Stein Mart (SMRT)

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Katestaley

Stein Mart (NYSE:SMRT) is a national retailer of fashion merchandise for men and women, accessories, shoes and home furnishings. Currently operating 264 stores in 29 states, Stein Mart’s mission is to provide high quality fashion apparel at prices comparable to off-price retail chains.

Business Summary

Stein Marts success stems from their strong desire of providing the highest quality fashion apparel with brand and designer names, private label and exclusive merchandise. As of January 29, 2011 there were 264 stores in operation in 29 states and the District of Columbia. These store locations are primarily located in the Southeast and Texas, and in power shopping centers that are close to upscale residential areas. Walking in to a Stein Mart store you are presented with lifestyle groupings of apparel and accessories for men and women based on career, special occasion wear, modern clothing, casual or trends at discount prices. Customers can design their shopping experience around their preferences for the merchandise which helps to promote multiple purchases.

Unlike other discount retailers Stein Mart utilizes sales through their website, www.steinmart.com, to enhance the on-line shopping experience. They offer a limited selection of merchandise compared to store fronts mainly focusing on their pricier selections of career and boutique clothing as well as home furnishings.

Competitors

Ross Stores Inc. (NYSE:ROST): Ross stores specifically targets the value-conscious women and men ranging in age from 18 to 54. Ross attracts customers primarily from middle income households by offering 20-60% off regular priced items. ^[1]

Khol’s Corporation (NYSE:KSS): Kohl’s is a family-oriented department store located nationwide that sells moderately priced apparel, footwear and accessories for women, men and children. The stores available inventory is attributable to regional preferences but appeals to all customers interested in classic, modern classic and contemporary styles.^[2]

TJX Companies, Inc (NYSE:TJX): In the United States TJX Companies, Inc is composed of T.J. Maxx, Marshalls and Homegoods. Their 2,000+ stores offer 20-60% reduce priced apparel for men, women, juniors and children, as well as home fashions to the United States. ^[3] The stores primarily target the middle to upper middle income customer. Canada has Winners, Marshalls and Homesense while in Europe there is T.K. Maxx and Homesense. ^[3]

Company Analysis

Supply Chain

Stein Mart merchants purchase from approximately 1,300 vendors, none of them accounting for more than 4% of the total purchases. ^[4] Approximately 11% of Stein Mart sales are from private label and exclusive merchandise alone. ^[4]

Stein Mart implemented a new supply chain during the fiscal year 2010 to try and cut costs. In an effort to keep merchandise the same in all 264 stores purchases are made at the same time and from many of the same manufacturers as the department and specialty stores they compete with. The Stein Mart shoe department is owned and supplied by DSW (Designer Shoe Warehouse), Inc (NYSE:DSW) therefore buyers from DSW determine what each season’s footwear will be offered while Stein Mart still receives a portion of the net revenue.

Marketing

Stein Mart’s marketing efforts have been focused on Hispanic and younger shoppers as they are vital to the future growth of the company. ^[5] Digital media and the use of social networking sites like Facebook and Twitter have allowed the online advertising presence necessary to promote to younger generations. Television and radio advertising are used for promotional events like one-day sales and to reach a broader audience. Stein Mart’s most intense form of marketing comes from full-color circulars inserted into newspapers and sent to homes, direct mail and e-mail. ^[5]

Stein Mart’s most important marketing tool is their Stein Mart Platinum MasterCard ® and Preferred Customer Card programs. ^[5] Both of these cards track customer preferences, shopping habits and their accessibility to advertising efforts. The use of the Stein Mart Platinum MasterCard ® by consumers allows them to accumulate points which redeems in the form of saving certificates after certain levels of spending. The Preferred Customer Card users receive individual circulars mailed to their house, members only shopping days and birthday discounts. ^[5]

SWOT Analysis

Strengths

Each Stein Mart location has their own Boutique which caters to a high-end fashion customer. These Boutiques are staffed by specifically recruited associates who are prominent within the community by social standards. ^[6] This department and attention to customer service brings a sense of fashion expertise to the customer who feels an added value to the shopping experience.

Weakness

The retail industry as a whole experiences sensitivity when economic conditions are poor. The recent economic conditions due to a variety of different factors have caused consumers discretionary income, which goes towards purchases at Stein Mart, to deteriorate. Stein Mart relies heavily upon this discretionary income of consumers to sustain operations.

The seasonality and constant fluctuation in fashion trends leaves Stein Mart in a very vulnerable position. The highest sales occur in the first and fourth quarter of the fiscal year which has the holidays and spring seasons. Consumer preferences and demands are what determine the level and type of inventory kept, if Stein Mart does not accurately anticipate a trend their sales can suffer greatly. Any misjudgment by Stein Mart can cause insufficient or excess of inventory levels, missed opportunities and higher markdowns, all of which will have a negative impact on the financial conditions. This type weakness can cause volatility in the price of the common stock and annual results of operations.

Stein Mart relies heavily on the marketing use of newspaper for their circulars advertising sales, promotions and in general just more store awareness. The newspaper business has been under economic pressure in the past few years as the most popular and effective medium for marketing is now through the internet. Compared to many of their competitors Stein Mart does not have a strong marketing mix with advertisements in many different mediums.

Opportunities

Stein Mart has created ample opportunities for itself by creating a different store than its competitors. While Stein Mart can be comparable to competitors in the retail industry based on the effort to bring everyday low pricing they are very particular about where their stores are located and what inventory sits inside. Stein Mart stores are only located in convenient shopping centers near upscale neighborhoods. ^[7] All buildings are leased contracts so if there are consecutive quarters negative earnings or the social scale of the surrounding neighborhood shifts Stein Mart has an opportunity to relocate. Stein Mart also has differentiated themselves by offering a much more in-depth selection of color and sizes of their inventory. The presentation of the inventory and customer service is also in such a way that is relatable to upscale retailers.

Threats

Stein Mart’s threats are their competitors who compete for the same discretionary income of the consumers. Stein Mart faces competition from well known department stores, specialty stores, regional and national retail chains. ^[8] These competitors have much larger financial resources and therefore more money to spend on advertising and marketing of their products.

Industry Analysis

Porter 5 Forces

Threat of new entrants: Medium – Stein Mart has several barriers to entry that will reduce the threat of new companies entering the industry. Stein Mart and its competitors are mature companies in a mature industry which prevents any new company from growth. The use of the Stein Mart Platinum MasterCard® and Preferred Customer Card programs help to establish incentives for the price conscious consumer to continue shopping for more savings at Stein Mart. The stable inventory of brand names that are popular at Stein Mart will keep the loyal consumers continually purchasing at a store that offers them at discounted prices, like Stein Mart.

Power of suppliers: High – Stein Mart’s suppliers are what keep this retail company in business, without any inventory the company’s margins would greatly suffer. In particular, DSW, Inc. supplies Stein Mart with its entire shoe inventory and therefore holds a very strong control over their operations in providing brand name shoes to consumers.

Power of buyers: Medium – Stein Mart is a company that provides specifically for consumers that have restricted discretionary income and are incredibly price sensitive. For these consumers only concerned about price it is relatively easy for them to pick a competitor over Stein Mart. Some apparel options like special occasion wear or business attire is purchased only periodically and for Stein Mart this is a relatively large percentage of their product offering so the power of buyers in this market is very high.

Availability of substitutes: High – The possibility of a consumer selecting a competitor’s product that has similar pricing, style, color, size and availability is very high in this industry. Fashion fluctuates but every retail company is trying to capitalize off a certain trend or style, therefore many closely related products are offered as substitutes from the high-end and expensive style and sold in stores like Stein Mart and their competitors.

Competitive rivalry: High – In this retail industry the competitive nature arises because the companies are quite similar. There is little to no differentiation between products sometimes, only on the price tag and who manufactured the product because many designs of product mimic one particular fashion.

References

1. ↑ [ http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=7823988-6158-27118&type=sect&dcn=0001206774-11-000627 Ross Stores Form 10-K, Fiscal Year 2010, Business p. 3]
2. ↑ Kohls Corporation. Form 10-K, Fiscal Year 2010, Business p. 3
3. ↑ ^{3.0 3.1} TJX Companies, Inc. Form 10-K, Fiscal Year 2010, U.S. Segments p. 25
4. ↑ ^{4.0 4.1} Stein Mart Form 10-K, Fiscal Year 2011, Merchandising, Purchasing and Pricing p.3
5. ↑ ^{5.0 5.1 5.2 5.3} Stein Mart Form 10-K, Fiscal Year 2011, Stein Mart Marketing p.4
6. ↑ Stein Mart Form 10-K, Fiscal Year 2011,Customer Service p.4
7. ↑ Stein Mart Form 10-K, Fiscal Year 2011, Stein Mart Competition p.5
8. ↑ Stein Mart Form 10-K, Fiscal Year 2011, Stein Mart Risk Factors p.5