Gottschalks, Inc.: Information from Answers.com

Company Perspectives
We remain confident in our business strategy and in Gottschalks' niche in the department store industry. Targeting secondary markets, offering a focused moderate to better fashion selection of national brands, providing friendly customer service and a strong value equation continues to be a successful formula in the markets in which we operate.
Key Dates
1904: Emil Gottschalk opens a dry goods store in Fresno, California.
1986: The company goes public.
1987: Gottschalks acquires Malcolm Brock department stores.
1988: Gottschalks acquires Samuel Leask & Sons stores; company closes its flagship store in downtown Fresno.
1992: The company opens stores in Washington and Oregon; Gottschalks pays the IRS a $1.5 million settlement on tax evasion.
1995: The company enters the Nevada market in 1995.
1997: James Famalette becomes president and COO.
1998: Gottschalks purchases nine Harris Co. stores from El Corte Ingles SA.
1999: Famalette becomes CEO.
2000: The company purchases a total of 35 Lamonts department stores.
2006: Levy retires as chairman in 2006 and is replaced by Famalette.

Type: Public Company
Address: 7 River Park Place East, Fresno, California, 37201-1501, U.S.A.
Telephone: (559) 434-4800
Fax: (559) 434-4666
Web: http://www.gottschalks.com
Employees: 5,800
Sales: $687.5 million (2007)
Stock Exchanges: New York
Ticker Symbol: GOT
Incorporated: 1904
NAIC: 452111 Department Stores (Except Discount Department Stores); 448140 Family Clothing Stores
SIC: 5311 Department Stores; 5651 Family Clothing Stores

Gottschalks, Inc., offers better to moderate brand-name fashion apparel, cosmetics, shoes, accessories, and home merchandise at its 59 department stores and four Village East women's large-size apparel specialty stores in California, Oregon, Washington, Alaska, Idaho, and Nevada. The company positions itself to serve midsize, secondary retail markets as a strategy for surviving the competitive retail environment of the West Coast.

1904-85: Growth of a Chain

Gottschalks, Inc., got its start in 1904 when Emil Gottschalk opened a dry goods store in Fresno, California. Over half a century passed before the company opened its first branch store in 1961. It was around this time that grand-nephew Irving Levy, whose father had helped found the company, took its helm. In an effort to win over teenage baby-boomers, Gottschalks launched Bobbie West, a chain of junior apparel stores, in the late 1960s. Village East shops, which offered large-sized women's clothing, were launched in 1970.

Irving Levy served as president until his death in 1980 at age 86, guiding Gottschalks' growth into a chain of six department stores and over a dozen specialty boutiques with over $80 million in annual sales. Gerald Blum, whose father was a longtime partner of Irving Levy, then assumed the presidency for about two years. Blum advanced to vice-chairman and consultant in 1982, making way for Levy's son, Joseph, who had joined the company as an assistant merchandising manager and in 1972 became an executive vice-president of the company.

Following the lead of other independent, family-owned department store chains such as Dayton, Ohio's Elder-Beerman Stores Corporation (Elder-Beerman CEO Max Gutmann served on Gottschalks' board of directors in the 1990s), Gottschalks formulated a successful strategy for profitable growth in the highly competitive retail industry. The core of the plan was Gottschalks' concentration on smaller markets in California's central valley, markets dubbed "the other California" by company executives. Gottschalks avoided such ruthlessly competitive cities as Los Angeles and San Francisco, which were dominated by national department store chains. It opted instead for overlooked towns with populations of 20,000 to 60,000 people--areas too small to support larger, traditional-sized department stores--and targeted middle-income households. This tactic kept Gottschalks' overhead low by allowing it to build smaller (80,000- to 110,000-square-foot), single-level stores with lower real estate costs and less expensive labor. As one of the state's only major retailers willing to locate in smaller cities and towns, the chain was sought out by developers and often able to demand ideal anchor locations in the new medium-sized malls and shopping centers that sprang up throughout the 1970s and 1980s.

Moreover, unlike many of its small-town competitors in the retail segment, Gottschalks was often an area's only source of nationally branded soft goods. More often than not, it also made Gottschalks "the only game in town," with virtually no competition from other department stores. In the early 1990s, brand-name products generated about 80 percent of total sales, with the remainder being private label or nonbranded goods. Prominent brand names included Liz Claiborne, Calvin Klein, Levi Strauss, and Sony. High-end cosmetics from Estée Lauder, Clinique, and Lancôme were particularly profitable, ranking as the company's largest-selling product group. Gottschalks' strong customer service was often compared to that of Seattle's Nordstrom. By concentrating on California's inland markets, Gottschalks avoided the dramatic ups and downs endemic to West Coast cities.

Although the chain was relatively small, it was not technologically backward. In fact, Gottschalks' executives often found themselves at the front of the pack in the race to install the most modern equipment. Chain Store Age Executive's Susan Warner attributed the chain's progressivism to its private status, writing that "There's no doubt that as an independently held company, Gottschalks enjoys certain freedoms to experiment with more entrepreneurial concepts that often elude publicly held companies that must constantly justify actions to shareholders."

Gottschalks was Fresno's first retailer to install an air conditioner, and was among the first retailers in the area to accept bank credit cards. According to a 1977 Chain Store Age Executive article, in 1976 Gottschalks became the first U.S. department store to totally automate sales transactions. The company installed electronic point-of-sale (POS) "wands" that read bar codes and store credit cards. This technology helped increase efficiency, reduce errors, and keep inventory and customer billing up to date. A 1991 profile in Barron's magazine noted that Gottschalks' computer information system was capable of hourly monitoring of sales and inventory, giving Gottschalks one of the industry's highest turnover rates. Joe Levy boasted in a 1988 WWD article that, "With our computer system we can plunk a new store on the moon if we want."

IPO Foreshadows Growth

After chalking up 20 percent average annual sales increases in the late 1980s, Gottschalks slipped into the malaise that gripped much of the retail industry in the early 1990s. Although its sales increased by almost 40 percent from 1990 to 1995, the company recorded net losses in three of those six years. Gottschalks hoped to regain profitability in the late 1990s by "increasing same store sales, opening new stores in growing markets, and continued cost containment programs."

Gottschalks went public in 1986, selling about 50 percent of its equity on the New York Stock Exchange. The proceeds were used to step up the pace of new store acquisition and construction, helping to make Gottschalks California's fastest-growing department store chain in the late 1980s. The number of Gottschalks units doubled from nine in 1985 to 18 in 1988 and annual revenues increased from $112 million to $196 million in the process. Part of this growth came via the acquisition of two small family-run department store chains in 1987 and 1988. Totaling $11 million, the purchases of the privately held Malcolm Brock and Samuel Leask & Sons chains added five stores. The chain also refined its specialty store offerings, converting its Bobbie West juniors stores into Petites West boutiques mid-decade in order to attract smaller-sized Asian and Latin women.

This period did not conclude without problems, however. In 1988, Gottschalks decided to close its only money-losing location, ironically the flagship store in downtown Fresno. That October, a devastating earthquake caused "irreparable damage" to a Santa Cruz store, forcing its closure as well. Notwithstanding these hurdles, Gottschalks fared "much better than other companies" in the late 1980s, according to Edward Johnson of Johnson Redbook Service (New York).

Mounting Losses

Buoyed by almost a decade of successful expansion, in 1990 Joe Levy predicted that Gottschalks would add at least 20 new markets and reach $1 billion in annual sales by 1997. While sticking to its essential strategy, Gottschalks made its first foray outside its home state in 1992, when it opened stores in Washington and Oregon. The company entered the Nevada market in 1995.

However, like many of its retail industry rivals, Gottschalks succumbed to internal and external pressures in the early 1990s. A 1992 investigation by the Internal Revenue Service (IRS) charged that CFO Robert E. Lawson and Controller Jack Farnesi had falsified financial records in order to evade federal taxes in the mid-1980s. The company fired the two executives and paid a $1.5 million settlement to the IRS in July 1992. Gottschalks found itself back in court in 1994, when it settled two shareholder lawsuits for a total of $3.5 million.

These issues only exacerbated competitive and economic difficulties that put the squeeze on Gottschalks earnings in the early 1990s. In a 1994 interview with Daily News Record's Alexandra Nelson, CEO Joe Levy cited "drought, [military] base closures, cutbacks in aerospace and electronics, and the government cutting back pensions" as fundamental causes of his company's malaise.

Although Gottschalks' sales increased from $287 million in 1990 to over $400 million in 1995, it had a cumulative net loss of $4.9 million over those six fiscal years. Gottschalks planned to employ four basic strategies in an effort to revisit the "glory days" of the 1980s. The company sought improvements in year-over-year store performance, focusing especially on two underperforming stores. Gottschalks also hoped to lessen its overhead through layoffs at administrative levels; outsourcing; contract renegotiations; and paring of some optional expenses. The company planned to increase income by upping finance and service charges on its store credit card and to enhance cash flow by curtailing capital outlays. In fact, Gottschalks suspended previously laid plans to open three new department stores in 1996, choosing instead to apply those funds to operations.

These measures ultimately enabled Gottschalks to resume consistent profitability in the waning years of the 1990s in the face of competition from category-killer Wal-Mart and middle-class wage erosion. In 1996, the chain reported sales of $422 million and posted a profit. In 1997, the trend continued with $448 million in sales reported at the 37 stores. Earnings improved steadily from 1996 to 2001 when revenues approached $700 million. It fell to James Famalette, who became president and COO that year while Joe Levy remained CEO and chair of the board, to establish a niche for Gottschalks between mass retailers including Old Navy and Target and large department stores. Famalette came to the job with solid experience as president and CEO of Liberty House, a Honolulu-based chain with stores in Hawaii and Guam.

Famalette's management team focused on improving the chain's merchandise mix and increasing the number of stores. In the summer of 1998, Gottschalks purchased nine Harris Co. stores from El Corte Ingles SA, boosting its total number of stores to 46 department stores and 22 Village East specialty shops. This move enabled Gottschalks to expand its presence in southern California and to move into Nevada, Oregon, and Washington. However, the acquisition did not go as planned. The company named the stores simply Harris/Gottschalks, confusing customers, who thought they were still shopping at the upscale Harris. Although the company soon changed the name of its new stores to Gottschalks, sales at the former Harris/Gottschalks did not recover until the fall of 1999.

Famalette became CEO in 1999, the first nonfamily member to assume leadership of Gottschalks, replacing Levy who had been CEO for 17 years. By 2000, the chain was enjoying the advantages of being small with its attendant flexibility to make decisions quickly, to be "adaptive and nimble," according to Famalette in a 2000 Home Textiles Today article. Its 40-plus stores and 20 specialty stores each had a different product mix. "We look at the demographic of each store in terms of moderate, upper moderate or better, then we factor in climatic influences and design influence," explained Famalette of each store's merchandise mix. As the decade came to a close, Gottschalks looked upon branded items and its ability to refresh its merchandise mix monthly as the cornerstone of its success.

In the year 2000, Gottschalks also took the first in a series of steps to add new stores. In early 2000, it bought a single Lamonts in federal bankruptcy court, and then later that year, purchased 34 more Lamonts department stores in Washington, Alaska, Idaho, Oregon, and Utah. It reopened 27 of these stores under the Gottschalks banner. However, losses continued to plague the company in 2001, and it began closing stores--six department stores and a distribution center in 2001 and one department and four Village East stores in 2002. It also sold two more stores in Idaho to Federated Department Stores, parent of The Bon Marché. When the dust settled in December 2002, Gottschalks was operating 71 department stores and 13 Village East shops in California, Washington, Alaska, Idaho, Oregon, and Nevada.

In the midst of what continued to be a harsh economic environment with generally slow retail sales, Gottschalks closed an additional seven stores in the Pacific Northwest in 2003, part of a decision to focus more attention on its successful markets. Alaska proved generally fertile ground for Gottschalks, and it enlarged its store in Soldotna, Alaska, in 2003. It also sold its private-label credit card business, Gottschalks Credit Receivables Corporation. Seeking to diversify its private-label brands, it launched the GK Kids line.

Although 2003 and 2004 were considered off-performance years, Gottschalks took steps during those years to strategize sales growth. It continued to target secondary markets in the geographic regions in which it operated and remained committed to expanding its private label brand products. In a departure for the chain, it updated its fashion look to appeal to younger trend-conscious consumers and launched a new store prototype with a heavier emphasis on its Home Store division, which included a bridal and gift registry system. As part of its anniversary campaign in 2004, it focused on new signing and visual presentation in its departments.

As the decade wore on, sales growth resumed. Revenues for 2004 came in slightly over 2003 tallies despite a dramatic increase in competition when Kohl's entered a number of Gottschalks' major markets. In a move to remain competitive, Gottschalks continued store closures, including its Fresno store in 2005; in 2006, the last of its slightly more than ten Washington stores; and two more stores in 2007. Gottschalks also rolled out its five-year plan for instituting a wider selection of fashion-forward merchandise and store renovations. There was also a new marketing program featuring Gottschalks' new lowercase "g" logo.

Around the time that Levy retired as chairman in 2006, with fashion merchandise generating the company's best results and its home division lagging, the board formed a "special committee ... to identify and evaluate various strategic alternatives to maximize shareholder value, including a revised business plan, operating partnerships, joint ventures, strategic alliances, share repurchases, a recapitalization and the sale or merger of the company," according to Women's Wear Daily in November 2006. Gottschalks later hired USB Investment Bank to assist the board in its decision making.

By the time Famalette became chairman of the chain of 59 department stores and four specialty shops, the company with annual revenue of $687.5 million was no longer interested in selling itself. Instead it entered into a $200 million financing agreement with GE Commercial Finance Corporate Lending to support its value improvement program that involved a focus on redefining its image through marketing key items, branding, and in-store fixtures. "I don't see us as being a regional department store, but as a specialty department store ... a smaller concept, soft-line specialty store," Famalette explained in a 2007 DNR article. As part of this effort, it shifted out of home items into cosmetics, shoes, and accessories, and looked to add larger stores, such as the 100,000-square-foot, two-story lifestyle store it had built in Fresno in 2005. The company aimed, according to Famalette in DNR, to "overcome [its] own history" and as such it had to redefine itself, change its logo and the way it advertised, to do everything it could to make clear that it was not the "same old business."

Principal Subsidiaries

Gottschalks Credit Receivables Corp.; Gottschalks Credit Card Master Trust.

Principal Competitors

J.C. Penney Company, Inc.; Mervyn's California; Dillard's Inc.; The TJX Companies, Inc.

	How do you access your gottschalks credit card account? Read answer...
	In which clothing store is the brand shaver lake sold other than Gottschalks? Read answer...
	Shaver Lake blue jeans is the brand sold by Gottschalks could this same blue jean also be sold under another name in a different store? Read answer...

	Where do you make your gottschalks payment?
	Which gottschalks stores closing?
	How do you find gottschalks account balance?