Lechmere Inc.

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Lechmere Inc.

275 Wildwood Street
Woburn, Massachusetts 01801
(617) 935-8320
Fax: (617) 935-2980

Wholly Owned Subsidiary of Montgomery Ward & Co., Incorporated
Incorporated: 1948 as Lechmere Tire & Sales Company
Employees: 5,000
Sales: $800 million
SICs: 5722 Household Appliance Stores; 5731 Radio, TV & Electronics Stores; 5719 Miscellaneous Home Furnishings Stores; 5941 Sporting Goods and Bicycle Shops

Lechmere Inc. is a retailer of electronics, appliances, and other goods, with 24 stores located throughout New England and New York. The company was founded in the early twentieth century and expanded during the postwar years as a family business offering an eclectic mix of products. Upon its sale to Dayton Hudson in the late 1960s, Lechmere underwent rapid expansion into five states in the Southeast. In the late 1980s, however, Lechmeres executives took the company private and closed some of its newer facilities in order to focus on the New England market. In early 1994, Lechmere was once again purchased by a national chain, as Montgomery Ward acquired the business.

Lechmere traces its origins to 1913, when Abraham Cohen, a Russian immigrant who had settled in Massachusetts, purchased the harness-making shop at which he worked. The A. Cohen Harness Maker shop was located in a district of Cambridge known as Lechmere, named after Lord Lechmere, a British Tory who had helped to develop the area during the eighteenth century. Cohen soon changed the name of his business to Lechmere Harness Shop.

Over the next ten years, as automobiles began to replace horse-drawn carriages, the need for harnesses declined. In response, Cohen decided to shift the focus of his business to include tire sales. To reflect this new emphasis, the companys name was changed to the Lechmere Vulcanizing Company. In 1945, Cohen brought his three sons, Maurice, Norman, and Philip, into the Lechmere business, and the company became a partnership.

After World War II, when demand for a wide variety of consumer goods increased dramatically, the Cohens moved to broaden their product line beyond tires. They began to offer small appliances, and, in 1948, the companys name was changed to Lechmere Tire & Sales Company. Also that year, the business was incorporated.

In the early 1950s, Lechmere expanded its operations further. The company began to offer a wider variety of household goods, devoting more display space to televisions and other popular appliances. Additional floors were added to the store, and the expanded showroom began to feature cameras, luggage, silver and other flatware, sewing machines, toys, and lawn and garden tools.

In an effort to distribute its wares more efficiently to customers, Lechmere introduced the concept of the pick-up counter in the early 1950s. Customers would examine models of the various products available on a showroom floor, and then go to another location in the store to pick up one of the items they had selected. In 1956, the Cohens bought an old bus garage at 88 First Street in Cambridge, around the corner from their store. This property was converted into the companys main retail store. With this additional space, Lechmere expanded its product line even further, offering records, jewelry, sporting goods, and additional appliances and household wares, along with its standard line of televisions and large appliances.

To draw the large client base needed to maintain its high-volume operation, Lechmere became one of the first local retailers to advertise extensively on television. In order to help people remember its address at 88 First Street, Lechmere adopted the gimmick of setting all of its prices at a dollar amount, plus 88 cents. This signature pricing policy was later adopted by other discount retailers.

Lechmere became known in the Boston area for its unusually diverse selection of merchandise as well as the visible involvement of the Cohens, who often walked about the store meeting customers and inviting their comments. By the early 1960s, the company was ready to expand its facilities again. In 1963, construction of a new, modern building at the 88 First Street location was completed. This steel-framed facility encompassed 100,000 square feet and provided room for the Cohens to branch out into the retail of office equipment, hardware, accessories for the bath, books, greeting cards, and tobacco. Lechmere also opened a four-bay auto servicing garage in its new building.

Two years after this expansion, Lechmere opened its first store outside of Cambridge, in Dedham, Massachusetts. When this venture proved successful, the Cohens began to explore the possibility of further geographical expansion, and, by 1967, they had developed a plan to open three more stores over the next five years. The Cohens soon recognized, however, that they would need a significant infusion of capital to pay for the construction of new stores. To gain access to the funds necessary for expansion, they decided to sell Lechmere to another department store chain, the Dayton Corporation of Minneapolis.

Under the agreement, Dayton would hold Lechmere as a separate subsidiary, leaving much of the day-to-day operations under control of the Cohens and their store managers. On February 28, 1969, the sale was completed, and Lechmere became a subsidiary of the newly formed Dayton Hudson Corporation, after Dayton merged with the J.L. Hudson Company. With the financial resources of a much larger company behind it, Lechmere embarked upon a program of geographical expansion in the 1970s, and, by the end of 1971, the company had added two more stores, in Danvers and Springfield, Massachusetts

During the 1970s, the Cohens gradually began ceding control of the firms day-to-day operations, and Lechmeres product line began to change, focusing increasingly on traditional discount store fare, which was inexpensive and frequently of lower quality. As a result, the companys reputation for offering unique merchandise began to suffer, and sales began to decline. In an effort to counteract this trend, Lechmere embarked upon a program in the late 1970s to boost sales by cutting prices dramatically. With this strategy, sales at the chains stores began to increase. In 1977, Lechmere opened a fifth store, in Manchester, New Hampshire, and, the following year, a sixth store was opened in Framingham, Massachusetts.

In 1980, Lechmeres corporate parent began to take a more active interest in the future of the chain. Two new executives were dispatched to take over the company and move it in new directions. A team of entrepreneurs was recruited to help redirect Lechmere, whose operations at that time were generating only $ 135 million a year. The store had drifted from the course set by the Cohens, Lechmeres chairperson, C. George Scala, recalled in HFD, a trade journal, commenting that the Cohens had emphasized value in quality electronics and appliances. They wanted to sell steak cheap, not cheap steak. However, after they left, new managers... indulged in a series of undisciplined diversifications. They really didnt possess a strategic position in the marketplace.

To reposition Lechmere, Scala and his associates commissioned a large-scale study of customer preferences, which took place between 1980 and 1981. From this survey, Lechmere learned that many customers found shopping in Lechmere stores unpleasant and time-consuming, that customers were frequently frustrated by items being out of stock, and that the chains focus was unclear. Moreover, the survey indicated that customers went to Lechmere to buy major appliances, not smaller decorative goods, and that they were interested in items to use in their leisure time. Those recommendations became our guidelines, Scala told HFD.

The new management began by streamlining Lechmeres offerings. Automotive accessories, furniture, grandfather clocks, fireplace fixtures, bath-related wares, books, greeting cards, gourmet foods, cigarettes, ski clothing, jewelry, Christmas trim, and other merchandise, totaling $15 million, were eliminated from the companys product line. Lechmere then focused on the items important to its initial success under the Cohens, which included televisions, major home appliances, audio equipment, records and tapes, photography and sporting goods, house-wares, and seasonal and lawn equipment. Redefining itself as a marketer of equipment for communication, education, entertainment, preparation, recreation, and information, the company set up four worlds in which it planned to operate: Home Electronics, Major Appliances, Housewares-Hardware, and Leisure and Sporting Goods. Thus, Lechmere hoped to better focus its identity in the industry, while also providing new lines of business, such as video equipment, tape rental, personal computers, telephones, and physical fitness equipment. We dont focus on product, Scala explained to HFD, but rather on adding value to the lifestyles of our customers, which we track by observation and by communicating with them.

In 1981, Lechmere changed its name to better reflect its new identity, dropping Tire and Sales to become, simply, Lechmere, Inc. At this time, the company also undertook an effort to improve the quality of the customers shopping experience in its stores. Customers had complained about Lechmeres cumbersome check-out process and outmoded conveyor belt pick-up system. To expedite sales transactions, Lechmere invested in an entirely new computer system, which tracked its merchandise from ordering to purchase.

In 1982, Lechmere completed the renovation of its store in Manchester, New Hampshire, to conform to its new business prototype, with each merchandise category being adequately represented. Lechmeres plan to become a high-volume, low-margin retailer required that sales-per-square-foot in all of its stores be unusually high. The new Lechmeres Manchester store proved successful, and the company moved quickly to renovate its other five stores on this model. By 1983, sales in Lechmeres six outlets had reached $221 million, an increase of 40 percent in two years. The company then decided to open two more stores, and, in 1984, a new outlet in Woburn, Massachusetts, opened its doors at a former K-Mart location, while an eighth Lechmere store was inaugurated in Seekonk, Massachusetts.

Lechmeres continuing market research during this time indicated that one-quarter of the American population would be working at home by the mid-1990s. Therefore, the company decided to add a home office category, offering a large selection of telephones, answering machines, computers, software, and ready-to-assemble furniture. Lechmere also began a program of rapid expansion in the mid-1980s. From 1985 to 1986, the company opened nine new stores, moving into areas outside New England for the first time. In 1986, the company began operating in the Atlanta market, opening four stores simultaneously to make a big impact in this new arena.

In 1987, Lechmere opened seven new stores, including outlets in Raleigh, North Carolina, Clearwater, Florida, and Sarasota, Florida. The Sarasota store, with 60,000 square feet of selling space, 20,000 less than other Lechmere stores, became the companys new store prototype, as it made more efficient use of space. With a total of 24 stores, Lechmere posted profits of $22.7 million on sales of $636.3 million for 1987.

The following year, the companys total number of stores rose to 27, which were spread across nine states, including North Carolina, South Carolina, Georgia, Florida, and the states of New England. In June 1989, Lechmere opened a completely new flagship store in Cambridge, next door to its original structure, which had been demolished to make way for a mall. The three-story facility had 122,000 square feet of space, making it the largest in the chain. Two more Lechmere outlets were also opened in Birmingham, Alabama.

Despite its geographical expansion and steady increase in sales, however, Lechmeres profits remained flat, due to the companys low-margin operations and stiff competition in the consumer electronics, sporting goods, and home office supplies markets. This performance, out of line with the returns from other Dayton Hudson properties, prompted some to suggest that Dayton Hudson would put Lechmere up for sale. These rumors were confirmed in July 1989, when Lechmere announced that it was being purchased by a group of investors that included Berkshire Partners, a Boston-based leveraged buy-out firm, eight Lechmere executives, and two local shopping mall executives. The price for the chain was reported at $600 million, and the deal would allow Lechmere to retain its autonomy.

Three months after leaving Dayton Hudson, Lechmere announced plans to close eight of its ten stores outside New England on December 24, 1989, putting 1,200 employees out of work. The closings affected stores in Georgia, North Carolina, South Carolina, Alabama, and Florida, while two stores in Georgia and North Carolina were slated to remain open only until they could be sold. Two days after this announcement, Lechmere made public additional plans to sell its credit operation, letting 115 more workers go. With these moves, Lechmere hoped to streamline its business for more efficient, profitable operations in areas such as distribution. By the end of 1990, Lechmeres 17 remaining stores had notched sales of $627 million, despite a general recession in retailing.

Lechmere resumed its expansion in 1991, focusing on areas closer to its home base, such as New York. Stores were opened in Syracuse and Buffalo, bringing Lechmeres total to 20. During this time, sales increased to $672 million, after Lechmere turned in a strong holiday season performance, despite heavy competition from nationwide discount electronics chains, such as Circuit City. In 1992, Lechmere opened outlets in Kingston, Taunton, Attleboro, and Manchester, Connecticut, and also remodeled its Springfield, Massachusetts store. By early 1994, Lechmeres locations totaled 24, and its annual sales had reached $800 million.

In February 1994, Lechmere announced that it had been purchased by Montgomery Ward & Co., a Chicago-based retailing giant, for $100 million plus the assumption of a $106 million debt incurred when the company had been taken private four years earlier. Although Montgomery Ward soon announced that one of its executives would take over as head of Lechmere, it vowed that Lechmere would retain its corporate identity and separate operations, and that no stores would be closed or employees let go. With the resources of its giant corporate parent behind it, as well as a strong regional identity and an unusual merchandise mix, Lechmere appeared well-situated to compete effectively in the crowded electronics and appliances market as it moved into the mid-1990s.

Further Reading:

Epstein, Gady, Scala Retires from Lechmere, Boston Globe, June 23, 1992.

Gilbert, Les, Lechmere Diversifies Carefully, HFD The Weekly Home Furnishings Newspaper, October 17, 1988.

Kimbrough, Ann Wead, Two Years Later, Lechmere Stays Status Quo, Atlanta Business Chronicle, August 15, 1988.

Levine, Martin, Lechmere Challenged in Beantown OAH Battle, Consumer Electronics, September 1988.

Mehegan, David, Big Bang at Lechmere, Boston Globe, June 2, 1989.

Mehegan, David, Lechmere Bought Back, Boston Globe, July 20, 1989.

Mehegan, David, Lechmere to Close Ten Stores in South, Boston Globe, September 29, 1989.

Mehegan, David, Through the Seasons Uncertainty, Boston Globe, December 18, 1990.

Reidy, Chris, Lechmere Sale Complete, Boston Globe, March 31, 1994.

Zuckoff, Mitchell, Lechmere Agrees to Takeover, Boston Globe, February 2, 1994.

Elizabeth Rourke