Benson Faces Uncertain Future

BENSON Inc., the department store group, announces this year's annual results on Wednesday. Once again, profits are expected to be well below expectations.

Benson built its first store in 1952. It now owns ten stores in the southern region of the US, and two in Ontario, Canada. All the stores are on prime sites in the high streets of major cities. The Group's head office is in Petersville.

Recently, Benson's performance has been extremely disappointing. Two years ago, pre-tax profits had fallen to just $8.3m on a turnover of $225m. This year profits are expected to be down yet again. Sales per employee is also much lower than the industry's average.

Fortunately for Benson, it still has a number of loyal customers who would not think of shopping elsewhere. However, the Group is facing fierce competition from Hi-Mark and up-and-coming Levinson Brothers. Hi-Mark are well established, with a clearly defined up-market image. It has a reputation for selling good quality merchandise but at high prices. Levinson Brothers set up its first store seven years ago. Since then, it has expanded fast. It now has eight stores located in big cities. Levinson Brothers' target consumer is the 16-25 wage earner. Nevertheless, it attracts to its store people of all ages and from all income groups.

Levinson Brothers' marketing is more aggressive and effective than that of its two main competitors. It often cuts prices, and even offers goods at give-away prices to get people into the stores. It advertises heavily in local newspapers, and on local television. Its special promotions are always accompanied by a great deal of razzmatazz. Levinson Brothers' share price stands at $12 - its highest rating this year. Even so, the share is still probably a good buy for investors.

In order to compete more effectively, Benson changed its business strategy about eighteen months ago. It began to rent space to outside firms on a concessionary basis. Almost 20% of its stores' space was rented to selected companies from outside the organisation. Unfortunately, this strategy has not been too successful. Several firms renting space complain that their sales have been poor. Benson's stores were redecorated recently. This 'facelift' has met with mixed reactions from its customers. The layout of the stores continues to confuse customers. The customers complain that departments are not grouped together in a logical manner. As a result, shoppers get tired out looking for the goods they want.

At present, it looks very much as if Benson has lost its dynamism and sense of purpose. Investors holding shares in the group might be well advised to sell.