improving the competitiveness of the discounter. Still, Caldor’s problems proved greater than May had anticipated, and income growth was slower than expected. A U.S. economic recession that started in the late 1980s, moreover, threatened to hinder Caldor’s gains. Finally, the discount retail industry was becoming increasingly competitive as regional discounters saturated local markets. Discount giants Kmart and Wal-Mart, for instance, both began aggressively vying for market share in Caldor’s traditional stomping grounds.
In light of proliferating competition and general disenchantment with its discount operations, May decided to sell its discount chains in 1989 and to focus its energies entirely on its department stores. In a $537 million leveraged buyout, an investment group named Odyssey Partners borrowed heavily to buy the 120-store Caldor chain. Clarke and Balmuth remained at the helm and continued to pursue a strategy of slow growth, while implementing new internal changes designed to add value to the company. They revamped Caldor’s pricing system, for example, by instituting a two-tier pricing system that helped to reduce overall mark-ups by about two percent. They also stepped up their efforts to offer increasingly profitable soft lines, boosting sales of those items from 27 percent of revenues before the leveraged buyout to about 31 percent by 1990. Finally, Clarke and Balmuth made plans to increase the average size of the stores and changed the Caldor logo and color schemes.
Caldor flourished as an independent company. Despite the recession, revenues jumped more than five percent in both 1990 and 1991 before rising more than ten percent during 1992. Similarly, net earnings soared past $34 million in 1992. In fact, Caldor surpassed its $2 billion revenue goal in 1992. Furthermore, Odyssey Partners was able to reduce its large debt load in 1991 through a public stock offering. Clarke and Balmuth used those proceeds to launch an ambitious store remodeling plan that they had started in 1989, as well as to begin expanding the chain again. In 1992, in fact, Caldor outbid other retailers to take control of six New York City stores that were being dumped by Alexander’s, another retailer.
During 1992, Caldor added a total of eight new stores to its chain, bringing its total to 136. Those additions represented the start of a plan to add a total of 60 new stores by 1995. To support its growth plans, Caldor constructed a 508,000-squarefoot distribution facility in New York and began the installation of a major computer information support system, which went on line in 1993. Caldor tagged 14 new stores onto its portfolio during 1993 and completed 20 more renovations; by the end of 1994, more than 80 percent of Caldor’s stores were newly constructed or recently renovated.
Caldor’s improved appearance complemented its more competitive prices and new product mix. Indeed, as consumers became aware of the improvements, Caldor’s sales and profits escalated. Revenues rose to a record $2.4 billion in 1993, and earnings hovered near a healthy $34 million. Despite hefty capital expenditures, improved earnings allowed Caldor to steadily shave its long term debt load from about $350 million in 1989 to $272 million by 1993. As a result of improvements, the company’s stock price more than doubled between 1991 and 1994 to about $30 per share.
Going into 1995, Caldor was operating 158 stores in ten northeastern and mid-atlantic states. In its key geographic areas, it maintained a dominant role in the upscale end of the discount market, which included brand- and quality-conscious consumers. Clarke planned to step up expansion with the addition of 100 new stores by 1999, as well as to complete the renovation of all of its existing outlets. Caldor’s steadily improving financial performance, combined with a strengthening retail sector in the mid-1990s, made those goals plausible.
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“Caldor Opens Stores in Hamilton, Bristol,” Trentonian, January 28, 1993.
Cooper, Jeanne Dugan, “Attn: K Mart Execs: Caldor Opens New Long Island Store,” Newsday, July 27, 1990, p. 43.
Enrico, Dottie, “May Stores Puts Caldor on the Block,” Newsday, June 28, 1989, p. 49.
Furman, Phyllis, “Caldor Runs to Fill the Big Store Void,” Crains New York Business, October 4, 1993, p. 1.
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Jordan, Hope A., “Up Against the Malls,” Business Worcester, December 25, 1989, p. 70.
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Lisanti, Tony, “Caldor Employs ’May-less’ Look; Remodeling Key to Achieving Self-Sufficiency,” Discount Store News, March 26, 1990, p. 1.
“Venture’s Clarke Takes Helm at Caldor, Set to Fix Business,” Discount Store News, November 10, 1986, p. 1.