Retailers That Are Looking Good
The economy certainly
hasn’t been good for the retail business but that doesn’t mean there aren’t
retailers that are doing well. There are obvious examples such as Wal-Mart, Aldi,
Amazon.com and some dollar store chains that have found ways to achieve
growth while competitors have struggled.
A piece on Kiplinger.com points
to four other chains – Best Buy, Bed Bath & Beyond, Urban Outfitters
and GameStop – that have remained solid and show promise for coming
out of the recession stronger than before.
Best Buy and
Bed Bath &
Beyond are looking particularly strong because, having fought off major competitors,
Circuit City and Lines ‘n Things respectively, they now find themselves in
business with one less significant rival to deal with.
Best Buy has cut costs – the
company just announced a layoff of an additional 250 people at its headquarters
– as sales of consumer electronics have softened but is in a position
to look at purchasing some of Circuit City’s better locations once the bankrupt
chain has completed its liquidation.
Bed Bath & Beyond
is on solid footing with Linens ‘n Things out
of the way. And unlike its vanquished rival,
Bed Bath & Beyond is debt free. "In retailing, the mantra
right now is ‘Balance sheet, balance sheet, balance sheet,’" said.
Don Wordell, manager of RidgeWorth Mid-Cap
Value fund.
Urban Outfitters, according
to Kiplinger, "is as close as you’ll come
to a recession-proof clothier." The chain saw total revenues increase
22 percent in 2008 versus the previous year while stores open at least
a year achieved a sales increase of eight percent.
The company, which operates
stores under its namesake banner as well as Anthropologie and
Free People, gets high marks for smart management that offers a nice mix
of branded and private label clothing, accessories and home furnishings
in quirky yet customer-friendly store environments. "Urban Outfitters
knows how to merchandise really special things," said S&P analyst
Marie Driscoll.
GameStop has benefited
from America’s love of video games. Beyond that, it
has thrived in part due to its strong used game business. The company’s
gross margins are in the 50 percent range on used games, helping it to
make "more
selling $30 worth of used products than it does selling $60 worth of new
products," according to Janney Montgomery
Scott analyst Tony Wible.
Discussion Questions:
What impresses you most about the chains discussed here? Are there any
common threads they share that have made them successful while competitors
have struggled?
Nikki’s right: the best merchants have a disciplined approach to strategy, can execute that strategy, and that strategy includes collecting and using customer data in such a way as to better connect with customers.
Only the very few (WMT, TGT and to an extent, AMZN) can be successful mass merchants. Those that are specialized, whether in C-E, apparel or home-related soft goods can stand for something and be thought of as dependable by their customers (and their suppliers).
Another important part of what sets these and other successful retail companies apart is their ability to think things through over the long term.
All these retailers differentiate their stores to customers and offer what customers want.
Bed, Bath and Beyond has consistently friendly and well trained store associates, offers a wide variety of products and provides value in their weekly sales as well as a 20% off coupon that customers can use any time. I am always amazed when I hear cashiers tell customers if they forgot their coupon or if they find another one, they can bring the receipt back anytime and get credit. No one else does that!
What is most interesting is if you look at the TOP retailers, you can clearly see the place each one has in their market. They know who they are, they know who their customers are, and they have developed a very clear means of offering value to their customers.
Best Buy and Bed Bath & Beyond prove to me that knocking out your competitors doesn’t necessarily result in total dominance these days…remember when it did? Walmart’s multi-category dominance has kept everyone’s egos in check.
I’ve been impressed with Urban Outfitters since day one and my admiration continues to grow every time I shop Anthropologie and Urban Outfitters–and every time I hear Glen Senk speak at industry events. He’s managed to nurture a talent pool of young merchants-in-the-making and encouraged them to put their personal spin on everything from store environment to corporate policy. And, instead of creating mini-me spin-off retail concepts, UO has created entirely unique assortments, store environments and value propositions for customers that it understands and respects. I dare any woman over the age of 25 to spend less than 45 minutes in an Anthropologie store. Go ahead, try!
All the chains mentioned are well differentiated, either because their competition is gone, or they serve a niche market. That gets customers in their doors. Then they pay attention to customer service to keep them. What I think is interesting is that their prices are not rock-bottom, so that’s not a prerequisite for success in this economy.
Urban Outfitters really, really has it together. I have a quote from their CFO, John Kyees, up on my wall:
“Consumers gravitate toward stores with the best shopping experience”
In a very simple way, that says it all–interesting product, great service, every store is unique PLUS–they never got on the mega-growth merry-go-round–they did it right, instead. Hats off to the best specialty retailer out there (Anthropologie is amazing!), they will be around and relevant for a long time to come.
I would go back to the comment that was highlighted in yesterday’s email, about the different formats. It seems like the theme is either mass merchant (Walmart, Amazon) or specialized niche providers that excel at meeting the needs of their niche: Best Buy, Bed Bath & Beyond, GameStop….
It comes down to one simple thing, that somehow is so hard to execute: know your customers well, and give them what they want.
The elimination of significant, albeit weak competitors is certainly an easy way to show good results. Even Gottschalks, the struggling Fresno-based regional department store chain had a great January with one of the best trends in the nation–but mainly due to the closings of Mervyns locations, one of their key competitors. The impressive story is BB&B–debt free in an industry that seems to have choked on the fountain of easy debt that financed what has turned out to be unsustainable growth.
Finally, all the named retailers have a compelling customer offer. Without that, even losing competition and low or no debt won’t save them. The two keys: excellent balance sheet and a compelling customer offer. But it never hurts for a significant competitor to close its doors!
The chains discussed here are each unique in a special way and have strength and weaknesses. The common thread is their marketing and merchandising expertise. They are all good at targeting their prospective customers and creating a unique experience. The challenge will be to continue this process and build on it with strategic marketing and “creating buzz.”
The other opportunity is streamlining the supply chain and making it more efficient. Three out of the four have real opportunities in making their supply chain more efficient which would reduce their cost and add more dollars…and more sales to the bottom line.
Urban Outfitters surprises me most. They are not a “low-end” provider. In tough times, consumers tend to buy lower-end products. The fact that they have been able to keep sales high and show significant profits is a testament to their vision and efficient management decisions. I look forward to seeing if they can maintain this record over the next few months.
Nikki Baird Hit the nail on the head!
Retail 101: Know your customer! Give them what they want! And if you can do it better than your competitor–You Win!
All 4 niche retailers discussed deserve their success. Urban Outfitters is truly outstanding, Bed Bath And Beyond does have GREAT customer service and associates. GameStop is fairly unique and is very focused. Best Buy was always better than Circuit City. Hopefully they will retain a customer service angle because both Target and Walmart can beat them on price.
It is good to recognize success. It is always so easy to point out problems and difficulties–success needs to be pointed out as well.