Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post Newsgroups: americast.forbes From: americast-post@AmeriCast.Com Organization: American Cybercasting Approved: americast-post@AmeriCast.com Subject: UP & COMERS Date: Wed, 18 Nov 92 14:52:03 EST Message-ID: "Copyright 1992 Forbes, Inc. Any further reproduction or redistribution without the express written permission of Forbes and ACC is prohibited." UP & COMERS ''You can't say no to opportunity'' Retailing entrepreneur Donald Jonas was almost 60 before he finally hit on a winning concept. Now he's trying to make up for lost time. By Toddi Gutner DONALD JONAS darts through the aisles of a new Lechters store on 85th Street and Third Avenue in Manhat- tan, rattling off a steady stream of reminders to himself into a hand-held tape recorder. A rumpled man of 63, Jonas co- founded the 500-store housewares chain 15 years ago. Lechters, Inc. has gotten really hot the past 4 years, doubling sales and earnings. Its sales were $234 million, earnings $13 mil- lion, for the fiscal year that ended Jan. 25, 1992. This year Andrew Wein- berg, a retailing analyst at Equitable Securities Corp., expects earnings to reach $16 million, or 94 cents a share, on sales of $306 million. Over the next 4 years, Jonas says he plans to open an additional 400 stores. That's a lot of dish towels, trivets and potato peelers. What's behind his urgency? Having spent nearly 40 years working the fringes of retailing, Jonas tasted real success only recently with the Lechters concept. He is eager to make up for lost time. Says his sister, Susan Jonas, who heads up public relations for the company, ''He wishes he could erase his whole life before 50.'' Those were rough, often discour- aging years. Jonas got his start in retailing in 1947, at age 18, after his merchant father died. Dropping out of college, he joined his two uncles in the family dress business, Jonas Shoppes, which oper- ated 40 moderate- price women's apparel stores on the East Coast. Five years later Jonas left to get into the dis- count business, then beginning to get hot. Regional discounters, which were sprouting like weeds to feed the postwar boom, fre- quently leased out de- partments like apparel, independent opera- tors. Jonas hopped on that trend, running women's apparel de- partments for such chains as Dart Drug and Modell's. Over the next 20- odd years, Jonas guid- ed Barbara Lynn Stores, Inc.--the com- pany was named after his wife--through the boom-and-bust cycle of the small discount retailers. At its peak, Jonas' company ran over 140 women's apparel depart- ments and 19 discount stores of its own. But the peak didn't last long. By the mid-Seventies big discounters like Kmart began squeezing out the small- er discount chains. But even as his business was strug- gling, Jonas was gearing up for anoth- er run at the big time. ''Malls were the hot retailing element,'' recalls Jonas. ''If you could develop a format, you could place it almost anywhere.'' Teaming up with Albert Lechter, who operated the housewares depart- ments in Jonas' discount stores, Jonas began work on developing just such an idea. In 1977 they opened their first housewares store, in a Rockaway, N.J. mall. Disaster. Unfamiliar with mall eco- nomics, Jonas took a lease on a 6,500- square-foot space in an out-of-the- way corner of the mall. Customer traffic was low. Nor did he yet really understand the housewares business. With his rag trade background, Jonas tried stocking seasonal merchan- dise--picnic gear in the summer, Christmasy kitchenware in the fall. When customers turned up their noses at the seasonal goods, he had to mark them down sharply to move them out of the store. But if there is one trait most suc- cessful entrepreneurs share (FORBES, Nov. 9), it is an unwillingness to know when they are beaten. Jonas drew up a new plan for smaller stores stocked with basic housewares--pots and pans, glassware, aprons and the like. With these he didn't need to worry about markdowns to move seasonal goods. By 1979 a mall prototype for a 4,500-square-foot Lechters store was up and running profitably. ''But the biggest challenge,'' re- calls Jonas, ''was convincing develop- ers that a housewares retailer be- longed in the malls.'' Apparel shops, shoe stores and jewelry stores were the desired tenants at the time. By demonstrating the success of his little housewares shops, he slowly but sure- ly worked his way into the malls. By 1986--a full 39 years after tak- ing his first retailing job--Jonas final- ly had a hot concept on his hands. As department stores pared back their kitchenware departments, Lechters, which stocks some 4,000 items--a dozen kinds of potato peelers, two dozen different cutting boards-- jumped in to fill the breach. With his success came a new sense of urgency. ''We wanted to grow fast to preempt other people getting into it,'' says Jonas. ''So we felt that if we grew fast and we captured the great malls, the big, beautiful malls out there, that would stop other house- wares guys from coming in.'' Raising $11 million in a 1986 pri- vate placement, Jonas set out to do just that. Over the next three years, Jonas more than doubled the number of Lechters stores, to 297. Sales topped $150 million. (Albert Lechter continued on as the chain's top mer- chandiser until he stepped down as president earlier this year.) In 1989 Goldman, Sachs sold 35% of Lechters to the public, raising $53 million. Of that, $22 million was poured back into the company; inves- tors and insiders--not including Jo- nas--took the rest. At a recent 18 1/2, Jonas' 28% stake is worth $85 million. A secondary offering of stock last year, plus two debt offerings, raised another $95 million for the company. Most of that is being pumped into expansion. Over the past three years, Jonas has recruited seven senior exec- utives from Melville Corp., TW Ser- vices, Dayton Hudson and Federated Department Stores. ''I surrounded myself with the best brains out there that money can buy,'' says Jonas. He'll need them. With mall traffic declining in recent years, Lechters, which has 80% of its stores in malls, is beginning to show the strains of ex- pansion. Revenue gains over the past three years have come mostly from opening new stores, and margins have been drifting down. Like a lot of other specialty retail- ers, Jonas has responded by opening bigger stores, like the one at 85th and Third. The 8,000-square-foot super- stores carry a broad line of home decorations, as well as housewares. He's also moving into outlet malls, the hottest new retailing concept, with Famous Brands Housewares, which sells excess inventories for manufacturers like Rubbermaid, In- tercraft and Ekco. ''We've already done the hard stuff, and all during a down market,'' says Jonas of his unrelenting expansion strategy. Whether it will pay off when the economy turns around, or whether he's spreading himself too thin, only time will tell. But after a lifetime in retailing, Donald Jonas has learned one thing for sure. ''You can't stand still,'' he says. ''You've got to keep moving forward.'' "This information is the property of Forbes, Inc., ACC takes no responsibility for its content, or the actions of any individual or institution, predicated on the information herin. Forbes Subscriptions are available to students and faculty members at the student/educator rate of $33 for one year, 27 issues. Regularly priced $52. Information about print subscriptions may be had by calling 1-800-888-9896. For further information about the electronic version of Forbes, contact usa@AmeriCast.COM"