Ross will open dd's to grab low-income dollars

NEWARK, CALIF. — Ross Stores will open the first of its new dd's Discounts format stores in the second half of 2004. Although the company is holding many details about the initiative close to its vest, Michael Balmuth, vice chairman and CEO, revealed last week that there could ultimately be as many as 500 dd's units.

"dd's will target lower income households, one of the fastest growing demographics in the country," Balmuth said during the company's fourth quarter conference call.

The format will carry merchandise departments and categories found in the company's Ross Dress For Less off-price stores: apparel, accessories, shoes and home. However, dd's will feature a different mix of brands, "consisting of moderate and discount labels, but at lower prices," Balmuth said.

The company will open the first 10 dd's stores in northern California in the August/September time frame. The units will be located in established strip shopping centers in densely populated urban and suburban neighborhoods, Balmuth said.

Compared to the core Ross customer, the dd's base consists of more renters than owners. The dd's customer moves more frequently, has more children and tends to be African-American or Hispanic.

The merchandising team has already started placing orders, he said. Some of the merchandise is coming from existing vendors, although dd's is tapping new vendors as well, added Balmuth.

The dd's footprint will run to 25,000 square feet. Start-up costs for the concept will have an impact on the bottom line of about 30 basis points for fiscal 2003, according to John Call, senior vice president and chief financial officer.

Looking back on 2004, Balmuth said home, accessories and shoes were strong performers throughout the year, with home, accessories and juniors leading the way during the fourth quarter.

The Ross Dress For Less chain, now with about 570 stores, averaged sales per square foot last year of $312, flat with 2003, said Jim Peters, president and chief operating officer. California stores showed the greatest productivity, with sales per square foot of $350, he added. Performance in Texas was somewhat below average, and in Florida somewhat above.

The weakest numbers were generated in the relatively new Mid-Atlantic market, where per-square-foot came in at $265.

Merchandise flow was disrupted early this year in the Mid-Atlantic and throughout the chain when the roof collapsed at Ross's distribution center in Fort Mill, S.C., closing the facility for six days in January. Service was suspended again in February for two days by a heavy snowstorm.

That left Ross with "substantially lower-than-planned in-store inventories," Balmuth said. The South Carolina DC went down at a time when Ross' Pennsylvania DC was in the midst of a retrofit and a new DC in the Southwest had not fully come on line.

"But our overall (distribution) capacity is now up significantly over last year, and we're almost caught up from the closings," he added. "Presently, over all our DCs, we're processing about 40 percent more units a month than we did a year ago."