From the January 1996 issue of Entrepreneur

When the department store muckety-mucks he worked for told divisional merchandising manager Bill Stroud to downsize the linen department in their stores, he felt a familiar twinge. It was 1979, and it wasn't the first time the geniuses in charge had decided to think small.

Stroud had already been through the shrinkage process as a merchandiser for the record department. Record store chains had moved in and made department store record departments obsolete. When Stroud suggested expanding his department to compete, he was met instead with an order to downsize. Eventually, the department folded.

So Stroud moved to sporting goods-with virtually the same result. Next came the toy department-relegated to the back burner and finally the ash heap with the advent of Toys "R" Us.

Now Stroud was in charge of merchandising linens-a department store staple, an indestructible stronghold. Then came the directive to downsize. "The amount of space being devoted to every department was changing," Stroud explains. "The company started building stores where, instead of having 12,000 square feet for linens, you were going to have to squeeze the department into 8,000 square feet. I knew the selection customers expected wouldn't fit into a department that size."

And Stroud knew from experience that the executives at corporate headquarters would insist on scaling down the department-even in the face of competition. That left Stroud with a choice. He could wait for some upstart to launch a specialty linens store and watch yet another department go down in flames. Or he could join the other side of the battle.

Stroud was 54 years old. He was not desperate to start his own enterprise, not anxious to revolutionize the retail industry. He was, however, sick of compromise. And he knew he had a hot opportunity on his hands. He would build a linens store so expansive and stylish that department store linen departments would seem paltry by comparison. And even though he had no entrepreneurial experience and only limited access to funds, Stroud had what it took to hobble his mighty, multimillion-dollar department store opponents: He was ready to fight. And he was sure they would doggedly, irrationally, as if destined by nature, shrink away from the challenge.

Bed Of Roses?

Stroud was right. He and the $174 million company he founded now sell more linens than the three biggest regional department stores combined wherever the stores go head to head. Though the company's presence is strongest in its home state, the City of Industry, California-based Strouds Inc. now boasts 57 locations in four states. Plus, plans for a nationwide expansion are being carried out with the help of a $37 million public offering made in October 1994.

Strouds' success is no mystery. The stores are a triumph-faultless from every angle. Here, bed and bath ensembles are displayed to show how those striped pillows look with that damask comforter. Salespeople know the relative virtues of 300-thread-count sheets; they answer questions, offer decorating advice and even take special orders. Priced to compete with department store white sales, Strouds merchandise is almost always a bargain-and therefore almost always irresistible.

Behind the well-oiled machinery at every Strouds store are a million finely tuned systems and strategies designed to keep the company running at peak performance. Stroud credits an innovative, dedicated staff with creating the company's complex web of efficiency. But Stroud also maintains that the firm's formula for success remains positively simple: "We like to say that nobody sells better quality linens for less than Strouds," he says. "Living up to that statement is our constant goal."

The Story Unfolds

That goal, in fact, hasn't wavered since the day Stroud opened the first Strouds Linen Warehouse in Pasadena, California, in 1979. Compared with the 20,000-square-foot superstores the company now favors, the original 4,400-square-foot location was humble. "We used a lot of unfinished wooden shelving and no carpet," Stroud recalls. "To make the most of our floor space, we displayed merchandise on wall shelves. All in all, it was pretty bare-bones."

Finances dictated frugality. Although Stroud started with a healthy half-million dollars-pulled together via a second mortgage, his pension plan and investments from a few friends-his intention was to open two stores in rapid succession, first in Pasadena, just north of Los Angeles, and a month later in Torrance, to the south. "We needed that much money to buy inventory and fixtures for two stores," Stroud says. "Our idea was to offer a wide selection, so we couldn't cut back on the merchandise."

Stroud's transition from executive to entrepreneur went smoothly, although it required some flexibility. In his new role, Stroud continued to be a decision maker. But his job didn't stop there. Stroud also found himself having to convince vendors he was a serious contender.

As a representative of a major department store account, Stroud had received the royal treatment from vendors. As a start-up entrepreneur, however, he found that attitude changed. "In the very beginning, he would go in to meet with vendors at their showrooms, and they would always give him the last meeting of the day," recalls Jeff Stroud, 34, one of Stroud's sons and the company's director of merchandising for housewares and decorative tabletop.

Vendors, in fact, weren't all that happy to do business with Stroud at the outset. "Department stores didn't want us selling the same merchandise for less," Jeff explains. "They put pressure on our vendors, and a few vendors even stopped doing business with us temporarily. But we quickly became so successful that the vendors stood up to the department stores and said, 'We're going to do this anyway.' They loved Strouds because we were putting in a full assortment that did their products justice, while the department stores were always editing."

Catching On

Indeed, Strouds didn't take long to find its following. The stores' emphasis on value pricing struck a chord with local shoppers. More important, however, Stroud proved brilliant at responding to customer demand.

"One of the first things we found was the customer wanted 'better' or 'best' quality merchandise-not necessarily the least expensive 'good' merchandise," Stroud says. "Price was certainly an issue for our customers, but so was quality. As a result, we decided to upscale our stores," with higher-end merchandise and expert service.

To no one's surprise, Strouds became a masterpiece of merchandising. Among the stores' more important innovations: Using "vignette" displays to sell whole rooms worth of linens and accessories instead of individual pieces. These coordinated displays were precisely the kind of merchandising ploy department stores lacked the space to duplicate. Yet they were the key to bigger sales. Telling a customer that $52 worth of accessories would "finish" a room was helpful. But showing the customer how those accessories worked together-that clinched many a sale.

Customer preferences have shaped even small decisions at Strouds. For instance, instead of organizing towels by brand, as is traditional in most linen departments, Strouds coordinates towels by color-the way most customers want to shop for them.

Into New Markets

Of course, Strouds hasn't merely evolved. It has also grown. About two years after the first stores opened, the company embarked on an expansion plan that would take it into the various neighborhoods and suburbs of Southern California, into the San Francisco Bay Area, and finally east to Nevada, Illinois and Minnesota.

Multiple locations have always been Stroud's goal. However, he admits, "Never, in our most aggressive days, did we think we'd have 57 stores." What fostered such growth? The stores' rampant popularity, a relative lack of competition, and the firm's ability to adapt to local demand.

Each new neighborhood Strouds has entered is its own self-contained market. "For example, our Pasadena store tends to be fairly traditional in its tastes, while our Beverly Center store [less than 20 miles away] is more avant-garde," explains Stroud. "We allow our store managers more latitude than other stores typically do. Most stores have a central buyer for all locations. We bring in our store managers three times a year to help us select merchandise. That system helps us understand the need for [variation] from one store to another."

The same system keeps Strouds competitive in unfamiliar markets. "Many Southern California retailers have trouble translating their concepts to the San Francisco market," Stroud says. "We were able to do so successfully," largely because of the firm's deliberate responsiveness.

A Change Of Linens

Responsive, too, is the company's founder, who in 17 years has seen and overseen plenty of transformation. Stroud says he's still adjusting to one recent change, however: turning the job of CEO over to company veteran Wayne Selness in 1994. Stroud continues to act as chairman, providing vision and guidance for the firm. "My job now is to ensure we have the right management staff and to look at the direction the company is taking," Stroud says. "It's a big switch for me, not being hands-on in operations."

At 70, though, Stroud feels the change is healthy-both for the company and for himself. He describes himself as a man whose main hobby is business. "I like to read and go fly-fishing," he concedes, "but I've always most enjoyed running this company."

While Stroud may be logging fewer hours these days, his influence on the firm has hardly dwindled. "My father has put a very strong imprint on this company," says Jeff. "His ideas and principles are very much alive in the people who work here."

Case in point: Jeff's recent spearheading of an experimental new kitchenware department. Under Jeff's direction, a few stores have begun selling dinnerware, cookware, cutlery and related items. "Throughout the company's history, we've taken the approach of selling whole rooms-bedrooms instead of bedspreads, bathrooms and not just towels. The only exception has been the kitchen and dining room, where we've sold only table linens," explains Jeff.

If successful, the new department will put Strouds on a whole new playing field. And while Jeff is enthusiastic about that prospect, he's also suitably awed by his father's precedent. "Seeing what a great job we do with linens, it's a real challenge to create a kitchen department that lives up to those standards," he says. "My father built this company on the idea that if we were going to get into a business, we had to do it in a meaningful, competitive way. That rule is as indelible today as ever."

More Than A Sham

Back in 1979, Bill Stroud wouldn't have told you he'd end up heading a giant chain of stores or that the average size of a new store would hit 20,000 square feet. He didn't know his company stock would be traded on the NASDAQ exchange or that he'd have employees as far away as Chicago and Minneapolis.

He knew one thing, though. As he pulled up to the loading dock next to a giant department store truck and loaded his own merchandise into a modest little van, he vowed that someday he'd have a truck as big as anyone else's. That day has certainly come. Now it's not just that Bill Stroud's trucks can pull up right next to the big guys'-it's that his trucks are the ones to look out for.

Birth Date: July 2, 1925

Residence: Arcadia, California

Marital Status: Married to Joyce for 42 years

Children: Kathy Martin, 40; Steve Stroud, 39; Jeff Stroud, 34

Family Involved in Business: Joyce Stroud (wife), company secretary and vice president;

Jeff Stroud (son), director of merchandising for housewares and decorative tabletop;

Jean Stroud (daughter-in-law), assistant buyer for decorative and kitchen accessories.

Business Philosophy: "I hope every [Entrepreneur] reader gets a chance to start his or her own business. It makes life more interesting, gives you a broader perspective. And, best of all, you get to do things the way they need to be done."

Contact Source

Strouds Inc., 780 S. Nogales St., City of Industry, CA 91748, (818)912-2866.