Citi Trends, Inc.
Citi Trends, Inc.
102 Fahm Street
Savannah, Georgia 31401
Telephone: (912) 236-1561
Fax: (912) 443-3674
Founded: 1946 as Savannah Wholesale Co.
Sales: $289.8 million (2006)
Stock Exchanges: NASDAQ
Ticker Symbol: CTRN
NAIC: 448140 Family Clothing Stores
Citi Trends, Inc., based in Savannah, Georgia, is a company that operates a chain of more than 250 stores selling value-priced, urban-inspired apparel and accessories, mostly catering to African-American family customers, who make up about 70 percent of the customer base. Not only does Citi Trends sell hip-hop jeans and oversized T-shirts to younger customers, it also offers men's, women's, and children's clothing and shoes. The stores, which average over 10,000 square feet of selling space, also offer a small home accessories department, selling giftware, lamps, pictures, mirrors, and figurines with an emphasis on African tribal décor. Citi Trends sells private-label apparel as well as major brands, including Apple Bottoms, Dickies Ecko, FUBU, Members Only, Phat Farm, Baby Phat, Sean Jean, and Rocawear. Stores are found primarily in affordable strip mall locations close to their target demographic in some 12 Southern and Southwestern states, with the most units, 49, located in Georgia. The fast growing Citi Trends company has also entered Midwestern states like Indiana and Ohio and is looking to Northeastern states, such as New Jersey and Pennsylvania, for further expansion. Taken public in 2005, Citi Trends is listed on the NASDAQ.
POST-WORLD WAR II ROOTS
Citi Trends was founded in Savannah in 1946 as Savannah Wholesale Co., serving retail clothiers through the southeastern states, mostly selling women's undergarments and hosiery. The wholesaler operation proved successful enough that in 1958 it branched out to include retail clothing outlets. They were branded Allied Department Stores, an allusion to the victorious Allies of World War II as well as a reflection of the varied merchandise the stores had to offer. Selling value-priced family apparel, Allied found a ready market and expanded modestly throughout the South over the next 20 years.
In 1978 Savannah Wholesale and the Allied chain were purchased by Michigan General Corp., a Dallas-based diverse conglomerate that also held interests in such areas as homebuilding products, oilfield chemicals, highway safety construction, recreational vehicles, paperback books, retail furniture, and a temporary employment agency for engineers. Combined, Michigan General's dozen subsidiaries generated about $140 million by the early 1980s. However, it proved to be an unwieldy mix of businesses and the company took on too much debt to assemble them effectively. As a result, Michigan General lost money for three straight years and was on the verge of bankruptcy when John Bou-dreau took over as chief executive officer in 1982. He came to Michigan General with a reputation as a turnaround artist, having successfully revived European Overseas Inn, a company that managed European Holiday Inns.
Boudreau took a special interest in Savannah Wholesale, which included the Allied Chain and several A's Bargain Stores. In three years he grew the number of retail outlets from 23 to 117, located in small rural towns in several Southern states. Boudreau also looked to find a retail outlet for Krestmark, a subsidiary that manufactured aluminum doors and windows. In September 1983 he acquired the Diamond Lumber chain of homebuilding supply centers, which was supposed to be a major component in his turnaround strategy for Michigan General. Boudreau also attempted to bring more focus to Michigan General by divesting some assets. In February 1984 he unloaded six subsidiaries, reaping nearly $20 million. Two core businesses now remained: the clothing stores and homebuilding supplies. He would not, however, be given much of a further chance to implement his plan. The company was taken over by General Felt Industries, a manufacturer of artificial grass and carpeting, and its CEO, Rocco Barbieri, was not pleased with what he found, telling Dallas Business Courier that Boudreau "left a lot to be desired in terms of making it a well run organization." In June 1985 Boudreau was relieved of his post, and Barbieri took over.
SOLD TO VARIETY WHOLESALERS: 1989
In the first six months of 1985 Savannah Wholesale lost approximately $2 million and one of Barbieri's first tasks was to restore the subsidiary to profitability. While Savannah Wholesale and the Allied chain were able to limp along for the next few years, Barbieri was not able to restore Michigan General to fiscal health. The company lost $34.6 million in 1985. Under pressure from its senior lender, Michigan General then filed for Chapter 11 bankruptcy protection in April 1987. Nevertheless, Savannah Wholesale was allowed to continue normal operations. Michigan General emerged from Chapter 11 in April 1988 and bond holders gained 80 percent of the common stock. Savannah Wholesale remained a part of the reorganized company until July 1989 when it was sold to Variety Wholesalers, operator of discount stores.
Variety was a very successful retailer, operating more than 400 budget stores in 13 Southern states. The company grew out of a single five and dime store opened in Angier, North Carolina, in 1932 by John Pope, the son of a dry-goods merchant who spent many hours in his father's store while growing up. He was known to sleep under the counter on Saturday nights when the store remained open until midnight in order to cater to farm families who came into town and often liked to shop after treating themselves to a show. The elder Pope anticipated the shortages that would occur should the United States enter World War II and stockpiled goods, allowing him to take advantage of the war years to establish a small chain of stores in North Carolina. A University of North Carolina graduate in commerce, John Pope, along his brothers, took over the operation in 1949 (and two years later he bought them out). The business was incorporated in 1957 as Variety Wholesalers, Inc.
Pope moved away from the once popular full-price five and dime format, converting his outlets to the variety store format in the 1950s and 1960s. He continued to keep his finger on the pulse of small town consumers, focusing on communities in Southern and Mid-Atlantic states. When dollar stores became popular in 1970s, he followed that trend, and in the 1980s he pursued a mix of formats. Variety Wholesalers began to accelerate its growth in the 1970s as family-owned variety stores and five and dime stores were put up for sale by children of founders who were not interested in pursuing the retail trade. Pope now proved adept at buying the chains on the cheap and imposing on them his cost-conscious way of doing business. In the 1970s he bought dozens of Eagle Stores and McCrory/United Stores, and then in the early 1980s added nearly 200 Value Mart Stores, 145 Super Dollar Stores, and 55 P. H. Rose's variety stores. By this point, Pope was operating some 400 stores under four banners, but the retail landscape was changing once again as small town American retailers had to contend with large discounters, in particular Wal-Mart, who were able to leverage their size to buy goods at advantageous prices and sell them to consumers at prices the competition could not hope to match.
Citi Trends, Inc. is a value-priced retailer of urban fashion apparel and accessories for the entire family.
Like many retailers Pope had for years advertised heavily, discounting certain items to bring consumers into his stores to buy high-margin merchandise. But this strategy lost its edge because of the discounters. Many customers simply bought the advertised specials and nothing else. A pragmatic man, Pope was not hesitant about closing stores, but he was also willing to take a chance. He converted 15 stores on the verge of closing to a format that eliminated sales items. Instead, merchandise was priced at an everyday threshold price, such as the Super 10 format stores, in which everything retailed at $10 or less. The switch worked, customers returned, and Pope was further able to save on advertising costs to restore some of his competitive edge.
Pope and Variety Wholesalers were once again on the upswing when in 1989 the company acquired Savannah Wholesale and the 106 units that remained in the Allied Department Stores chain. Of those, six stores operated under the Allied Kids Wear banner. The Allied operation was not suited for conversion to a one-price store, however, and Pope indicated that he planned to keep it a separate business to be run out of Savannah. He told the Daily News Record, "We see this as a diversification and we believe, with our support in some areas of their operation, Allied will become a profitable growth vehicle."
Savannah Wholesale spent the next decade under the control of Variety Wholesalers, a secondary operation that withered as Pope continued to focus on one-price stores and acquired more fading variety store chains. Allied enjoyed a resurgence in 1997 when a new management team was installed and the stores received a much needed makeover, including store renovations and an updating of merchandise. In keeping with these changes the Allied Department Store name was dropped in favor of Allied Fashion for Less.
With the business rebounding, Variety Wholesalers sold the 85-unit chain to management in April 1999, backed by Hampshire Equity Partners, a New York City investment firm founded in 1990. With this independence, Allied began to expand rapidly, finding its niche by focusing on urban fashions, the family market, and the African-American community. A larger store format was introduced in early 2000 that could accommodate a broader range of merchandise. The new stores took a new name, Citi Trends Fashion For Less, and steadily the older Allied Stores were switched over to the new format.
CITI TRENDS NAME ADOPTED 2001
The company adopted the Citi Trends name in July 2001, and in December of that year there was a change at the top ranks of management when R. Edward Anderson was named chief executive officer. Anderson had been Variety Wholesalers' chief financial officer, having joined that company in 1997 as a result of the acquisition of Rose's Stores Inc. Anderson had spent 20 years with Rose's, ultimately become CEO and chairman of the board. Thus, he was a seasoned retailer. He took over a chain of 123 stores and moved quickly to accelerate its growth. Not only did the number of units increase, but stores began to generate more sales, improving from $800,000 in annual sales per store in fiscal 2001 to around $1.1 million by fiscal 2004. These sales increases were also helped by the introduction in fiscal 2003 of a larger store format, featuring about 10,350 square feet of selling space.
Citi Trends' balance sheet revealed steady improvement, as revenues reached $98 million in fiscal 2002, approached $125 million in fiscal 2003, and totaled $157.2 million in fiscal 2004 and $203.4 million in fiscal 2005 (ending January 29, 2005). Net income during this period increased from $2.5 million to more than $7.3 million, and the Citi Trends chain expanded to 212 units. Hampshire Equity was now ready to cash in some of its investment through an initial public offering of stock in May 2005, managed by CIBC World Markets, Piper Jaffray, SG Cowen & Co., and Wachovia Securities. The offering was well received by investors and Citi Trends was able to receive the top range, $14, of its desired price range. The offering raised almost $54 million. Moreover, the stock continued to rise in value when it began trading on the NASDAQ, gaining more than 75 percent of its initial price in three months.
- Savannah Wholesale Co. is formed.
- Savannah Wholesale launches Allied Department Stores.
- Savannah/Allied is sold to Michigan General Corp.
- Variety Wholesalers acquire Savannah/Allied.
- A management-led buyout of the company takes place.
- The company becomes Citi Trends.
- Citi Trends makes its initial public offering of stock.
Hampshire Equity sold 10 percent of its stake in Citi Trends, but still retained a 55 percent controlling interest. The offering also provided Citi Trends with some working capital as it continued to expand, with plans in the works to open stores in Delaware, Kentucky, New Jersey, Pennsylvania, Indiana, Illinois, Michigan, Missouri, and Ohio.
In fiscal 2006 sales increased 42.5 percent to $289.8 million and net income almost doubled to $142 million. More importantly, the revenue increase was not just the result of new store openings: comparable store sales increased an impressive 16.7 percent over the prior year. Explaining Citi Trend's success to DSN Retailing Today, Anderson said, "Our value-conscious customer has a strong appetite for current urban fashions at strong value prices." At a conference call with analysts in February 2006, Anderson elaborated on the company's "secret to success." According to DSN Retailing Today, "Anderson said it related to having an effective, trend-driven buying team with an ability to focus on key looks for the season rather than specific national labels. 'We view the look as more important than the brand. We know that counterintuitive to what a lot of people believe about urban fashions, but we really believe it's got to be the right look first and the brand second,' Anderson said."
Citi Trends appeared to be in the early stages of its growth. Some analysts estimated that the chain could expand as large as 1,200 stores by 2014. It was highly likely that by then Hampshire Equity would no longer hold a stake, however. In May 2006 Gregory P. Flynn, one of the firm's principals, resigned as chairman of Citi Trends. Hampshire Equity had already further reduced its holdings through a secondary stock offering in January 2006, and it now appeared that the firm was ready to sell the balance.
Burlington Coat Factory Warehouse Corporation; Ross Stores, Inc.; The TJX Companies, Inc.
Curl, Eric, "Citi Trends Goes Public," Savannah Morning News, May 18, 2005.
Howell, Debbie, "Citi Trends Builds Success Targeting Urban Fashion," DSN Retailing Today, February 27, 2006, p. 11.
Lee, Steven H., "Michigan General Exits Chapter 11," Dallas Morning News, April 2, 1988, p. 5F.
Lloyd, Brenda, "Variety Acquires Allied/Savannah," Daily News Record, July 27, 1989, p. 16.
Rogers, Walter M., "After a Shakeup, Michigan General Moves Its Headquarters Out of Dallas," Dallas Business Courier, September 30, 1985, p. 7.
Traugot, Catherine Liden, "Variety is the Spice," Business, North Carolina, September 1, 1999, p. 22.