Its hard to imagine a business facing more pitfalls than Schwesers Stores. The 125-year-old, fourth-generation company operates womens specialty stores in small Midwestern farm towns. Its markets grow at a glacial rate (if at all); its suppliers, with offices in New York and factories on the other side of the world, dont exactly have their fingers on the customers pulse; and there is at least one Wal-Mart within a couple of miles of every one of Schwesers stores. Despite these obstacles, the company opened its 23rd and 24th stores in 2005.
Why have the descendants of founder George Schweser continued the business he established in 1880? And how have they managed to do it?
Ty Smith, the 33-year-old president of the company, answers the first question somewhat ingenuously. Its a family business, and its part of what the family is, he says. There is a bit of an obligation to keeping it going.
The how question takes a little longer to answer. Keeping the $12 million (approximate annual sales) company going takes deep customer knowledge, a willingness to change and, above all, frugality. The trick to profitability in these conditions, says Ty, is, You have to do what you have to do to stay alive.
A near-genetic thriftiness runs through the companys history. George Schweser, Tys great-grandfather, walked more than 100 miles from the railroad station rather than rent a horse and buggy to reach David City, Neb., where he purchased the first store with a partner for $700. During the Depression, Georges son, Fred, ordered the companys buyers to purchase only needles and pins in an effort to limit their spending, an expression Freds daughter, Barbara Schweser Smith, 69, says is still heard in the company offices. We try to undersell the competition, says Barbara, who is Tys mother. From a marketing standpoint, we have to be in the market every week looking for deals.
We run a pretty tight ship, Ty explains. We dont have a whole lot of overhead. Thats been one of our keysnot to overgrow our size and keep the costs low.
The need to keep costs low is one major reason Schwesers stores are located only in small towns. Half of the 24 apparel specialty stores are in Nebraska, with the rest in South Dakota, Minnesota, Iowa, Missouri and Kansas, all within a days drive of company headquarters in Fremont, Neb. The average population of those towns is just over 20,000, or about the same number of people as work in New Yorks Empire State Building. Only two of Schwesers stores are in towns larger than 30,000 people. The largest city with a Schwesers store is St. Joseph, Mo., population 73,990; the smallest is Atlantic, Iowa, with 7,257.
Schwesers small-town survival guide
Conventional wisdom holds that small towns like these are dead or dying, but a closer examination reveals that Schwesers location strategy has actually put the chain in some pretty solid markets. As Jim Otto, president of the Nebraska Retail Federation, points out, Towns under 5,000 people are the ones that are actually shrinking. The towns like Grand Island, Kearney, Columbus and North Platte, theyre all growing. People are moving to job centers. The small towns that are shrinking arent the retail centers. The towns where Schwesers operates grew slightly as a group (0.4% in total) from 2000 to 2004, according to the U.S. Census Bureau. Not Las Vegas, exactly, but growing areas nonetheless.
You cant believe everything you read, Ty says. If there was nothing here, nobody would live here. Most of the towns were in are agriculture-based, and agriculture, believe it or not, is still a major part of the American economy.
The farmer that used to have a truck that held 300 bushels now has a semi that holds 1,000 bushels, Otto explains. Instead of going to the local town, he just keeps on rolling to the larger terminal elevator. Thats why those little towns are dwindling, but the larger towns are actually growing. He says farm women drive to shop, too: Some towns draw from a hundred-mile radius.
Of course, Schewesers isnt the only retailer to figure out theres a market out there on the prairies. Sam Walton founded an empire on stores in places just like Fremont, Neb. Today, JC Penney, Younkers, Wal-Mart, K-Mart and Target compete on Main Street, as do apparel chains like Herbergers, Gordmans and Christopher & Banks, among many others. Staying profitable in the face of that kind of competition requires constant attention to cost, expenses and customers.
We only open stores if we can find somebody who has a location who is willing to work with us on an affordable lease, Ty explains. Generally, we like to move into spots where another clothing store had been, so we dont have to build the dressing rooms. Ideally, wed just move in without spending a lot of money building a brand-new store. Two-thirds of the stores are in enclosed malls, but there are several in downtown and strip mall locations as well. Most are 5,000 square feet or smaller, although some of the older downtown locations, originally department stores, are twice that size.
Corporate overhead is low, too. There are a grand total of six employees in the corporate offices in Fremont and a scant dozen at the 10,000-square-foot distribution center. Tys sister, Betsy Smith Hocking, 36, handles almost all the buying from her home office in Philadelphia. Most stores operate with just six or seven employees.
Price, value and service
Low expenses are only part of the equation. Perhaps the tougher task is balancing customer demand for low prices with the fickle nature of the fashion business. That begins by precisely defining the market, which Schwesers has done, according to Ty. Our customers are women over the age of 30, he says. We dont target the teenagers and the 20-somethings.
Schwesers customers are concerned about looking good, just like their sisters on Fifth Avenue or Rodeo Drive. Our customer wants a lot of value, says Betsy, who travels to New Yorks fashion district by train at least once a week to keep the stores stocked with merchandise. The customer wants to be in style, but does not want to stand out, Betsy explains. [Schwesers shoppers] read magazines and watch TV, so they know what the looks are, although they may not be willing to fully embrace them.
Its a more conservative look than what youd find at stores on the coasts, or even what youd find at the other stores in the malls that cater to a younger customer, Ty adds. The colors have to be right. The styles have to be right. We have to be fashion aware, but we dont have to be on the cutting edge.
Price means a lot to Schwesers customers, according to Betsy. The towns just dont have much money, she notes. The people here are struggling to make ends meet, so our customer base cannot afford to go on weekend shopping binges.
And there is always the competition. We want to make sure were providing better value than they are, Ty says. Were not a discount store, but were certainly a high-value store. The chain stays at the lower end of the price point.
From the small-town merchants perspective right now, Otto observes, the real challenge is figuring out a niche so they can coexist with the big-box stores. Small-town businesspeople concentrate on service and their customers likes and dislikes.
After 125 years of serving small-town women in the upper Midwest, Schwesers knows its customer and the value of service. Company controller Helen Lanin, a 52-year employee, says doing business in places like Huron, S.D., has its marketing advantages: In small towns, you know everybody, she says. When you walk through the door, the manager calls you by name. Thats very important.
Since we have an older customer base, many people come in and really need help, Betsy explains. They need help finding the clothing, making sure it matches. There are sales associates who call customers when things come in that they know they would like. They really know their customer base.
We know if we give up the service, which is kind of unique, it will never work, observes Barbara. We have a lot of older customers, and their style is to come in and let us put it together for them. But they want the same priceor betterthan they would get from the big-box stores.
We take a really, really personal interest in it. Its our life, Betsy says. Its what weve known, so its part of every aspect of our life.
Changing with the times
Its a constant struggle to beat the competition, but its one the company has fought and won before. One reason has been its ability to change as circumstances warrant. Each of the first three generations reinvented the business. George Schweser opened a general store. His son, Fred, turned it into a group of small-town department stores offering clothing for the entire family as well as draperies and home accessories.
Tys mother, Barbara, the third generation to manage the company, changed direction entirely. She dropped departments like home furnishings and bridal wear and refined the concept into small specialty stores offering value-priced womens fashions. She joined the company when it was in financial difficulty and ran it from 1973 to 2003, growing it from seven to 22 stores in the process. I changed it a lot, she recalls.
Over the years, Barbara didnt hesitate to try different formats. She experimented with discount stores, junior fashions and shops catering to full-figured women. Large cities werent entirely out of bounds, either, although stores in Omaha and Lincoln, Neb., proved to not fit the company cost structure.
The current approach may have worked best in recent years, but theres nothing sacred about it, according to Betsy. Are other formats being planned? Not right now, but there could be, she says. We had others in the past. You never say never.
As far as strategic planning goes, its a very informal process here, notes Ty, who joined the company as president in 2003. There isnt a lot of time or energy or resources available to just sit down and think about what are the next ten steps. We have a plan, but for the most part, its in our heads.
Ty says he isnt in a hurry to change. We feel like we know the ladies in the small towns, he says. Thats our customer, and thats who we know. Thats how we do business.
Ty acknowledges that the company still needs to grow sales. The way to do that, he says, is by adding locations. Its a big challenge to get comparable store growth within these towns that are maybe not growing in size and their economies arent growing, he concedes. But certainly there are other towns out there that have good opportunities within them. He recognizes that given our current ways of doing things, there is probably a limit, he says. We cant drive trucks to Oklahoma. But when we reach that limit, Im sure well find another way of doing things.
One thing not likely to change in the near future, Ty says, is family ownership of the company. I cant imagine a scenario where its not a family business, he says. Were not such a high-growth business that we would need any huge infusion of capital or outsiders to take positions in the company. But it would be a long time before a fifth generation is ready to take over, since Ty, recently married, currently has no children. Sister Betsy has three children, but the oldest is only six.
Ty is young, and he is enjoying it, Betsy observes. As for her own future in her position, she adds, Ill definitely keep doing it for a while.
Dave Donelson is the author of Creative Selling (Entrepreneur Press). He is based in West Harrison, N.Y.