Duckwall-ALCO Rights Itself Amidst Recession

(MoneyWatch)  Duckwall-ALCO is one of those value retailers that is gaining in the recession and, in fact, is in the midst of a turnaround despite a floundering economy.

The turnaround took a half-decade and couldn't seem to gather steam when times were good. However, a second effort under a new management team seems to be doing the trick, aided by consumers who are reevaluating where they shop as they try to hold onto cash.

A new board and management took over 15 months ago at Duckwall-ALCO, a variety store chain that carries everything from groceries to flat screen television sets but with an emphasis on bargain prices. Royce Winsten joined the board in late 2007 and was elected chairman in March of 2008. In July, 2008, the board appointed former CVS, Meijer and Levitz executive Larry Zigerelli as CEO. And in the latest quarter, ended May 3, Duckwall-ALCO reported that sales from continuing operations, excluding fuel, increased 11 percent to $114.1 million while comparable store sales gained 6.2 percent. Net loss in the quarter was $50,000, or one cent per basic share, versus $5.9 million, or $1.54 per basic share for the prior fiscal year period.

In a conference call, Zigerelli -- not Winsten, as originally attributed in this post, and apologies -- enthused that the company's turnaround proceeded smoothly through the first quarter:

We are currently hitting on all cylinders. Top line and bottom line results are outstanding. All initiatives of our five-part strategic transformation plan are on or ahead of schedule and are working synergistically. In merchandising and marketing, we have introduced a plethora of new products that are meeting or exceeding expectations, and we have a stream of upcoming launches.

Part of that strategic plan has focused on providing better and new products ?€" including brands popular with customers including Kodak and As Seen on TV -- that fit the needs of the small-town consumers Duckwall-ALCO specializes in serving.

The company claims it is seeing benefits across the range of strategic transformation initiatives, including the institution of a loyalty program, reworking center store operations and proceeding with a plan to achieve $8 million -- after some confusion, the figure was determined to be $8 million, not billion as originally stated here -- in annualized operating expenses. On the real estate side, the company has, on average, been able to shave about 20 percent off the cost of leases as they come up for renewal. Currently, it is looking at 100 lease renewals across a 258-unit chain over the next 12 months. Entrance into buying consortiums has led to double-digit cost savings in purchasing. The company has made technology investments, put into place a new inventory system and has achieved record in-stock levels even as it has lowered shrink. At the same time, it is concentrating on data sharing and developing a fact-based execution process that "allows us to make better informed decisions faster," Zigerelli said.

The decision makers are changing, too, said Zigerelli, who noted, "Two-thirds of the merchandising/buying team is new and more than 25 percent of store managers. Moral is very high and best evidenced by extremely low turnover throughout the organization."

While the economic climate may have something to do with that, too, changes made and success in driving financial results have set the stage for renewed store growth, and Duckwall-ALCO plans to add eight stores during the autumn in locations that hit the chain's "sweet spot," defined as small towns where no Wal-Mart supercenter operates nor is likely to open in the immediate future.

Yet, the overview only provides a glimpse of the nitty-gritty decisions that are driving the Duckwall-ALCO turn around. The details about how the company pulled itself up by the bootstraps follow tomorrow in this blog.