Investing
in Growth| Investing
in Growth |
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The Ross formula for growth? Great brands ... Great
prices ... Everyday! Over the next several years, we will continue to
focus on and implement that basic strategy. We believe that our strict
adherence to this fundamental tenet of the off-price business will be
the key factor in our ability to successfully enter new markets and
accelerate store growth over the next decade.
Expanding into new markets We have a strong, profitable business, driven by a proven formula for success. At the end of 2000, Ross operated in only 17 states and Guam, leaving us ample opportunities for expansion. As the initial step in our accelerated growth plans, we entered our first major new market in six years with the opening of two locations in Atlanta, Georgia in March 2001. These are the first of 25 to 30 new stores we plan to open in Georgia, North Carolina and South Carolina over the next 20 months. With demographics similar to our better performing, existing markets and strong future growth potential, the Southeast offers exciting opportunities for Ross. Our research indicates a relatively high percentage of potential Ross core customers reside in these regions - mainly women from middle to upper-middle income households who are seeking compelling bargains on branded merchandise. These markets also offer favorable logistics for distribution and supervision, as these states are natural fill-in regions between our strong market positions in Florida and Washington, D.C. Another favorable characteristic is the temperate climate in this region that is similar to that of our Sunbelt locations. As a result, we believe these are good transition markets for us while we complete the roll-out of our micro-merchandising systems. Building a platform for future growth Our expansion in the Southeast is just the first phase in our overall growth plans. Over the next five years, we expect to grow our store base by almost 60% - from 409 locations at the end of 2000 to a target of over 650 stores by the end of 2005. To successfully and profitably execute those expansion plans, we continue to invest in people, systems and technology to build a platform for future growth.
Leveraging our investment in
the merchandise organization
Over the past several years, we have made a strategic investment in the business by significantly increasing the size of our buying group. Today Ross has approximately 200 merchants - managers, buyers and assistant buyers - scouring the marketplace for great buys on name-brand merchandise. This depth of merchandising talent represents a four-fold increase over the past decade, providing us with the merchandising resources to expand into new markets and accelerate store growth. Developing systems to improve regional merchandise trends To enhance sales productivity, especially in non-Sunbelt markets, we have been investing in micro-merchandising systems. Our objective has been to systematically plan and track detailed sales trends to obtain a better understanding of regional differences based on climate, seasonality, product, style or brand preferences. Implementation of these new systems and planning processes has been occurring in phases. At the end of 2000, approximately 25 percent of our departments - mainly in the men's and ladies' businesses - were planned using micro-merchandising. We expect to roll out these systems to the balance of our departments in 2001, with the systems fully operational by early 2002. We believe this investment should enhance our ability to deliver more of the right merchandise to the right stores at the right time. As we improve our ability to fine tune merchandise assortments to meet different customer preferences by geographic region, we will enhance our prospects for successful new market entries. Improving supply chain productivity and efficiencies We expect to enter into an agreement in 2001 to lease a 108 acre parcel of land near Charlotte, North Carolina, on which we plan to construct a 1.3 million square foot distribution center. The new facility is targeted to open in 2002 and is expected to approximately double the company's existing distribution processing capacity with improved systems and increased productivity. The total turnkey cost for the project is projected to be about $90-100 million, which the company plans to finance with an operating lease. During 2001, we are also investing in a new transportation management system to optimize loads and routing for all inbound freight. A new financial system, targeted for completion in 2002, is also in the process of being installed. It will feature web-enabled technology, intranet capability and automation of many manual processes. At the store level, we are investing in a new refund control system, which we believe will result in lower inventory shrink costs. Our cash register stations are also being reconfigured to reduce checkout time and to improve customer service. All of these infrastructure investments are expected to significantly improve our supply chain productivity over time and make us more efficient and cost effective operators. This solid foundation will enhance our ability to improve customer service, accelerate store growth and increase stockholder value.
We see many opportunities for our business in the next decade. Our biggest
asset is a proven store model that features outstanding cash flow and
return on investment characteristics. Add to that a solid management
team focused on building a platform to support accelerated growth, the
potential future benefits from micro-merchandising and other infrastructure
investments, and the numerous possibilities over the longer term for
additional new markets or potential real estate acquisitions. These
are the ingredients that will enable Ross Stores to leverage its position
as a top performing off-price retailer in only 17 states to become one
of the country's leading national off-price brands.
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