RMT 475 Final Paper Ross Stores PDF

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final paper for supervised internship. focused on ross stires, received positive feedback...

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Ross Stores, Inc. RMT 475 Supervised Internship September 15th, 2017

Nicole Kibler

Ross Stores, Inc. operates over 1,500 stores between two chains, Ross Dress for Less and dd’s DISCOUNTS. This off-price retail giant started with just a single store in San Bruno, California in 1950 by a man named Morris Ross. Morris sold this singular store to William Isaacson who grew the chain to 6 doors (Overview Historical Highlights Ross Stores, 2017). From then on, the business model changed from department store to off-price, allowing Ross to grow exponentially across the United States. By 1985, the company was ready to go public, launching an IPO and trading on the Nasdaq. In the 1990’s investments were made to grow the merchandise staff and get the best deals possible in the market. It was during this time that Ross’ current business strategy came to light, “The Company’s top priority was delivering compelling values on a wide assortment of fashions for its customers by increasing the amount of close-out purchases of nationally-recognized name brands.” (Overview Historical Highlights Ross Stores, 2017). Also in the nineties, clothing trends changed drastically, comfort became trendy and staples like acid wash jeans and flannels were the main focus of fashion. Many popular brands began in the nineties, such as Under Armor, Vineyard Vines, and HomeGoods. This time period also marked the beginning of the age of online shopping. Ross Stores stayed on trend however, and at the start of the century the company reached over 400 stores and began spreading to new markets in the Southeast and Mid-Atlantic. The most notable change for the company took place in 2004 with the opening of dd’s DISCOUNTS. This new chain operated under the same business model but targeted a lower-income inner city demographic, offering fewer brands but more trends at lower prices. Currently, both chains are headquartered in Dublin, California, with buying offices on the east and west coasts. Ross Stores operates 6 distribution facilities as well as 3 warehouses to store pack away merchandise. Majority of both Ross and dd’s stores are located in California, Texas, and Florida with future expansion focusing heavily on the Midwest region. The company is planning its growth strategically, not jumping into the East Coast just yet. Ross plans to continue opening stores, hoping to reach 2,000 Ross Dress for Less doors and 500 dd’s DISCOUNTS doors (Overview Historical Highlights

Ross Stores, 2017). Revenue growth has remained stable over the past few years. The retail chain made 11.04 billion in revenue in 2015, 11.94 billion in 2016, and is on track to make over 12.9 billion in 2017 (ROST: Summary for Ross Stores, Inc., 2017). Despite the constant growth, Ross still faces pressure from competitors Burlington, TJX, and Kohl’s. In response to challenges like these, Ross continues to leverage strong vendor relationships and a liquid open to buy. Taking advantage of opportunistic buys and having the “first right of refusal” has given the customer a shopping experience full of well-known brands and labels at 20%-60% off department store prices. Today, Ross Stores prides itself on the “treasure hunt” mentality; the customer comes in for a spontaneous shopping experience and leaves with brand named goods at compelling values. Off-price is continuing to be the fastest growing segment in retail; and many department stores are trying to follow Ross’ footsteps. This summer, over 100 interns worked at Ross Stores as planners and assistant buyers. Both Ross Dress for Less and dd’s DISCOUNTS have similar hierarchies. Assistant buyers fall under “Merchants”. Merchants are responsible for negotiating and buying the merchandise from various vendors. There are three levels of assistant buyers within the organization, AB1, AB2, and Associate Buyers. Directly above the assistants are the buyers, then Divisional Merchandise Managers, Vice Presidents, and Senior Vice Presidents. Within dd’s DISCOUNTS, Divisional Merchandise Managers and Vice Presidents were often interchangeable. The chain of command in dd’s was smaller than Ross’ chain of command simply due to number of employees and number of doors. Assistant buying interns completed the same tasks an AB1 completes. They were mainly responsible for the administrative and operational functions that support their buying team. I was placed with the “Garage” buying team, which buys auto cleaning accessories, auto décor, tools, household hardware, and functional gardening supplies. Assistant buying interns day to day role focused on managing vendor relationships, negotiating price terms, providing creative product development ideas, and ensuring key inventory was delivered and processed into the distribution centers. Assistant buying interns were also responsible for reviewing,

analyzing, and running various reports. Some of dd’s main reports include the open to buy, item sales, on order, ladder, stock analysis, and purchase order event tracking reports. Some of these reports get sent to them, however, assistants often run the reports themselves in an RDW system, and then followed up with an excel dump and reformatting. Building and maintaining strong vendor relationships was an important task for interns this summer. Before vendor meetings interns were responsible for analyzing sales with that vendor and making sure their team was prepared with the correct sales information. It was important for interns to be aware of what was already out there in the market in terms of products, prices, and trends before the vendor meetings. After vendor meetings, the interns are in charge of follow up and pricing out samples sent or given to them from that vendor. Majority of the time, vendor meetings usually meant purchase orders. Assistant buyer interns are heavily involved in the writing of both domestic and foreign purchase orders with numerous suppliers. As they write purchase orders each week, they fill up their team’s open to buy for that month. Often, interns only sent in purchase orders for about 3 months out, unless the order was an import order, in which case they would fill them out at least 6 months in advance. Because dd’s is an off-price retail chain, all of the products purchased had to show a value to the customer. Interns were responsible for shopping the competition and reporting back reliable comparable prices that would be placed on the price tags of the merchandise. Comparison-shopping is a large portion of the job because dd’s business model focuses entirely on passing a compelling value onto the customer. In addition to the everyday role, assistant-buying interns spent a lot of time throughout the summer attending training classes where they got the opportunity to learn about different departments within the company. Merchants work directly with the planning organization, which provides analytical and financial support to help the buying team develop financial plans each season. Merchants also communicate with the distribution center workers quite frequently. The distribution center employees are responsible for receiving and processing goods into the warehouses. Assistant buyers communicate with

them if they have issues on late shipments, hotel releases, or if a vendor short shipped inventory. Assistant buyers in the home division got a chance to work directly with the direct imports team. Direct imports helps fill gaps in the assortment by sourcing merchandise that cannot be procured in the domestic supply chain. Throughout the 10-week internship interns got to observe the operations of dd’s DISCOUNTS firsthand and evaluate their strengths, weaknesses, areas of opportunity, and threats. Dd’s DISCOUNTS opened their 200th store during the internship, a monumental moment for a chain that began just 13 years ago. Dd’s shares many strengths with Ross Dress for Less, for example, both operate on high margins. Because dd’s buys closeout goods, they are priced extremely low by the vendors and merchants are able to retail the goods at a 50% mark-up or higher. Last quarter, Ross Stores Inc. had an overall profit margin of 9.22%, while competitors Macy’s, TJX, and Kohl’s had a profit margin of 2.09%, 6.62%, and 5.02% respectively (Ross Stores Profit Margin Quarterly, 2017). Dd’s buyers spend 2-3 days in market a week and are vendors’ first call when they have excess goods to get rid of. For goods that dd’s cannot acquire at the low prices they need, the direct imports team, dd’s D.I., works with factories overseas to have those goods made for them. The direct imports team has the knowledge of manufacturing processes and can reduce costs by, for example, using a different type of fabric to save a few cents on production. Despite factories having high MOQs (Minimum Order Quantities) on goods, this does not stop dd’s. Another strength of this small chain is that they can easily collaborate with Ross Dress for Less to achieve the buying power of over 1,500 stores altogether. The economies of scale of these two chains is enough to negotiate prices with not only factories overseas, but with domestic vendors in the US that own licenses to name brands like Stanley, Armor All, and Goodyear, to name a few that my “garage” buying team worked with. To add to high margins, dd’s D.I., and economies of scale; vendors want their business. At Ross Stores, Inc. vendor relationships are put first. The company never asks for markdown dollars and never returns excess goods to the vendors (RTVs). In addition, dd’s payment terms, usually net 30 or net 45, are

faster than most retail stores, which have payment terms sometimes up to one year. By working with dd’s, vendors are able to receive cash flow for their goods almost immediately, which is why they are eager to do business with the company. Furthermore, both dd’s and Ross’ buying offices are strategically placed in the garment district in New York City. Unlike TJX and other main competitors, buyers at Ross Stores have the ability to meet face to face with vendors and visit them frequently. This allows the buyers to establish strong relationships with key suppliers. Dd’s strengths can be summarized as high margins, due to the nature of their off-price business model, economies of scale and substantial buying power, due to their sister company Ross Dress for Less, and ease of business transactions with vendors, due to their business model, payment terms, and strategic location. Despite the many strengths of Ross Stores, the company does indeed have weaknesses as well. Customers are increasingly more aware of prices and deals because of the internet. Customers have little brand loyalty when it comes to dd’s DISCOUNTS. Dd’s customers are focused on finding deals; if the price of a product can be found for cheaper at Wal-Mart the customer has no remorse when switching to the cheaper alternative. Both Ross Dress for Less and dd’s DISCOUNTS do not offer loyalty or reward programs for customers either, while competitors TJX, Wal-Mart, and Kohl’s do. Adding to low customer loyalty, Ross and dd’s also do not have an online platform for selling. E-commerce is growing 23% each year and an average of 51% of Americans prefer to shop online (Wallace, Tracey 2017). Ross Stores is not capitalizing on the shifting consumer trend, which could constrict the company’s long-term growth. When meeting with dd’s President Brian Morrow this summer, he stated that an online presence doesn’t make sense for dd’s due to the high cost of doing so. He claims that having a website and shipping goods to customers would cause an average $4 increase in price per product, which does not make sense for their price sensitive shopper. Although this may be true for Ross and dd’s, it does not change the fact that online shopping is on the rise and competitors TJX, Kohl’s, Wal-Mart, and Burlington all have an online presence.

There are many opportunities for growth for both Ross and dd’s. The chains have yet to saturate the Mid-West and North East markets. As stated previously, majority of the company’s stores are located in California, Texas, and Florida, however, dd’s only operates in 15 states. Dd’s discounts plans to open at least 20 doors each year, while Ross is averaging about 70 new doors each year. Additionally, the company has opportunity not just domestically, but globally as well. Despite constant currency fluctuations, there is the possibility of long-term growth if the company taps into Canadian and European markets. TJX has already tapped into the global market, operating stores in 9 countries and 3 continents (Global Growth TJX, 2017). By continuing to open stores based on analysis of local demographics, competition, and store profitability, the company has the potential to open 500 dd’s DISCOUNTS locations in the US alone (Ross Stores, Inc., Company Profile 2017). Competition is intense in the retail industry. Ross Stores faces threats from not only other off-price chains but department stores, fast fashion chains and online retailers as well. Traditional department stores continue to lose steam as consumers find more value in shopping off-price and online. Because of this, department stores are placing all of their markdown merchandise at the end of the season in outlet stores that mimic the off-price model of Ross; Macy’s Backstage, Saks Off Fifth, Nordstrom Rack, and Neiman Marcus Last Call to name a few. In addition to department stores entering the world of off-price, fast fashion retailers like Forever 21 and Zara continuously offer apparel at low prices. Zara’s business model strategizes stocking less merchandise and updating their assortment often (Zara’s Fast Fashion Business Model, 2017). Stocking less merchandise is similar to dd’s in that it creates a treasure hunt and sense of urgency for the customer. Similar to how a customer must buy a Calvin Klein shirt at dd’s when they see it, otherwise it won’t be there tomorrow, the same applies to fast fashion trends at Zara. Additionally, Zara completely updates their assortment every 2 weeks, staying on top of the latest trends. Zara’s efficient supply chain allows for quick turnover of goods, even faster than the turns seen at Ross. Aside from brick and mortar threats, dd’s faces pressure from a growing number of online retailers.

E-Commerce is becoming the future of retail, and nearly all growth in the retail sector now takes place in the digital space (Intelligence, B. 2017). Although we can view e-commerce as an area of opportunity, it can also be seen as a threat because it gives customers access to finding the same products dd’s stocks, but at much lower prices on Amazon. After spending 10 weeks with Ross Stores, I quickly learned that the company’s main competitive advantage is their strong vendor relationships, an intangible asset that is hard to imitate. In the intern training classes, leaders of Ross continually stressed the importance of showing vendors respect, returning their phone calls, negotiating fairly, and meeting with them face to face. Both Ross and dd’s do not ask for markdown dollars. At Ross, the buyers believe in a 2-way street with vendors, they care about the vendor’s business and try to accommodate their needs. While meeting with dd’s largest car mat vendor BDK Auto, their VP of sales explained to the interns that dd’s is a pleasure to do business with. Not only does dd’s give input into the product development process, but the company is open to testing new products and is willing to arrive at a price that benefits both parties. The BDK Auto salesman also explained that other companies they work with, such as AutoZone, are not as accommodating. That same day, the “garage” buyer took the BDK Auto salespeople to lunch to strengthen their relationship. Because of Ross Stores strategic location in the center of the garment district, the buyers are able to take time out of their day to connect with vendors face to face. The relationships the buyers at Ross Stores have are hard to imitate because they stem from years and years of schmoozing and connection building. Competitors like TJX cannot replicate Ross Stores’ competitive advantage because their location in Massachusetts does not allow them to build the same strong relationships that can only form through constant face to face communication. Looking back on the 10 weeks I spent with dd’s DISCOUNTS I can confidently say that I learned a lot about buying in the off-price retail industry. The training classes offered by senior management were especially helpful. Myself and other interns were able to experience formal training classes on excel and

other computer systems used by the merchants. In addition to computer training, I attended classes on the company’s strategies and core beliefs. Throughout the internship I applied classroom theory taken from the retail math class at Syracuse. Topics I previously learned, such as, initial markup percent, cost complement, shortages, and markdown percent were applicable to the calculations I did daily as an assistant buying intern. In regards to the introductory retail class I took as a sophomore, the topics of corporate social responsibility and store experience were applicable. Ross Stores set up 3 volunteer days for interns and 1 volunteer event for full time associates throughout the summer. I attended a volunteer event and got the opportunity to give back a few hours of my time to make clothing packs that were donated to women in need. In terms of store experience, I was able to visit both dd’s DISCOUNTS and Ross Dress for Less in New Jersey to learn about the “treasure hunt” firsthand. My experience will influence my career goals in the sense that I do hope to work for a retail store in the future, however, I realized I would prefer to focus on store operations, logistics management, and procurement. Working with the distribution centers on a daily basis interested me and I thoroughly enjoyed talking with the shipping and logistics team via conference call from Charlotte. I will take the skills and experience I had this summer with me after graduation and through my professional career.

References Global Growth. (n.d.). Retrieved from http://www.tjx.com/investors/success-factors/global-growth.html

Intelligence, B. (2017, February 10). National Retail Federation estimates 8-12% US e-commerce growth in 2017. Retrieved from http://www.businessinsider.com/national-retail-federation-estimates-8-12-us-e-commerce-growth-in-2017-2017-2

Overview Historical Highlights Ross Stores. (n.d.). Retrieved from http://investors.rossstores.com/phoenix.zhtml?c=64847&p=irol-irhome

Ross Stores Profit Margin (Quarterly):. (n.d.). Retrieved from https://ycharts.com/companies/ROST/profit_margin

ROST : Summary for Ross Stores, Inc. (2017, September 12). Retrieved from https://finance.yahoo.com/quote/ROST?p=ROST

ROSS STORES, INC.|Company Profile. (n.d.). Retrieved from http://www.vault.com/company-profiles/retail/ross-stores,-inc/company-overview

Wallace, Tracey. (2017, September 06). Ecommerce Trends in 2017: 135 Statistics About Online Selling. Retrieved from https://www.bigcommerce.com/blog/ecommerce-trends/

Zara’s ‘Fast Fashion’ Business Model. (2016, February 18). Retrieved from http://kwhs.wharton.upenn.edu/2016/02/zaras-fast-fashion-business-model/...