The Paradies Shops, Inc.

views updated

The Paradies Shops, Inc.

5950 Fulton Industrial Boulevard SW
Atlanta, Georgia 30336
U.S.A.
Telephone: (404) 344-7905
Fax: (404) 344-9530
Web site: http://www.theparadiesshops.com

Private Company
Incorporated: 1960
Employees: 3,000
Sales: $400 million (2006 est.)
NAIC: 453220 Gift, Novelty, and Souvenir Stores

The Paradies Shops, Inc., is a private, family-owned company based in Atlanta, Georgia, that operates about 500 shops in more than 60 airports and hotels in the United States and Canada, as well as the concession program in Atlanta’s Georgia Aquarium. The company’s success in airports is predicated on the operation of multiple newsstands and specialty retail brands, combining back office functions, and taking advantage of other benefits that come with scale. Paradies’ proprietary brands include Details, a women’s accessory store that offers hosiery, scarves, fragrances, and other goods from such noted designers as Calvin Klein and DKNY; Explore!, a concept that informs travelers about local tourist attractions and community events; the KidZoo children’s store, which promotes local zoos while selling stuffed animals, toys, books, souvenirs, and other merchandise; Hometown Favorites, offering merchandise related to local sports teams; Marketplace, featuring local arts and crafts; Retail Court, a minimall concept featuring such retail brands as Brighton, Calvin Klein, Christian Dior, Perry Ellis, and Liz Claiborne; Sue Venir, offering souvenirs from around the world costing less than $10; and TravelMart, a convenience shop selling food, beverages, books, magazines, and other sundries that travelers might need.

In addition, Paradies operates a number of branded shops: The Big Ten Conference, Brighton Collectibles, Brooks Brothers, The ACC (Atlantic Coast Conference), CNBC News, Harley Davidson, PGA TOUR Shops, and The New York Times Bookstore. The company also develops brands for specific sites, such as the Baggage Claim shop in the Memphis airport. All told, Paradies’ operations serve more than 500 million customers each year. The company is owned and operated by the Paradies family.

PARADIES FAMILY EMIGRATES TO AMERICA: 1911

The Paradies Shops grew out of Paradies and Company, founded by a South African immigrant named Isaac Jacob Paradies. The son of a merchant, he was born in the Baltic state of Latvia in the late 1800s. After receiving his education in Germany, he moved to South Africa to work in the diamond mines, and later became a rancher. His sister, in the meantime, had immigrated to America, settling in Atlanta, where Paradies visited her in 1911. Almost half a century had passed since Atlanta had been devastated during the Civil War by General William Sherman’s infamous “March to the Sea,” and the city, by this time a railroad nexus, was becoming a thriving economic center of the new South. Recognizing the community’s potential, Paradies decided to relocate to Atlanta, where he became a successful wholesale grocer. Out of this business grew a small chain of “dime” stores.

Paradies left the wholesale grocery business and retailing in 1942 to establish Paradies and Company, a wholesale toy and house wares distributorship. The company became a major firm in the Southeast, serving as a key regional supplier to J.C. Penney as well as a number of other retailers. Soon a second generation of the family became involved. A daughter, Janice, married an attorney, Marvin Shoob, who would later represent The Paradies Shops, while Dan Paradies and his younger brother James eventually took charge of the family business.

It was Dan Paradies who founded The Paradies Shops and returned the family to retailing. He had joined his father after completing a four-year stint as a bomber pilot in the U.S. Air Force during World War II. He became involved in airport retailing in the late 1950s when Atlanta mayor Bill Hartsfield, a close friend and major advocate of air travel, asked him to open a toy store at Atlanta Municipal Airport, which was the busiest airport in the country. Developed in the 1920s on a former auto racetrack, the airport became the home to two major airlines, Eastern Air Line and Delta Air Lines. During World War II it served as a military air base and in the postwar years, when commercial air traffic increased dramatically, the airport turned a war surplus hangar into a makeshift terminal. Already congested in the mid-1950s, conditions grew even worse after the first jet airliners made their appearance in 1957, a year when more than 2 million passengers passed through the overcrowded terminal. In that same year work was begun on a new $21 million terminal, the largest in the country when it opened in May 1961.

Dan Paradies recognized the potential of doing business in the new terminal, which was capable of handling 6 million passengers a year, and the family returned to retailing, first opening a shop in the old terminal before setting up operations in the new, modern facility. The opportunity presented at Atlanta Municipal Airport proved to be even more promising than anyone could have anticipated. In the first year the new terminal was open, it welcomed about 9.5 million passengers and the Paradies toy store did $100,000 in business. Within a few years, Eastern, Delta, and the city began drawing up long-term plans to develop a new airport on the site.

Out of its success in Atlanta, The Paradies Shops was able to expand to other U.S. airports, including La Guardia Airport in New York and Dulles International Airport in Washington, D.C. Sales grew steadily, reaching $4 million in 1978. In Atlanta, in the meantime, construction had begun on the new $500 million Midfield terminal, which at the time would become the world’s largest terminal complex. The city wanted to make certain that minorities would share in the concession opportunities afforded by the new Midfield terminal, at what became known as William B. Hartsfield Atlanta International Airport, and in 1978 established the Minority Business Enterprise (MBE) program to bring in minority owned and operated businesses. Charged with coordinating this effort, and shielding it from politics, was a company awarded the airport’s main concession contract, Dobbs Paschal Midfield Corporation, a joint venture between a major airport foodservice company, Dobbs Houses Inc. and the Paschal brothers, noted African American restaurateurs in Atlanta. To become involved in the new terminal The Paradies Shops formed its own joint venture with African American partners, Paradies Midfield Corporation.

ORIGINAL BUSINESS SOLD: 1980

In order to concentrate on its airport gift shops, the Paradies family sold Paradies and Company in 1980. The Paradies Shops was operating in about two dozen airports by the late 1980s and also ran shops in hotels, including the Hyatt chain, and other locations. Growth continued into the 1990s, as The Paradies Shops won concession contracts in additional airports. However, controversy at home soon threatened to derail the company’s success.

COMPANY PERSPECTIVES

We’re building the company one store at a time. Making a difference with employees, one employee at a time. Exceeding the expectations of our customers, one customer at a time.

For years Atlanta’s MBE program had been held up as a model for all minority participation plans, but by the end of the 1980s it became apparent that it failed to live up to the accolades. Most of the African American–owned airport concession businesses at Midfield failed, being unable to generate enough sales to pay the extremely high rents charged by Dobbs Paschal. Rather than keeping politics out of the equation, the lead concessionaire awarded concession subcontracts to tenants who were long on political connections but short on retail experience. In addition, few minority partners were playing any kind of active role in the joint ventures set up with nonminority partners.

Paradies Midfield became caught up in a scandal in 1992 when a city investigation revealed, according to the Atlanta Constitution, that the company paid $900,000 (based on contractual obligations to make payments to Hartsfield Concessions) to former city councilman Aviation Commissioner Ira Jackson “through a complex series of corporate layers that concealed his connections to the source of the fund.” The money was airport concession revenues of Paradies Midfield intended for minority partners, who had secretly transferred their interests to a company controlled by a Paradies’ minority partner, Mack Wilbourn, called Hartsfield Concessions. Because of his position as a councilman, Jackson had previously been blocked by the city’s ethics board in an attempt to buy out two of Paradies Midfield’s minority partners. Nevertheless, Jackson was able secretly to acquire a stake in Hartsfield Concessions. Funds were then transferred from it to another company Jackson owned with his son. This arrangement lasted from 1986 until shortly before Jackson was named the city’s aviation commissioner in 1990.

Although Dan Paradies was not initially accused of wrongdoing, a federal investigation ensued and in 1993 he found himself part of a 131-count indictment also directed at Wilbourn and Jackson. The three men were accused of mail fraud, conspiracy, bribery, and tax evasion. The matter went to trial in January 1994, and following three weeks of testimony and arguments a jury deliberated just six hours before acquitting Wilbourn on all counts but finding Jackson and Dan Paradies guilty. The 72-year-old Paradies was convicted on 83 mailfraud charges, based on the mailing of 83 contractually required payments to Hartsfield Concessions, and one conspiracy count. Paradies Midfield and The Paradies Shops as corporations were convicted on the same counts and fined $1.5 million.

At this stage, Paradise Shops was operating about 200 stores in 40 airports, generating more than $100 million in annual sales. To help mitigate the damage done to the company by the conviction, Dan Paradies promptly retired and placed his stake in The Paradies Shops in an irrevocable blind trust. He also appealed the guilty verdict, but it was ultimately upheld and he served 12 months in a minimum security facility in South Georgia, a reduction from the original 33 month sentence. Furthermore, The Paradies Shops hired the accounting firm of Coopers & Lybrand to audit all of its minority partnerships and made the information available to airport managers.

The Paradies Shops severed its ties to Hartsfield when its leases expired in 1995 and the company opted not to participate in the proposal process for new airport leases. By being open about the convictions with airports, The Paradies Shops was able to minimize the fallout from the bad publicity. While it lost contracts at Denver International Airport and a new airport in Austin, Texas, the company extended its contracts with 11 airports while winning 22 new airport contracts over the next three years. Sales were also increasing steadily, reaching $150 million in fiscal 1998.

In addition to dealing successfully with the conviction, The Paradies Shops owed much of its success in the late 1990s to the major role it played in the so-called malling of airports. The days of running a few airport gift shops were a distant memory. Now, The Paradies Shops operated a variety of retail shops under its own brands or the famous brands of others, such as PGA TOUR Shops and Brook Brothers. Shops under the Sharper Image, Nautica, and Shades of Time brands were also opened but eventually shuttered. While a number of well respected retailers tried to open airport units, it fell to such multiple brand operators as The Paradies Shops, which could leverage its back office infrastructure, such as accounting and payroll, to make airport stores saddled with high rents and other costs a profitable venture.

KEY DATES

1960:: Dan Paradies forms The Paradies Shops.
1980:: The Paradies family sells Paradies and Company to concentrate on The Paradies Shops, Inc.
1994:: Federal corruption case results in fines of $1.5 million.
2001:: Terrorist attacks of September 11 impact airport business.
2005:: The New York Times partners with The Paradies Shops, launching a branded bookstore concept.

NEW CENTURY GROWTH

By the end of fiscal 2001 revenues topped the $200 million mark, produced by some 300 stores in 57 airports. A few months later, however, the terrorist attacks that struck New York and Washington crippled air travel. Sales at The Paradies Shops units fell accordingly, but rebounded after three months. Security was tightened at airports and airlines gradually rebuilt their businesses. As a result of new procedures that required passengers to arrive earlier for their flights, as well as a significant increase in flight delays, The Paradies Shops benefited because people found themselves spending more time in airports, giving them more opportunity and desire to shop at the company’s operations. The company continued to win new contracts in the early 2000s, while revenues improved to $223 million in fiscal 2002, $247 million in fiscal 2003, and $290 million in fiscal 2004. To spur further sales growth, in September 2004 the company began an effort to open or renovate 199 stores in 22 airports over the following year. The Paradies Shops also continued to attract major partners. In 2005, for example, The New York Times Company agreed to create a branded retail bookstore for airport operation. The first unit opened in the Lexington, Kentucky, Blue Grass Airport at the end of the year. The company was also interested in opportunities beyond the airport terminal. In 2006 The Paradies Shops won the concession contract for the new Georgia Aquarium in downtown Atlanta. When fiscal 2006 came to a close, company revenues had reached $400 million.

Ed Dinger