Gottschalks Eyes Federated/May Locations

Company to Seek Stores in 'Secondary Markets'

By Staff -- Home Textiles Today, 6/6/2005 12:00:00 AM

Fresno, Calif. — —

Fresno, Calif. — Gottschalks Inc. is keeping a close eye on the Federated/May mega-merger and may be interested in acquiring locations vacated when the two eliminate redundancies where both currently maintain a presence.

Jim Famalette, president and CEO of Gottschalks, said during the company's first quarter earnings conference call last week that such sites may be right for the company — if the locations fit Gottschalks' particular niche.

He said there are 38 locations in the western United States — mainly California and Oregon — where May and Federated both operate stores in the same area. Gottschalks may be interested in locations that fall within “secondary markets” that the company targets.

Federated, he said, operates stores in 70 to 75 percent of Gottschalks' markets and is a “good match because their marketing and merchandising is more upscale. However, we fit exactly into what the May customer has been and, hopefully, we can give them even more service,” Famalette said.

On the competitive side, he said Gottschalks has felt positive effects from the vendor community regarding the merger. Vendors, Famalette said, “are concerned because they want to make sure they stay as competitive as possible. They don't want only one or two people to deal with. They would like to have as many as possible.”

He added that Gottschalks has been treated to the best vendor support it has seen in years. “They are waiting for our growth to put a dent in the loss of volume they could see happen to them in the next year from the Federated/May merger,” Famalette said.

The company has yet to feel it is being stuck with higher prices than Federated/May can demand from vendors. “From a pure vendor standpoint, they play it evenly,” he said. “What we are seeing, initially, is quite positive because vendors are saying, 'We want to make sure the other folks are taken care of.'”

While the company considers moving into some Federated/May locations, Gottschalks recently had to deal with Kohl's entering a number of its markets. Coming up on the first anniversary of some of those openings, Famalette said Gottschalks saw a pattern it expected — affected stores suffering a dip in sales for a few months, followed by a rebound back to pre-Kohl's levels.

“Kohl's is a formidable competitor,” he said, “and we have spent much time and effort to differentiate what we are compared to them. We continue to work hard to do that.”

To keep up with the competition in the home area, Gottschalks last November hired Federated/May veteran Donald Engelman as vice president and general merchandise manager of its Home Store division. Famalette said home is a slow-turning area of the business, and Engelman has made good progress since he has joined the company in turning around an off performance in 2003 and 2004.

“We feel there is strong potential in the second half of the year to get penetration in home back up. There could be some good things happening,” he said.

The company is also looking to get better penetration into the Hispanic market. Famalette said Gottschalks is trying to achieve that by focusing in-store signage and working with its vendors to improve marketing to Hispanics.

The company increased its penetration of Oregon during the quarter, opening it third store there during April (43,000 square feet), while closing its Fresno store to make way for a new lifestyle center due to open in August.

Gottschalks operated the same number of stores this quarter as it did last year — 63 department stores and six specialty apparel stores.

When a store isn't performing in line with company expectations, Famalette said Gottschalks keeps a close eye on the situation. “We look to see what we can do to improve the store, and if we don't see a long-term future for the location, we are diligent to minimize the damage it can do to the company's overall performance.”