Fred’s bolsters merchant team, July comps turn positive

Fred’s has brought Craig Barnes and Kelly Ma on board to lead the company’s new sourcing team, as part of the regional discount chain’s efforts to strengthen its overall inventory and buying management capabilities. The company tapped the pair in conjunction with its July sales results.



Barnes assumes the role of SVP, global sourcing and hardlines, bringing more than 20 years of progressive retail merchandising/sourcing experience to the company. Ma, with eight years of experience in sourcing, product procurement, development, vendor selection, and financial planning, joins as VP, international and domestic sourcing.



Prior to joining Fred's, Barnes was VP for the global independent aftermarket and OE service for Delphi Products and Service Solution, where he was responsible for setting product and customer pursuit strategy and capability development, overseeing four regions including Asia Pacific, Latin America, EMEA and North America. Previously, he was the SVP, merchandising, pricing, global sourcing, marketing and inventory demand planning for general parts/CARQUEST. Barnes began his retail career at AutoZone with experience in merchandising and store operations.



Previously, Ma was the global sourcing-import coordinator for AutoZone, responsible for identifying and presenting import opportunities for assigned category teams and managing the entire import process from beginning to final execution of products in stores. In addition, Ma was responsible for managing the compliance process for direct import suppliers, factory audits and production sample inspections. Earlier in her career, she was the merchant, men's sportswear for Fred's and was responsible for brand building, production selection and price negotiations, with accountability for sales margin performance and inventory.



"Craig and Kelly bring the knowledge and experience needed to drive improvement in product sourcing throughout all general merchandise departments,” CEO Bruce A. Efird said. “While significant actions already are underway to improve buying processes and efficiently redeploy inventory dollars, our new sourcing team allows the company to manage inventory levels more effectively and source goods more competitively in the future."



Efird also announced that Fred's has engaged Test Rite International as a strategic sourcing contractor to augment the Fred's global sourcing strategy. Test Rite is a 35-year old organization based in Taipei, Taiwan.



The moves come as the operator of 704 discount general merchandise stores returned to positive comparable-store sales in July, reflecting stronger trends in general merchandise sales and improved customer traffic.



But Fred’s is also exercising some caution and has cut its second-quarter outlook. The company now expects to report a loss for the quarter in the range of $0.15 to $0.20 per share citing the transitional costs associated with implementing its convenience center model, together with the vendor-related cost pressures on pharmacy.



Fred's total sales for the month increased 4% to $148 million from $142.6 million in July 2013. Comparable store sales for the month increased 0.7% on top of a 2.5% increase in the same period last year.



General merchandise departments that reported better performance in July, according to the company, included health aids, housewares, flooring, stationery, toys, auto and hardware, and several consumable departments.



“With our new ad program and marketing strategy now in place, we expect these positive trends to continue in the back half of the year. Complementing improving conditions with general merchandise, we also saw ongoing sales and script growth in the pharmacy department during July, with our best monthly comparable script growth of the year. In July, we also rolled out a clearance and inventory right-sizing program in all of our stores to address unproductive inventory and exit or reduce product categories that do not align with our convenience center model — a key to improving our GMROI going forward," Efird said.



Fred's pharmacy department margins for July continued to be pressured by very significant vendor cost increases on both brand and generic drugs. This cost pressure in the pharmacy for the quarter accounted for a drop of approximately 225 basis points in pharmacy department gross margin. However, the company has finalized a new pharmacy prime vendor distribution agreement. With this key strategic relationship, the company said that it has a new alliance that supports its rapid growth and addresses the issues experienced over the past year, while restoring Fred's pharmacy department margin and significantly improving the profitability of its specialty pharmacy business.



"The drivers of performance for the balance of the year will be the pharmacy department's new vendor agreement, store shipments returning to forecast, and the continuation of our new marketing programs. We plan to outline these strategic changes and our expectations for future performance on August 28, when we announce second quarter results and provide updated guidance for the remainder of 2014,” Efird added.