August 03, 2004Retail - Specialty StoreThe definitive ranking of the nation’s biggest specialty chains Top 100 Specialty Store Retailers The definitive ranking of the nation’s biggest specialty chains
The STORES Magazine Top 100 Specialty Store Retailers are a diverse bunch, representing more than 20 different merchandise categories and orientations, depending upon how you slice and dice the classifications and mark-on policies. However diverse they are, they have one thing in common: They all have Wal-Mart as a competitor. Wal-Mart’s supercenters, traditional discount stores and Sam’s Club warehouses carry wares in every specialty segment represented on the Top 100 Specialty Store Retailers chart. Wal-Mart’s devastation of toy retailing has been well-documented, with chains such as Kiddie City, Zany Brainy and Noodle Kadoodle now only a memory, FAO and K-B Toys in bankruptcy, and Toys “R” Us weakened and retreating from the “toy supermarket” model Charles Lazarus crafted so painstakingly. Fine jewelry, costume jewelry, engagement/bridal jewelry, fashion jewelry or quality watches – Wal-Mart has it all, competing with Tiffany, Zale, Berkshire Hathaway’s Borsheim’s and Ben Bridge, and Kay, Sterling and the other chains that constitute London-based Signet Group’s U.S. business. Sam’s Club has become a behemoth among sellers of popular book titles, while records, tapes, DVD movies, computer games and every other form of recorded entertainment is on Wal-Mart’s shelves (not to mention what can be downloaded at walmart.com). Why did Best Buy sell its Musicland group for no money? Why was Trans World Entertainment able to fish Wherehouse Entertainment and CD World out of bankruptcy court? The answer to both questions is Wal-Mart (albeit with a little help from the Internet). Apparel. Surely the price-appealing clothing that Wal-Mart offers doesn’t draw customers away from the likes of Talbots or AnnTaylor or Retail Brand Alliance’s Brooks Brothers or Men’s Wearhouse, does it? Maybe not, but Wal-Mart’s share of the apparel market is growing faster than the overall apparel market, so that money has to be coming from somewhere. So even if a Talbots shopper or a Brooks Brothers shopper doesn’t drop a dime in a Wal-Mart format, the apparel retailers positioned between them and Wal-Mart are losing customer dollars and they may find it easier to get high-end consumers to trade down rather than try to pry away shoppers who prefer Wal-Mart prices and one-stop-shopping convenience. For the time being, however, retailers of all stripes are just happy that apparel sales, particularly women’s wear, have bounced back from the slow growth/no growth pattern of the last couple of years. The STORES Top 100 Specialty Store Retailers generated an aggregate of $260.9 billion in revenues during 2003, up 9.2 percent from $239.4 billion the year before. Apparel retailers are the single largest group represented on the chart, occupying nearly a third of the positions. All types of clothing sellers are included, ranging from off-pricers like Ross Stores and niche retailers like Pacific Sunwear of California, Chico’s FAS, Urban Outfitters and Wilsons the Leather Experts, to ubiquitous chains like Limited’s divisions, Gap’s trinity and multi-channel operations such as L.L. Bean and Coldwater Creek. On the flip side of the coin are retailers which are the sole representatives of their industry segment, such as General Nutrition Centers in the health and beauty care category, Guitar Center in musical instruments and West Marine in boat and yachting supplies and accessories. Even with all the havoc that Wal-Mart has wreaked, there is a lot of stability in the specialty arena, particularly at the top of the Top 100 chart. This year’s top 10, reading down from No. 1, are Best Buy, Gap, Staples, Office Depot, Toys “R” Us, Circuit City, Limited, CCA Global Partners, CompUSA and Barnes & Noble. The first seven retailers hold the same positions they did last year. CompUSA, the computer and accessories specialist climbed up a notch following its acquisition of West Coast-based Good Guys. Bookseller Barnes & Noble slipped from ninth to 10th, while automotive aftermarket specialist AutoZone dropped three notches, from No. 8 last year to No. 11 on the current chart. A rising tide, they say, lifts all boats, and retailers are anticipating a big lift from the nation’s rising economy. Economists and other forecasters are certainly out there boosting the bright prospects. In a survey of 55 economists published last month, The Wall Street Journal said the consensus was that the gross domestic product -- the broadest measure of economic activity -- is forecast to grow at a brisk 4.4 percent pace in the third quarter, followed by 4.2 percent growth in the last three months of 2004. Consumer confidence in June reached its highest level in two years, according to the New York-based Conference Board, whose index of consumer sentiment jumped to 101.9 from 93.1 in May. “Looking ahead, consumers expect the economy to continue to grow at a healthy clip and to continue to generate additional jobs,” said Lynn Franco, director of the research center at the Conference Board. A few days earlier, the University of Michigan’s survey of consumer sentiment also exceeded expectations, prompting Michael Niemira, an economist with the International Council of Shopping Centers, to observe, “Retail sales in 2004 are likely to have their strongest performance since the boom year of 1999.” Consumer spending accounts for approximately two-thirds of all U.S. economic activity, and in its June beige book, the Federal Reserve reports that its 12 districts confirmed the growth trend. The Chicago, Minneapolis and San Francisco districts highlighted increases in consumer spending; the Cleveland region noted that retail sales had stabilized, and the Boston, New York, Philadelphia, Richmond and Atlanta districts all reported increases in retail sales. Amid this rosy scenario and widespread optimism were forecasts of slowing sales increases at mass merchants such as Wal-Mart and Target, both of which cut short their near-term sales forecasts. One industry observer who sees this as possibly being a good omen for specialty stores is Richard D. Hastings, retail analyst at Bernard Sands. “The risk for Wal Mart is that consumers, if liquid enough, will go to alternative retailers.” Among specialty store retailers, Best Buy is King of the Hill by a wide margin. The company’s nearly $25 billion in revenues is roughly 55 percent higher than runner-up Gap’s sales of $15.9 billion, and two-and-a-half times larger than its closest consumer electronics rival, No. 6 Circuit City. But Best Buy doesn’t compete only against other specialty chains. And its $25 billion volume is only one-tenth of what Wal-Mart does worldwide. To stay in the game, Best Buy has developed a strategy that deals with the reality of a bigger rival with deeper pockets, but one that also allows Best Buy to build on its strengths. On the one hand, Best Buy is outsourcing human resources and information technology so it can reallocate assets to its core functions. In a complementary move, Best Buy has been rethinking what it sells and how it sells, so that its brand is unique in the retail arena. “If we do nothing,” says Brad Anderson, Best Buy’s chief executive, “Wal-Mart will surpass us by the simple fact they are adding more stores than we are each year.” To illustrate the point: Best Buy plans to open a total of 73 stores in the U.S. and Canada during the current fiscal year, ending next February. These stores will add about 2.2 million sq. ft. of space. By comparison, or in contrast, Wal-Mart “recycles” 8 million sq. ft. of “excess” store space annually. And with Wal-Mart’s supply-chain driven economy of scale and lower cost structure, it makes little sense, Anderson adds, “trying to chase the customer out of Wal-Mart.” Best Buy has long been a fast-moving performer in a retail segment that is known for its mercurial changes and new product-driven cycles. Best Buy was riding high five years ago when home computers and Internet access were hot, before slumping with the burst of the dot-com bubble. It has rebounded on the surge of flat-screen and plasma television sales, as well as that of digital products, using a knowledgeable sales force to educate consumers about the advanced technology. As consumer demand for digital electronics has grown, Best Buy has prospered. At the same time, however, prices have dropped and mass-market retailers have expanded into digital wares. Wal-Mart, for example, has seen its share of the consumer electronics market increase from 9 percent in 2000 to 13 percent last year, according to a study by Wall Street firm Morgan Stanley. Looking to extricate Best Buy from the cyclical pattern of its recent past, Anderson has re-oriented the company’s marketing and merchandising. A major step was the acquisition last year of the Geek Squad, specialists who make house calls to install or troubleshoot electronic goods. Geeks are also being deployed in stores for the carry-in trade. As the prices of digital products commoditize, further drawing discounters into the field, Best Buy is moving to sell electronics by the houseful rather than one item at a time. The company has been lining up home builders and remodeling contractors to wire, or re-wire as the case may be, residences for the digital age -- be it audio, video, computer, communications or any combination thereof. While Best Buy has been exercising its leadership role as the specialty store chart topper for four years now, there is also a lot of activity at the bottom end of the chart, where newcomers Hot Topic and Urban Outfitters have scrambled into the Top 100. Hot Topic targets teenagers with music- and pop-culture-themed goods of the type typically found at concert venues. Urban Outfitters has come out of Philadelphia with a two-chain strategy. The eponymous unit caters to post-teen women who haven’t yet settled into careers. Anthropologie can be found in lifestyle shopping environments populated by 30- to 45-year-olds with money to spend. Also at the bottom of the chart is May Department Stores’ bridal specialty group, which includes David’s Bridal, Afterhours formal wear and Priscilla of Boston. St. Louis-based May has been aggressive in growing the operation via acquisition and the group should move up in the rankings next year. Likely to head in the opposite direction is Minneapolis-based Wilsons the Leather Experts, which is suffering from over-expansion and has closed more than a hundred stores in the last year. Bubbling under the Top 100 and in position to gain ranking are Wet Seal, Conn’s and Mothers Work. Wet Seal would be making a re-appearance after shedding its ill-advised Zutopia acquisition and shuffling top management for much of the past 12 months. Conn’s is a newly-public company headquartered in Beaumont, Texas, that has distinguished itself in the highly competitive consumer electronics and home appliance field. Philadelphia-based Mothers Work has carved out a tri-level approach to maternity wear with its A Pea in the Pod chain at the upper end, Mimi Maternity offering mid-price points, and Motherhood Maternity aimed at a more price-sensitive clientele.
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