California Apparel News

Department-store chain Gottschalks Inc. reported a 3.9 percent drop in same-store sales in April. The decline was the latest bad news in more than 31 consecutive months of negative same-store sales. However, executives for the Fresno, Calif.–based retailer believe its Value Improvement Program (V.I.P.) will help steer the company back to prosperity.

The 103-year-old retailer’s V.I.P. plan will be put into practice in the 2008 fiscal year and will focus on changes in its real estate strategy, its merchandising and other ways to revive its business.

For real estate, Gottschalks will focus on opening off-mall locations and stores in lifestyle centers. It will be a change for this retailer, which historically has been the anchor tenant in malls in small cities and suburban and rural locations.

According to recently released financial documents, the V.I.P. plan also will focus on increasing the company’s private-label offerings, including its Shaver Lake line of men’s and women’s casual apparel. The retailer also will continue offering moderateto better-price brand-name merchandise from labels such as Liz Claiborne, Nautica, Ralph Lauren and Quiksilver.

The company also plans to close down more poorly performing stores. It said it will close two stores after the leases expire in the second quarter of fiscal 2008. Other points of the V.I.P. plan include having the company improve its information-technology systems and repurchase shares in the company.

According to Jim Famalette, Gottschalks’ chairman and chief executive officer, some of the V.I.P. plan’s results should be seen in 2009. He said the weak economy was affecting his company’s business.

“The company, like most other retailers, is currently focusing on reducing costs and controlling inventory levels until the economic conditions begin to show improvement,” he said.

In 2007, Gottschalks explored new directions for the company such as a possible sale or merger. It engaged UBS Investment Bank and Financo Inc. to arrange a sale, but none took place. On Aug. 30, a strategic committee that was made up of six independent directors from Gottschalk’s board resolved the company should concentrate on changing its fortunes with the V.I.P. plan.

Retail analysts are divided on Gottschalks’ future.

Howard Davidowitz, chairman of New York–based retail consultants and investment- banking firm Davidowitz & Associates, said he believes it is too late for a turnaround.

Davidowitz, who worked as a retail consultant to Gottschalks more than 20 years ago, forecasted bankruptcy for the chain, which runs 59 full-line department stores and four Village East and Gottschalks specialty stores.

“Can this company survive?” Davidowitz asked. “It does not look too good now.” Larger retailers such as Wal-Mart and Target have dominated its business, and the current weak economy is compounding its problems, according to Davidowitz.

Another retail consultant, George Whalin, said Gottschalks’ real estate holdings and its long history serving areas outside of major metropolises will help the company thrive again. “The challenge for them today is to distinguish themselves from their larger competitors. That is difficult for a company with a little more than 60 stores,” Whalin said.—Andrew Asch