Art Pope’s Variety Wholesalers comes up Roses amid recent retail tumult
In July 2017, Variety Wholesalers Chairman Art Pope sat down with Business North Carolina magazine’s David Mildenberg to discuss his career, the future of Variety Wholesalers, and his Roses and Maxway stores. The article appears in its entirety below.
Art Pope’s Variety Wholesalers comes up Roses amid recent retail tumult
Maybe that’s a good idea, though owner Art Pope, whose family has been selling “odds and ends” in North Carolina since Calvin Coolidge’s presidency, clearly knows a thing or two about retailing. Yes, that Art Pope, the Raleigh businessman whose $50 million-plus of financial backing, political acumen and hard work paved the way for the Republican takeover of state government.
Loads of stories have explored Pope’s political history, most notably a 9,500-word New Yorker piece in 2011 that detailed how his support for conservative Republicans and public-policy groups steered North Carolina in a pro-business, limited-government direction. Our interest focuses on how Pope’s Variety Wholesalers — the holding company whose flagship chain is Roses — is faring amid unprecedented retail tumult.
Pope won’t share financial specifics for his company, which has no public stock or debt, so Variety’s performance is hard to measure. But the optimistic tone he and President Wilson Sawyer express in a rare media interview, confirmed by talks with retail-industry observers, suggests that Pope’s retail empire of about 370 stores in 16 states is doing just fine. Based on conservative estimates of industry sales per square foot, annual revenue almost certainly exceeds $700 million and possibly tops $1 billion. Pope offers this much: “Our returns on investment and margins are very healthy. We’ve been able to buy companies that are in distress and achieve a good return on investment, or buy bankrupt companies and turn them around” — though Variety hasn’t made an acquisition in more than a decade.
But wait: Isn’t brick-and-mortar retailing collapsing? In recent years, Charlotte’s Belk, Dickson and Levine clans have sold the family jewels, namely Belk department stores, Harris Teeter supermarkets and Family Dollar shops. Co-owned Sears and Kmart operate about 1,400 stores — 2,000 fewer than in 2012. Shares of Macy’s have plummeted more than 50% below peak levels. Dollar Tree traded at $96 when it bought Matthews-based Family Dollar in July 2015; it traded for about $73 in mid-June.
The big winner crushing the competition is online retailer Amazon.com Inc., whose stock has quadrupled over the last five years. The Seattle-based company was valued at $470 billion in mid-June, about twice as much as Bentonville, Ark.-based Wal-Mart Stores Inc., which has more than 5,200 U.S. stores and revenue of $486 billion last year.
Art Pope, as cool, calm and collected a guy as you’ll ever meet, shows no sign of panic. He likes Roses position of offering low-priced goods in stores that are smaller than Walmart or Target, but bigger and stocked with more variety than Dollar General or Dollar Tree. Roses stores lack panache, offering a feel that is more dollar store than department store. The aisles are filled with discount apparel, basic food, health and beauty items, and an ever-changing assortment of seasonal items such as air-conditioner units, lawn chairs or whatever company buyers pick up in liquidations or close-outs.
“As times change, products change, pricing changes, the economy changes. You can stay competitive and stay in business if you keep up with the times and are willing to change,” Pope says.
What’s noticeable about Roses, though, is how little it is changing. There is no e-commerce. No acquisitions since 2003. No newly constructed stores, only rehabs. No customer-loyalty program. Same CEO and same chief operating officer since 2006. The company headquarters is in the same downtown Henderson space where P.H. Rose opened his third store.
Moreover, the company’s strategy hasn’t changed (cheap, cheap, cheap!) enabling customers to “improve their lifestyles at a price they can afford,” Sawyer says. “If you focus on buying at the right price, controlling your costs and giving great value to your customer, you can be successful.”
Finding great value is a must, not a choice, for folks of limited income, of course. Many Variety stores are in neighborhoods where median household income is less than $40,000. Like other Pope critics, Democratic political analyst Gary Pearce of Raleigh notes the irony that Variety relies on people who benefit the least from reduced taxes and government spending — the principal positions of Pope’s favored lawmakers and think tanks. Efforts by Democrats and the NAACP to boycott Variety in protest of Pope’s politics have fizzled, particularly as his public profile has faded in recent years, says Mac McCorkle, a former political consultant who now teaches public policy at Duke University.
About 42 million Americans are on food stamps, or the Supplemental Nutrition Assistance Program. That’s a third more than a decade ago. About 10% of shoppers at dollar-store chains use SNAP, versus 7% at Walmart and 3% at Costco, according to market researchers Kantar Retail. Variety wasn’t included in the survey, though its clientele is akin to the dollar stores, two retail-industry officials say. Being poor in America is a growth industry, making Variety and other discount-oriented retailers increasingly valuable.
“There’s always going to be that segment of the market,” says Roger Beahm, a Wake Forest University marketing professor. The Popes “have always been very singular in their pursuit of value. And cost savings is the key.”
Variety isn’t the only, or most successful, retailer targeting people looking for low prices. Starting with a Charlotte store in 1959, Leon Levine built Family Dollar Stores Inc. into a much larger business before the sale to Chesapeake, Va.-based Dollar Tree Inc. for $9 billion in 2015. Ollie’s Bargain Outlet Holdings, which has stores of similar size to Roses, has nearly doubled in size over the last five years. The Harrisburg, Pa.-based chain had 239 stores in 20 states east of the Mississippi River and a stock-market value of $2.5 billion in mid-June, having more than doubled since issuing public stock in early 2015.
Variety hasn’t grown as fast, but it remains a rare survivor that thrives by constant cost cutting and improved efficiency, says Andy Ellen, president of the N.C. Retail Merchants Association, a Raleigh-based trade group. “Art is wicked smart at every facet in both politics and business.”
A graduate of the Asheville School prep academy, Pope earned a political science degree at UNC Chapel Hill in 1978, spurning his dad’s advice to major in business. Then he got a law degree at Duke University, after his father urged him to seek an MBA. Raleigh lawyer John Skvarla gave Pope his first job after law school, making him the fourth associate at the firm now called Wyrick Robbins.
He represented business clients for a couple years, then worked briefly for Gov. Jim Martin before joining Variety as general counsel in 1986. He has led the company since 2006, succeeding his dad, who died that year at age 81 after running the business for more than 50 years. Pope stepped back from Variety to work as state budget director in 2013-14 in Gov. Pat McCrory’s administration, joining his former boss Skvarla, who also held key posts.
By 1986, Variety was already among the Southeast’s largest discount chains, mostly operating small-town stores cobbled together through about a dozen transactions. The Popes have never hired an investment banker for acquisitions. Rather, the company’s deal-making relied on relationships with other Southern retail families. “When the founder was ready to retire, my dad was one of the first ones they’d call to ask if he wanted to buy the business,” Pope says. “Or my father would call them if he heard they might be selling.”
The company’s first big transaction occurred in 1971 with Eagle Stores, a publicly traded Charlotte-based company that had 52 sites in seven states ranging from Florida to Maryland. Variety’s growth revved during the rocky economic times of the late ’70s and early ’80s, with seven acquisitions of companies that operated a total of 382 stores as far west as Louisiana. The largest deal, the 1981 purchase of financially stressed Super Dollar, based in Raleigh, involved 143 stores and doubled the company’s size.
But the company’s most important deal — “the reason we are here today,” Pope says — was the 1997 purchase of Roses, the Henderson-based chain that at its peak had 260 stores and $1.5 billion in sales. The Popes were longtime friends of the Rose family, watching as Walmart’s entry into the Southeast in the 1980s slammed the North Carolina discounter. Roses filed for bankruptcy protection in 1993, restructured to fewer than 120 stores, and sold to Variety in 1997. The Popes paid less than $20 million for the business, or less than $200,000 per store. They also gained a large distribution center and office space in low-cost Henderson, which is 40 miles northeast of Durham.
Twenty years later, the company has 169 Roses and Roses Express stores, which tend to be from 15,000 square feet to 50,000 square feet, 149 Maxways and 51 Super 10s. About 8,500 people work for the company, including about 500 at the Henderson distribution center and 372 at the company headquarters.
Growth at Roses has come by converting to an everyday low-price strategy and by taking over sites abandoned by other retailers. The pricing change, coupled with reduced advertising, cut revenue but boosted profits, Pope says. Costs are contained as Variety operates its own trucking and construction divisions.
As for abandoned sites, Roses has jumped in as other retailers retrench. An example is Wilson, where Roses, a K&W Cafeteria and a pawnshop are remaining tenants of the city’s now-shuttered enclosed mall that once included Belk, JC Penney and dozens of smaller retailers. The mall’s common area closed in 2013 and its owner, Georgia-based mall developer Hull Property Group, is contesting the county’s $6.4 million property valuation.
The Wilson store, which used to house Belk, pays off for Roses partly because it is convenient for many customers in nearby working-class neighborhoods who don’t have cars, Sawyer says. When Walmart leaves a smaller store to open a larger one, or JC Penney announces a raft of store closings, “that’s a great opportunity for us,” he says. Kmart’s demise also opened space for Roses, though it typically doesn’t lease the entire store, sticking to its smaller format. “We’re trying to position ourselves so it is easy and convenient for people to shop and to get in and out quickly,” says Sawyer, who joined Variety after the 1990 purchase of Sanford-based Maxway.
For decades, Variety stores mostly served small towns, and one of the most recent Roses openings was in Nashville, Ga., a town of 5,000 that is 130 miles south of Macon. But the company also operates in bigger cities including Baltimore, Birmingham, Charlotte and Columbus, Ohio, with new stores planned for Atlanta, Greensboro and Memphis.
If finding talented workers is an issue with unemployment at its lowest level in a decade, Variety doesn’t let on. Pope-funded advocacy groups oppose increasing the minimum wage, a hot topic among retailers. Walmart and others have boosted compensation in recent years. Variety says its approach to wages is to “be competitive in the markets where we operate.”
The west Charlotte Roses is in a strip shopping center that includes a Value Village resale store and a Grifols plasma-donation center. Assistant manager Tim Mitchell asks if I need assistance as I push a cart through the aisles. (True confession: I filled my buggy with three pairs of Alexander Julian dress socks for $3, a bag of Lifesavers mints for $1.50 and Wrangler shorts for $10.) A former manager at Circuit City and Ross Stores who has worked at Roses for a year and a half, Mitchell says the store’s success is Retailing 101: keeping shelves filled with goods that customers want, including lots of seasonal items.
“We call it the ‘buy now, wear now’ strategy because our customers often want it today,” Sawyer says. “If it is hot for two or three days, we sell a lot of swimming pools.”
To encourage store visits, many chains emphasize the “customer experience.” For Roses, providing a treasure-hunt experience sparks impulse buys and complements the basic products that are always available, Sawyer says. The chain’s buyers are constantly looking for opportunities to buy surplus goods from struggling rivals.
The rotating specials strategy is similar to Ollie’s, whose senior vice president of merchandising, Kevin McLain, held the same post at Variety from 2011-14. While operating about 140 fewer stores than Variety, Ollie’s had net profit of $60 million and revenue of $890 million last year. McLain isn’t the only former Variety exec to make good: Dollar Tree CEO Bob Sasser was a Roses executive in the early 1990s.
Pope, who is 61 and has no children working in the business, is happy to grow at a measured pace. Efforts to buy stores affiliated with Texas-based Duckwall-ALCO Stores Inc., Memphis-based Fred’s Inc. and Iowa-based Pamida didn’t pan out over the last decade, he says, but Variety keeps looking for deals. In January, the company hired former Ross Stores executive Mark Katz as its general merchandise manager. Asked about the move to a much smaller company, Katz says Variety “provides a unique opportunity to service a broad demographic, using a discount-store approach and an off-price philosophy model.” The company’s “consistent sales, margin and store-unit growth” impressed him, he adds.
In March, Variety opened a distribution center in Newnan, Ga., a $10.5 million investment to fill 1.4 million square feet formerly owned by Kmart. Reflecting its deliberate approach, Variety studied adding a second center for eight years, Pope says. The 250-employee Georgia location will facilitate more growth in the Deep South. A third center, probably in east Texas, may be added in three to five years as the company enters the Lone Star State, Pope says
“We were impressed that Variety really understands their customers,” says Ed Kulik, a co-founder of New York-based LRC Properties Inc., which leases the Georgia distribution-center space to the retailer, adding that not everyone has a computer or cellphone for online shopping. “Variety knows what their customer base needs.”
A laser-like focus on details doesn’t surprise those close to Art Pope. “There are a lot of smart people out there, but few combine the level of intellect and level of preparation that Art brings to most discussions,” says Lee Roberts, who followed Pope as state budget director in 2014 and now is an investment manager in Raleigh. “He is a policy wonk in the best possible sense.”
Francis De Luca uses the same term to describe Pope. “People underestimate Art because they think he’s this rich kid who inherited the business,” says De Luca, president of the Civitas Institute, a public-policy group in Raleigh that the Pope family started in 2005 to promote free-market economics. (Pope disputes the “heir” title, noting he invested in the business and worked for more than 20 years before becoming CEO.) “He knows as much about policy, taxes and law as anyone you will ever meet.”
Shortly after Roberts took the budget job, Pope gave him a memo related to an issue that involved arcane state law dating to the early 1900s. “I asked Art who wrote the memo, and he said, ‘Well, I did.’ But who did the legal research? ‘Well, I did.’ That sums up his thoroughness.”
Photos: Christer Berg
Categories: In the Headlines, Roses