Grants Cuts Back

In the 69 years since it was founded as a 250 variety store in Lynn, Mass., the W.T. Grant Co. had never failed to ring up an annual profit. Indeed, until recently it had been pursuing a headlong expansion program. But last week Chairman James G. Kendrick confirmed rumors that had been sweeping the industry for months: Grant's profits and progress had both come to a thudding halt. After a grim meeting with Grant's bankers at the chain's new Manhattan headquarters, Kendrick said that the company would report a loss of $175 million for the past year. In a massive retrenchment program, it would also shut down at least 126 of its 1,182 stores, and complete the release or retirement of 12,600 of its 82,500 employees.

Grant's deficit is not the largest hi American business history--the Anaconda Co., for example, lost $356 million when Chile nationalized its copper mines in 1970, and Penn Central recorded a $560 million loss in 1971--but it is one of the biggest ever posted by a retailer.

Grant's problems started with the expansion program begun in the 1960s by one of Kendrick's predecessors, Louis Lustenberger. Between 1969 and 1973, the firm opened no fewer than 376 new stores (on one especially busy day, 15 new Grants outlets opened their doors to the public). Industry analysts note that even the best-managed new chain stores usually do not draw enough customers to begin showing a profit until they have been in operation for three or four years; not too long ago, however, almost half of Grant's stores were less than five years old.

At the same tune, Grants developed an identity problem: having always pursued a bargain-minded blue-collar trade, the chain suddenly began broadening and upgrading its lines of clothing, furnishings and appliances in an apparent effort to try to compete with J.C. Penney and Sears. To make these costlier goods easy to buy, the company peddled a variety of credit-card plans that eventually led it into a financial culdesac. To buy inventory, Grants borrowed heavily at high rates, and then had to wait for customers to pay their bills.

Grants was still looking for the customers to go along with the classier image it was trying to create when the recession arrived; sales dropped, unsold goods piled up--and so did Grant's interest bills. In 1973 alone, Grant's interest costs jumped from $21 million to $51 million. To unload its excess goods, Grants slashed prices by as much as 50% in pre-Christmas sales last month; as a result, total sales fell by a painful 5% in dollar terms in 1974. When the company was unable to meet a $40 million payment on a $600 million short-term loan a few weeks ago, its bankers decided to step in.

Although the combination of inflation and recession has been squeezing profits hard at a number of big chains --among them Sears, J.C. Penney, Montgomery Ward and Kresge--U.S. retailers as a whole are not in as bad shape as Grant's troubles might suggest. Kendrick, 61, a former Grant's floorman who took over as chairman last September, believes that the chain's slide can be reversed before too long. He plans to cut back to a "hard core" of 900 stores by 1977, slash capital spending by 90% in 1975, and return to the low-cost soft goods that once made the chain so profitable. For the time being, Grant's creditors are cooperating by deferring loan payments. Not only Grants is at stake: were the chain to collapse, many of the 8,000 or so firms that supply it could topple as well.

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