Reporter David Clouston can be reached at 822-1403 or by e-mail at dclouston@salina.com.
By DAVID CLOUSTON
Salina Journal
ABILENE -- A tumultuous restructuring of retailer Alco is slowly showing results for shareholders, its new board of directors claims, but cost-cutting moves are taking a toll on managers and their support staff.
In the latest move, parent company Duckwall-Alco Stores, headquartered in Abilene, announced plans Monday to eliminate 27 positions in headquarters staff, including a vice president.
The company previously cut four senior vice-president and vice-president jobs in April. Their duties were absorbed by other executives. The corporate labor cost reductions to date amount to a savings of $2.5 million annually, a company press release stated.
The company said the moves are part of a turnaround plan aimed at improving profitability after changes to the board of directors in March of this year.
The changes come on the heels of a sudden resignation by then president and CEO Bruce Dale after Dale's three years at the company's helm.
Raymond A.D. French, Alco's largest shareholder, and an outspoken critic of management, was elected to the board March 13 with James G. Hyde. Two board members resigned a day later -- Dennis A. Mullin and Patrick G. Doherty -- and the board voted to reduce its size from seven members to five. The company elected a new board chairman, Royce Winsten. The other two members are Dennis E. Logue and Lolan Mackey.
French, in November, threatened to push for a new board of directors if there wasn't satisfactory progress in improving shareholders' returns.
Stock price plummets
Duckwall-ALCO Stores last month reported that its fourth-quarter earnings fell 76.1 percent, which it attributed to lower gross sales margins, higher employee wages and increased store property rent.
Net income declined to $1.05 million or 27 cents a share from $4.4 million or $1.14 cents a share in the fourth quarter of the prior fiscal year.
The price of Duckwall-ALCO stock, which trades on the NASDAQ, has fallen from $40.88 in August to $12.98 as of Wednesday, a decline of more than 68 percent. The stock hit a low of $9.35 April 17.
"It's clear that Duckwall-Alco has had people problems, not business model problems," Winsten said during the company's April 29 investor conference call to discuss operating results for the quarter.
"It's a robust and very viable business which has been burdened by a long series of bad capital allocation decisions and poor management, both of which the new board and management are in the process of changing," Winsten said in the recorded conversation.
Winsten and interim CEO Donny Johnson were not available Wednesday for comment.
Winsten said during the call that the steps to putting the company back on the road to profitability include cutting overhead by cutting staff. Improving store operations is another top priority.
Opening, closing stores
Since February, the company has opened 5 new stores and closed 17 underperforming locations.
"For the remainder of fiscal 2009, we plan to open 13 new prototype stores. Four of these replacement stores are for either a Duckwall or a smaller Alco store, with which we have had success," Johnson said.
The prototype stores are focusing more on consumer necessity items than on discretionary items, he said. Under Dale, the company's stores had begun moving more heavily into electronics and other discretionary items.
The prototype stores open for a full year have been performing at a combined level of about 30 percent average return on capital invested, Johnson said.
Dale, Wednesday, wouldn't comment on the company's new strategy, which would seem to pit it against competitors such as Dollar General.
"I have said publicly, many times, people think if you live in Salina or in small towns in the Midwest, you don't want anything else other than basics, and that just isn't true," he said.
The company's building plans through the end of fiscal 2009 include 18 new Alco stores, three of which will be conversions of smaller Alco stores. This is a reduction of previous plans to open as many as 28 stores.
The 18 stores represent those either already under construction, or contractually committed to, Johnson said. The company plans to remain in all markets currently being served, Johnson said. The company operates 250 stores across 22 states.
"Stores will only be closed if they can't be brought up to acceptable levels of profitability," Johnson said.
A problem with shrinkage
Another area affecting the company's performance that has begun showing improvement is inventory "shrinkage," he said. Retailers say shrinkage occurs as a combination of employee theft, shoplifting, vendor fraud and paperwork errors.
Retailers nationally lost more than $31 billion to inventory shrinkage, according to a 2002 National Retail Security Survey conducted by the University of Florida.
Alco-Duckwall has overhauled its inventory and sales equipment to bring inventory accountability all the way down to store cashiers, Johnson said on the investor call.
"We are now actively using the (technology) to pursue significant store shrink improvements," he said.
The company intends to do multiple store inventories in fiscal 2009 at stores with high shrink rates, Johnson said. Through the first nine weeks of fiscal 2009, the company has inventoried 35 stores, and the cumulative effect has been a reduction in lost inventory by four-tenths of 1 percent.
Dale said in his opinion that it's wrong to blame employee theft or shoplifting solely for inventory losses.
"Do people steal from a store, customers and staff both -- absolutely. But it's really a combination of a lot of things, one of which is just plain old paperwork (mistakes)," he said. "In my (35) years of being involved in retail, it's a piece of it, but certainly not a dominant piece."
n Reporter David Clouston can be reached at 822-1403 or by e-mail at dclouston@salina.com.
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