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OVERVIEW
Ross wants you to dress for less. A leading off-price apparel retailer (behind TJX Cos. and Kohls), Ross operates some 1,370 Ross Dress for Less and nearly 200 dd's Discounts stores that sell closeout merchandise, including men's, women's, and children's clothing, at prices well below those of department and specialty stores. While apparel accounts for more than half of sales, it also sells small furnishings, toys and games, luggage, and jewelry. Featuring the Ross "Dress for Less" trademark, the chain targets 18- to 54-year-old white-collar shoppers from primarily middle-income households. Ross and dd's stores are located in strip malls in over 35 states and mostly in the western US and Guam.
Operations
Ross Stores operates two brands of off-price retail apparel and home fashion stores: Ross Dress for Less and dd's DISCOUNTS. Ross does a roaring trade in off-price apparel and home fashion chain, offering first-quality, in-season, name-brand, and designer apparel, as well as accessories, footwear, and home decor at between 20%-60% off department and specialty store regular prices.
Launched in 2004, dd's DISCOUNTS serves one of the fastest-growing demographic markets in the US. The ultra-low-price spinoff, which offers brand-name apparel at a 20%-70% discount, has grown to almost 200 locations in about 15 states, including big ones such as California, Florida, and Texas. The stores, which average 28,400 square feet, are located in strip shopping centers in urban and suburban neighborhoods.
The retailer operates six distribution processing facilities: three in California, two in South Carolina, and one in Pennsylvania. These distribution centers are the sole source of its stores merchandise. Additionally, the discounter owns four and leases three other warehouse facilities for packaway storage. To distribute merchandise to stores on a regular basis, Ross Stores enlists the help of third-party cross docks. Shipments are made by contract carriers to stores between three and six times per week depending on the location.
Geographic Reach
More than 50% of California-based retailer's stores are located in the states of California, Texas, and Florida. The company's distribution centers and warehouses are in Pennsylvania, South Carolina, and California. Aside from the territory of Guam, Ross does not have an international presence.
Sales and Marketing
Ross Stores relies primarily on television as a medium to share the Ross Dress for Less value proposition with its current and potential customers. The company believes that television advertising is the most efficient and cost-effective medium while it continues to use additional channels to build brand awareness. However, advertising for its dd's DISCOUNTS stores is focused on new store grand openings and local grass roots initiatives.
Financial Performance
Ross Stores' annual sales have risen more than 40% since 2011 thanks to rapid store expansion and steady same-store sale growth of between 3% and 7% per year. Its annual profits have kept pace with top line growth over the period as the chain has managed to slow its overhead cost growth.
The fast-growing chain's sales jumped 8% to $12.9 billion -- a $1 billion gain -- during fiscal 2017 (ended January) mostly thanks to continued store growth. Comparable store sales also increased a solid 4%.
Net income was up 10% to $1.1 billion due to lower cost of goods sold, partially offset by higher selling, general, and administrative expenses. Cash from operating activities grew 14% to $1.6 billion due to higher net income.
Strategy
Ross Stores continues its aggressive retail expansion strategy, opening additional stores based on market penetration, local demographic characteristics, competition, expected store profitability, and the ability to leverage overhead expenses. The company expects there's room in the US to support at least 2,000 Ross locations and 500 dd's DISCOUNTS locations.
Indeed, the chain has expanded its store count by 40% to 1,533 at the end of 2016 from 1,125 at the end of 2011. During 2016 alone, the retailer added 87 net new stores (including 71 Ross stores) in established regions and in the less-tapped Midwest markets (including its first stores in the Dakotas). It plans to open a further 90 stores in 2017.
Other objectives the discount chain emphasized in 2016 included: maintaining a sufficient library of well-known brands, labels, and fashions sold with strong discounts; meeting customer needs on a local basis; delivering an "off-price customer" suited shopping experience; and managing effective and competitive store growth in all of its markets.
To boost its relationships with suppliers, Ross does not require them to provide markdown/promotional allowances or return privileges. This, combined with opportunistic purchases (closeouts such as manufacturer overruns and canceled orders), allows the company to obtain large discounts on merchandise. As a result, Ross Stores' customers typically pay 20% to 60% less than department and specialty store prices. Ross holds down costs by offering minimal service and few frills inside its stores.
HISTORY
In 1957 the Ross family founded Ross Stores and opened its first junior department store; by 1982 there were six of the stores in the San Francisco area. That year two retailing veterans, Stuart Moldaw (founder of Country Casuals and The Athletic Shoe Factory) and Donald Rowlett (creator of Woolworth's off-price subsidiary, J. Brannam), led the acquisition of the company. Moldaw (chairman) and Rowlett (president) wanted to create an off-price chain in California, where -- despite the success such endeavors were having in the rest of the country -- such stores were largely absent. The duo intended to establish a foothold by saturating California markets before competitors muddied the waters.
They restocked the stores with brand-name men's, women's, and children's apparel, shoes, accessories, and domestics merchandise at reduced prices. Before the end of 1982, they opened two more Ross "Dress for Less" stores; the next year 18 more were added, including the chain's first non-California store, in Reno, Nevada (much of the chain's expansion came through the acquisition of existing strip mall stores). Another 40 stores were added in 1984.
The company went public in 1985 to help fund its expansion and extended its reach to include Colorado, Florida, Georgia, New Mexico, and Oregon; that year it opened 41 stores.
In August 2004 Ross opened its first three dd's DISCOUNTS stores in Vallejo, San Leandro, and Fresno, California. The retailer moved its headquarters from Newark, California, to Pleasanton in mid-2004 and then sold the Newark property for about $17 million.
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