Friedman's Inc. - The Power Strip Mall Strategy of The Mid-1990s

The Power Strip Mall Strategy of The Mid-1990s

Thus was born what would become Friedman's strategy in the mid-1990s, as it defied tradition and embarked on a pattern of wild growth. Historically, jewelry retailers had established their locations in elegant-looking mall stores—which carried a hefty price tag. Stinn, on the other hand, proposed to put Friedman's stores in "power strip malls" like the one in St. Mary's. Whereas malls were collections of stores under one roof, their doors opening into a common area, strip malls were strings of separate stores with doors all facing toward a vast parking lot. The strip mall's "anchor" (or primary store in the group) drew customers who would presumably visit other stores as a result of stopping at the anchor, usually either a supermarket or a discount retailer such as Wal-Mart. The "power" designation simply suggests the great volume of shoppers drawn in by the anchor.

Certainly power strip malls lacked the cachet associated with traditional shopping malls, but they also lacked the costs as well. According to Pablo Galarza of Investor's Business Daily, a retailer could in 1994 set up a store in a power strip mall for about $225,000. If the owner then chose to "walk away" and cancel his lease, he would pay a penalty of perhaps $40,000. By contrast, in a large indoor shopping mall a retailer would shell out $400,000 just to get started, and a whopping $490,000 if he chose to walk away.

In the words of Craig Weichmann, an analyst for Morgan Keegan & Co., "Schiff ran the numbers and the light bulb went of. Power strip malls offer attractive economics compared to large mall stores. Not only is competition less intense in power malls, there are more of them." Referring to two extremely upscale jewelry stores, Stinn told Galarza, "We aren't looking to be Tiffany's or Cartier. We're interested in selling to the average working person."

From 48 stores in 1990, the number of Friedman's retail outlets grew more than threefold in the next several years. As Phillip Carter wrote in 1995 in Investor's Business Daily, "Company officials said Friedman's has just begun growing. Of the 750 retail stores it hopes to acquire in the Southeast, it has only purchased 158." Among the factors contributing to this runaway growth were the installment of a new computer system, of which CFO John Call said, "Prior to the installation of that system, the company was operated manually, if you will. It allowed us the platform from which to control growth—that was a big add."

This facilitated a change in the way the company offered credit, allowing point-of-sale credit agreements. By contrast, Carter wrote, "At Zale's, customers fill out credit applications. These are electronically processed at a central location while the customer waits in the store. If these requests for credit lines are rejected, customers can be embarrassed.... Friedman's policy gives the local employee and store manager the power to issue credit up to certain limits at the store level."

Thus technology helped the chain put into practice its policy of giving managers greater power over individual stores. With this freedom came greater responsibility, and Friedman's likewise compensated its "partners" (as Stinn began calling managers) on the basis of their store's sales and rate of collection. It was a system that, according to Stinn, "attracts people who want to stand on their feet."