At the time, Consolidated teetered on the edge of bankruptcy. While sales in the company's core division, Big Lots/Odd Lots stores, had continued to grow each year, shrinking profit margins and rising distribution costs were eating away profits. Consolidated reported a net loss of $7 million in fiscal 1989, with sales for the year at $608.7 million. Its stock price languished in the single digits, considerably under its 1986 high of $23.
To resurrect the chain, Kelley fired up its merchandise buyers, giving each options for 10,000 shares, then set about streamlining operations, closing down a cash-gobbling southern distribution center, and tightening inventories. By 1992, earnings had ballooned to $20 million on sales of $771 million. And the chain hasn't looked back since. Its stock price rebounded, now hovering in the high 30s, and net income for 1996 came in at $83.9 million on sales.
"Since 1991, it's outperformed the S&P Index, the Dow Jones, and every other index by a wide magnitude," says Peter Caruso, a retail industry analyst at Merrill Lynch. "I think the reason is the vision of the management team led by Kelley, which has really focused on investing capital in subsectors of retailing-store formats where they can bring some value added."
A shopaholic in his own right, Kelley understands the treasure hunt appeal that is the heart and soul of the close-out retail channel, which thrives on selling product shunned by large-scale retail chains such as Wal-Mart and Toys 'R' Us. "We're the undertakers of the business," he says. "We buy product when nobody else wants or needs it. We're the guys out there on February 15 buying red boxer shorts with little white hearts on them."
Consolidated buyers roam the country, sifting through manufacturer overruns and discontinued styles and snapping up the best leftovers at well below wholesale, so that its store shelves offer an ever-changing assortment of bargain-priced, brand-name product. "Our customers know that if you see it, buy it," says Kelley. "Because if you wait a week, it may not be there."
An industry veteran who cut his retail teeth running a shoe store in Madison, WI, and went on to posts at Lord & Taylor, Home Depot, and Cable Value Network, Kelley himself is no slouch at ferreting out a bargain, as evidenced by his acquisition last year of Kay-Bee Toys. Purchased from the floundering Melville Corp. retail company for $315 million-just 3.5 times annual cash flow-Kay-Bee's stores doubled the company's total size.
The move won a nod of approval from the investment community. "They were smart enough to realize that the problems of Kay-Bee were cyclical in nature," says Caruso. "They bought a business that no one saw value in and now that those cycles have turned around, everyone sees enormous value in it."
"We were already doing more than $250 million in toys; now we're No. 4 in market share in the country," says Kelley, who saw Kay-Bee, with its 80/20 split of first-run and close-out merchandise, as an ideal growth vehicle. Kelley's first move was to better align Kay-Bee's stores with Consolidated's core business by bumping up close-out merchandise to 30 percent of total mix.
To bring Kay-Bee personnel into the fold, he turned again to incentives, using aggressive bonus programs and stock options to pave the way for a culture shift. "Our style of running a business is very hands on, whereas there had been a bureaucracy under Melville," says Kelley, who describes his team as "entrepreneurs in pinstripes" and his philosophy as "management by democracy."
Next on the drawing board are plans to strengthen the chain's furniture retail business, an area Kelley began to explore last year with the addition of furniture departments in 45 Big Lots/Odd Lots stores and three stand-alone Big Lots Furniture Stores. Also in the works are 200 new Big Lots/Odd Lots stores by year end, with a focus on filling in existing markets. "I get asked all the time about going into overseas markets," he says. "But looking at the map of our stores, we have so many years of growth right here to attack and go after efficiently-there's just no compelling need."
For now, Kelley continues his hands-on approach, meeting with his team once a month to review present and potential store locations. "Retail is detail," he says. "You have to be near paranoid about the details. The CEO wants to be there, jacket off, tie askew, sleeves rolled up, front and center."
WILLIAM G. KELLEY
Chair man and CEO
Consolidated Stores Corp.
Family: Wife: Lois. Daughters: Alex, 20 and Emily, 11. Son: Adam, 9.
Education: BS, University of Wisconsin, School of Commerce.
First Job: Selling shoes. "It was the foundation for my career."
Mentor: "I learned the retail business from a guy who was working with his own dollars-he had the lease of the shoe department I worked in."
Sports: Golf, fly fishing.
Favorite Fishing Hole: "Wherever there's a stream."
Favorite Fly: Wolly-Bugger.