Jacobson Stores Inc.

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Jacobson Stores Inc.

3333 Sargent Road
Jackson, Michigan 49201
(517) 764-6400
Fax: (517) 764-6427

Public Company
Employees: 4,500
Sales: $432.5 million (1997)
Stock Exchanges: NASDAQ
SICs: 5311 Department Stores

Jacobson Stores Inc. operates specialty department stores catering to upscale shoppers with sophisticated tastes. Located in affluent communities throughout Michigan, Indiana, Kansas, Kentucky, Ohio, and Florida, Jacobsons stores feature fashion apparel for men, women, and children, as well as home furnishings and a wide selection of crystal, china, and silver gift items. The company sells fashions by Liz Claiborne, Guess, Ralph Lauren, Albert Nipón, and Cole-Haan. Jacobsons emphasizes quality merchandise, a professional staff offering personalized customer service, and attractive shopping surroundings. The company also operates beauty salons and restaurants in many of its stores. Store events, such as fashion shows, are regularly scheduled to draw members of the surrounding community to local Jacobson stores.

Jacobsons stores are smaller in scale than traditional department stores but larger in size than most specialty stores. Divided between Northern- and Southern-Division management teams, the company maintains two merchandise buying officesone for the Midwest and the other for its Florida storesdue to the different buying habits of its two geographically dissimilar markets. Fine jewelry is purchased on a national basis for all stores. Seventy percent of the companys store properties are owned by the company, and the upscale communities in which the stores are located have ensured that the companys investment in real estate continues to reap rewards. The companys primary targeted retail base has traditionally been the white collar, professional, yuppie market, which has accelerated its purchase of upscale merchandise as it has aged. Womens apparel and accessories account for close to 70 percent of the companys business; 40 percent of Jacobsons annual sales are generated by its store locations throughout metropolitan Detroit.

Unusual in a retail chain of its size, Jacobsons continues to manually record inventory figures rather than invest in an automated system. By having employees record each individual sale and using rented equipment when performing a store inventory, the company estimated that it saved at least 40 percent over automation. Despite its seemingly old-fashioned methods of inventory control, the company maintains tight control of profit margins, inventory figures, and other financial matters.

Founded in Early 1800s

The Michigan-based department store chain was established by Abram Jacobson, who opened the first of what would become a three-store chain in Reed City, Michigan, in 1838. By the 1930s the Jacobson chain had branches in Ann Arbor, Battle Creek, and Jackson, where it had by now moved its headquarters. In 1939 the company was acquired by Nathan Rosenfeld, a 35-year-old graduate of the Wharton School of Business. An experienced retailer, Rosenfeld wanted to put the knowledge he had gained working for other retailers to work for himself in his own business. Stressing principles of fairness, quality, value, and community, Rosenfeld expanded the chain of Jacobson locations throughout Michigan, serving as chairman of the company until his death in 1982.

In 1939, at the time the company was acquired by Rosenfeld, Jacobsons reported annual sales of $300,000. After 1945, when Rosenfeld hired J. Russell Fowler to manage the business, sales would begin to climb dramatically. A former manager at Bostons prestigious Jordan Marsh department store, Fowler would guide the company to higher sales over the next 50 years through his introduction of luxury goods appealing to consumers in the top 20 percent income bracket and his vision of extending the companys sales territory into Florida. Fowler would be acknowledged for his achievements in the retail industry in 1994, when he was presented with the National Retail Foundations Silver Medal Award. Fowlers son, James B. Fowler, would also join the company for a term as president.

While sales would continue to grow for the chain under Fowlers management, the company weathered several difficult periods, including during the energy shortage of 1977 and the years 1980 and 1981. Once again on the rebound, Jacobsons suffered the loss of Nathan Rosenfeld, who passed away in 1982. At the time of his death, the company Rosenfeld had purchased in 1939 was now reporting annual sales of close to $300 million. Slow, stable growth would continue under the leadership of J. Russell Fowler. Rosenfelds youngest son, Mark K. Rosenfeld, who had served the company as president and chief operating officer since 1972, would later take complete charge of the company, becoming chairman of the board and chief executive officer in May 1992, in the wake of Fowlers resignation.

Traditional Approach Undergoes Revisions After 1986

In reaction to flat sales levels, Jacobsons began to make changes in the traditional ways it had conducted its business in the mid- to late 1980s. In 1987, for example, it designed the interior of its new Livonia, Michigan, store to resemble a spacious living room. Valuable retail space was allotted to making the stores upscale shoppers feel relaxed and unconfined. Skylights, glass walls, marble, and pale stucco walls accented with aqua trim all gave the store an airy, contemporary feel. In fact, the store was so elegant in its effect that its store manager was concerned that customers would not feel comfortable shopping in the $12 million new store in casual attire and cautioned store staff to take efforts to assuage any fears on the part of patrons of not being dressed for the occasion. In counterpoint to its luxurious Laurel Park Place store, the company also opened its first discount store in 1989. Puzzling some analysts because of its close proximity to the companys six other metropolitan Detroit stores, the Jacobsons Clearance Center was located in a strip mall in Troy, a fast-growing, upscale community just north of Birmingham. In countering its detractors, Jacobson president Mark Rosenfeld noted in the Detroit News, that management wanted the store to be close to its market, and that merchandise offered at the Clearance Center would not compete with that available at Jacobsons primary stores. We will be transferring merchandise to this store from our other stores after it has gone through several markdowns, he explained. The Clearance Center was open for several years before closing in the mid-1990s.

Sluggish Sales Prodded by Store Renovations in Early 1990s

By 1985 net income at the company was reported at $9.66 million. The following year income would climb to $11.93 million, where it would remain through the end of the decade. By the 1990s, a downturn in the apparel industry sparked by recessionary economic conditions began to affect Jacobsons, as reflected by the companys net income, which had dropped to only $2.36 million by 1990. The relentless white-collar recessionsparked by the trend towards corporate downsizing as well as the advent of casual Friday at many workplaces continued to flatten sales during the early part of the decade. Members of Jacobsons core market were affected through loss of jobs or pay cuts, and thought better of purchasing designer clothing and cruisewear in favor of holding on to their paychecks.

Such changes in its market forced the chain to reexamine its business strategies. In 1991 Jacobsons stores began to open on Sundays, a retail trend that the company had been reluctant to adopt because management believed that it could attract higher caliber personnel by allowing them Sundays off. In addition to seven-day-a-week schedules, stores would also adopt extended hours to make shopping more convenient. Industry analysts remarked positively on such changes but noted that the company should have adopted them much sooner.

In 1991 Jacobsons opened a new retail location in Naples, Florida, an action that boosted net income for the company to $4.22 million. By the following year, the company celebrated its 125th anniversary by embarking upon a program intended to spark sales growth and restore profitability. Jacobsons began to renovate existing stores, open new locations, and court a broader clientele, which included both younger shoppers and retirees. A flagship store in downtown Ann Arbor was closed due to customers perceived fears about safety and moved to a mall location outside the city. As part of the $11 million earmarked for renovation in the metropolitan Detroit area, the Birmingham, Michigan, retail location was given a new interior facelift: brighter lighting and more display space for clothing. New lines of eveningwear were also added to satisfy customer demands, and more fashion forward selections were geared to upscale 20-something shoppers. A computerized bridal registry system was installed, linking all of the companys 25 stores nationwide, while increasing its stock of china, crystal, and silver items.

In addition to renovating existing retail space, the company made the decision to phase out the sale of furniture in six of its 12 Michigan stores in order to make room for its expanded gift and home furnishings selections and put added focus on its core business: apparel. Advertising its expanded Miss J collection geared toward younger, 18-to-25-year-old shoppers was implemented, and management reevaluated its classic, conservative image as it searched for ways to broaden its retail markets. Unfortunately, managements efforts to become more contemporary in its selection of fashion inventories were not sufficient to positively impact the companys bottom line: 1992s net income was down from 1991 levels, closing at $3.91 million.

Company Works to Buoy Sales Through Expansion, the Mid-1990s

By the end of fiscal 1993, in January 1994, the company fell flat with net income reported at only $3.01 million. In response, the company studied growth areas in the fashion industry and determined to cater even more to the younger consumer and expand its selection of apparel for large-sized women. It also renewed its commitment to develop a mix of merchandise that would distinguish its inventory from those of other upscale retailers, such as Nordstroms, Neiman-Marcus, Lord & Taylor, and Saks Fifth Avenue. Due to such efforts, by the close of fiscal 1994 net income rose somewhat, cresting at $4.09 million, while sales totalled $409.15 million.

The company also continued to expand its stores, even in the face of declining profits, viewing expansion geographically as a way of diversifying any risk associated with statewide economies. Controlled expansionopening one or two stores annuallywould permit Jacobsons to maintain existing office overhead, thus reducing some of the costs normally associated with opening a new retail location by utilizing the purchasing and inventory systems already in place chainwide. All those functions can be leveraged by growth CEO Rosenfeld told the Detroit News. The company opened a new store in Louisville, Kentucky, in November 1994.

Hard-hit by Changing Retail Climate in 1995

By early 1995 sales showed little sign of rebounding, and by the companys fiscal year-end sales tallies amounted to only $414.26 million. The company posted a 1995 net loss of $4.21 millionthe first time Jacobsons had lost money since 1977. While the retail market as a whole rallied in 1996 after several years of flat sales, Jacobsons recent losses had sent the company into a slow tailspin. In May 1996 the company was forced to lay off 32 administrative workers in both its Michigan and Florida locations. Management also began to make plans to close three Metro Detroit stores that had suffered from chronically low sales figures by early 1997.

The introduction of Nordstroms, Parisién, and other upscale retailers into its core marketing area in 1996 did not help the companys trend toward increasingly sluggish sales. In response to aggressive competition, the company decreased the quantity of private-label clothing it carried, choosing to concentrate on better womens ready-to-wear. It also downsized its childrens department.

Meanwhile expansion plans continued. Shopping in Lea-wood, Kansas City, would be enhanced by the opening of a 120,000-square-foot Jacobsons store in March 1996, while November would witness the companys 11th Florida location, the 80,000-square-foot Boca Raton store. The additional sales generated by these new locations would contribute a slight boost to sales. Although no move toward acquisition of another upscale department store was in the works, company management seriously considered the idea and began investigating acquisition as an alternative to opening a new store of its own.

In November 1996, reeling from a third quarter net loss of $2.8 million on sales of $90.8 million, Jacobsons board of directors voted to cease payment of its quarterly stock dividend to shareholders. Because of poor earnings, the company was also forced to refinance $65 million of its debt; this credit agreement would be replaced in 1997 by a $100 million line of credit. In November 1996 chairman of the board, president, and CEO Mark Rosenfeld retired after a 24-year career with the retail chain while retaining his position on the board of directors. He was succeeded by P. Gerald Mills.

Attributed in part to costs resulting from the imminent closings at three of its underperforming Michigan locations, as well as severance payments to Rosenfeld and other former senior managers, Jacobsons posted a net loss of $11.46 millionor $1.98 a shareon sales that had increased only 4.4 percent over 1995 levels to crest at $432.47 million by the close of fiscal 1996.

Cautiously Moving Ahead in a Changing Retail Environment

By 1997 the company would operate 24 stores. Implementing what it dubbed the YES WE CAN! philosophy, Jacobsons aggressively began to promote its customer service and high quality. Financial incentives to new charge customers, as well as inventory mark-downs, continued to cut into profits but boosted overall sales. In addition, Jacobsons expanded its senior management team and began intensifying efforts at long-range planning. The companys Florida locations continued to show profits, while its Midwest stores suffered from a decreasing sales volume. As aggressive competition from other upscale retailers continued to erode its core market, Jacobsons has responded by searching for new ways to preserve its long-held integrity as a retailer and distinguishing itself as unique in the marketplace.

Further Reading

Markiewicz, David A., Faced with Thin Profits, Jacobsons Decides to Expand, Detroit News and Free Press, March 5, 1995.

Ming, Marcia, Elegance over Efficiency: New Jacobsons Tests Old Truths, Detroit News, October 14, 1987.

Naughton, Keith, Jacobsons to Open Troy Discount Store, Detroit News, August 17, 1989.

Palmieri, Jean E., Jacobson Stores Marches to Own Drummer: No In-Store Shops, Daily News Record, April 3, 1995.

Pamela L. Shelton