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Building Value Through

By Robert Nordstrom

You walk into a hardware store to buy a hammer. Maybe you pick up some nails to go with the hammer.  Hammer and nails, that makes sense, it?s what you find in a hardware store. But then you?re walking down the aisle and spot a shiny new toaster. Your current toaster has been burning your toast for over a year now. Why not? You walk to the checkout. The guy ahead of you is buying a handful of screws. The young cashier, who is counting them out one by one, is interrupted by her manager, loses count, and has to start over. You?re restless and getting a bit irritated, which always makes you a little hungry. You spot a Snickers bar on the rack to your right?boy, does that look good!  You grab it, tear it open and take a bite, making sure you don?t damage the UPC Code.  Wow, look at that can of cashews! But, alas, the cashier is done counting and it?s time to move on.

            So with all good intentions, you go for a hammer and return with a hammer, toaster, and a spot of chocolate on your shirt. We?ve all had that kind of experience. Of course, there are reasons for that candy rack at the hardware store checkout and for the housewares aisle across from the plumbing fixtures aisle. While the candy bar may serve as a pleasant impulse buy that keeps checkout-line rage in check, the housewares aisle is part of a general retail trend to generate new revenue and new customers by broadening product categories. After all, if a customer needs a hammer and a toaster, why should he or she have to waste gas and time driving to an appliance store when he or she can purchase both from you?

Price, Value and Convenience

            The retail environment has changed dramatically over the past decade, thanks in large part to the one-stop shopping environments of the big-box discount chains; the time constraints of increasingly busy yet discriminating consumers looking for price, value, and convenience; shifting buying patterns resulting from the aging of baby boomers; the dramatic rise in fuel costs over the past year; and the vicissitudes of a fiercely competitive retail environment.

            For today?s consumer, it?s not all about price. Time savings and convenience in conjunction with price equals value for the consumer. Tianne Doyle, general merchandising manager of Florida-based Beall?s Outlet, says, ?The consumer is more educated than ever. The Internet allows them to educate themselves on product and price before they ever leave their home. Stores are challenged to be competitive in offering customers what they are looking for, which is great value. We recognize that customers do not necessarily want the lowest price, but the best value for their money. That is what we target across all categories.?

            Victor Vance, owner of Alabama-based Kidz World, $12 or Less, and Furniture Warehouse, says that ?consumers are all value conscious today. When we first started this business, we attracted the low-end shopper. Now, it?s just the reverse. The higher-end shopper is looking for value. Everyone takes pride in getting more for their money.?

Convenience and value are what the big box chains have given the consumer and are what smaller retailers must respond to in order to survive and compete. While, over the past decade, we?ve seen the retail ocean become less populated as the big fish have gorged on the little fish, the smaller retailers who have survived this feeding frenzy have had to adapt their strategies according to this concept of value by building on their strengths?flexibility, personal service, and shopping convenience?and eliminating their weaknesses?a too narrow product mix that pushes customers into the big box stores.

The success of the dollar stores is a good example of small footprint stores that have established their competitive niche against the big box discounters by providing convenience, value, and a broad product mix to consumers. According to Dollar Retailing News, ?The channel has grown from 11,683 stores in 2000 to 17,070 in 2004, a 46-percent gain?.ACNielsen Homescan data reveals that two-thirds of all American households visited d-stores in 2003 (compared to 55 percent in 2000), with the average family making 12 return visits per year.?

 Parking is closer, navigating the aisles is easier, and the prices are right?what?s not to like? To a time-starved consumer, a trip to the supercenter becomes a Saturday morning excursion whereas a trip to the dollar store is a quick stop to pick up needed items as well as anything else that pops spontaneously into her shopping cart.

Wendy Liebmann, president and founder of WSL Strategic Retail, an international retail consultancy studying consumer shopping behaviors and their impact on American business, says, ?It is increasingly evident that while consumers are accustomed to, and eagerly adopt, a wide variety of shopping options, we now find them in a mood to simplify their shopping habits. This new simplification is manifest in the fact that consumers are shopping fewer, but more convenient, outlets weekly?.

?In the two previous How America Shops studies (1998 and 2000),? she adds, ?convenience and price were of nearly equal importance to consumers, but convenience (61 percent) came to dominate price (41 percent) and selection (33 percent) in the 2002 study. In fact the only two criteria that remained constant from 2000 to 2002 were ?convenient location? and ?always in stock with what I want,? which are basically today?s shopping fundamentals.?

Building the Business with Broader Categories

            Increasingly, specialty retailers are broadening their product mix to capture additional revenue and customers. Beall?s Outlet, which traditionally has specialized in family apparel, began broadening their product categories around five or six years ago, says Dave Audet, former general merchandising manager. ?Our penetration in the home area in that period of time doubled as a percent of the total stores? contribution,? he says. ?The consumer drove the change. The home goods industry began producing some nice merchandise. Also, the baby boomers are at that age where they don?t think about apparel as much as think about the home.?

            ?While the customer is shopping to outfit the entire family, they can do the same for the home,? says Doyle.

            Variety Wholesalers, which operates over 500 Super 10, Maxway, and Rose?s stores throughout 14 states, focuses heavily on basic and fashion apparel for its ethnic and African American customer base. According to COO Peter Hayes, however, ?Not only is our customer willing to buy apparel from us, we?ve been able to expand our domestics and home furnishings business. Apparel is the driving force in the business and the other categories are a convenience?.We offer all kinds of products, and it?s very easy for our customers to get in and out of the stores. They don?t have to go into an enormous building with a supermarket?but if they need bleach or cleaning supplies, that merchandise is available to them as a convenience.?

            Ed Bernard, owner of the Michigan-based jobbing company Bermo Enterprises Inc. as well as a chain of Max 10 apparel retail stores, says that many of the larger retailers with whom Bermo Enterprises does business have expanded into home and gift merchandise. ?I definitely see it as a trend,? Bernard says. ?I?d say it started five to seven years ago. We started putting it into our stores a couple of years ago. Small items at first and now we actually have a section. We tested the waters. If a customer has a shirt and pair of pants in his hands, it?s a lot easier for them to pick up that picture frame than to drive to a new store to buy it. Sometimes we?ll put in what we might consider a goofy item, but it?s amazing how well some of it sells. We found these salsa makers a couple of years ago. Who would think you could sell a salsa maker in a clothing store. We sold them to the piece, which motivates you to experiment with other items.?

Testing the Waters

            The key word here is experiment. Successful retailers have good peripheral vision; that is, they not only see and evaluate what is happening in their own store, they are constantly watching and evaluating the successes and failures of the retailers in their area. They pick the minds of their vendors: What are other retailers selling? What price points are they selling at? How are you doing with this particular category? They ask questions of their buyers, who function as their experts in the field by remaining in tune with what is and is not selling. They take this information, evaluate it, and experiment.

            ?Retailers are asking advice all the time,? says Larry Manus, co-owner with brother Ken Manus of United Auction LLP (see Jobber Profile previous issue of Off-Price Apparel, vol. 9, issue 2). ?I always tell people they don?t have to go in with a million dollars of inventory. Do it slowly, experiment, see what works.?

            Mark Ginsberg of CWC Inventories (see Jobber Profile on page xx) agrees that his customers, too, are always interested in learning about new product. ?We?ve been able to tempt our customers with trying things across product category lines, especially the independent closeout retailer. The retailer doesn?t have to take a large inventory position with us. They can try small quantities and experiment. If it works they can come back for more. Even some of the larger retailers make room for experimenting with new product.?      

Change Equals Opportunity

            From consumer to retailer to vendor, change equals opportunity. ?Diversification is a necessity for today?s retailers who want to improve their bottom line,? says Manus. ?And it?s a tremendous opportunity for jobbers, because all of a sudden it?s as though your customer base has tripled. Now your customers are handling all of these different categories. It?s the primary way retailers can expand their business in today?s retail environment. You can open up additional stores, but if you want to capitalize in your market share you have to give your customers as much diverse product as possible. Consumers want convenience.?

            And as every good retailer and vendor knows, what the consumer wants?the consumer gets. The only question is from whom does he or she get it.

Competing with the Big Boys

            Alex Mahfouz, owner of Lafayette, Louisiana-based jobbing company Styles Fashion Outlet and two retail stores, is a good example of a small retail operation located in a highly competitive retail area that is surviving and thriving by combining personal customer service with a willingness to experiment with new product. Mahfouz?s 10,000-square-foot Fashion Warehouse is a women?s apparel retail store that has successfully experimented with new product categories over the past couple of years.

            Mahfouz started small with baby cribs, comforters, and sheets. Then he started adding home d?cor, primarily small decorative items, area rugs, whatever he could fit into the store. Then, to get the prices he wanted, he started buying truckloads in which he found larger furniture items. Space was a problem so he leased a 3,000-square-foot space down the road to sell the larger items.

            ?These new categories have done well,? Mahfouz says. [In the main store] they take up 20% - 25% of the floor space. We have shelved it up about 10 feet. We couldn?t go any bigger so we rented the new space. We took our customer base and offered them something new. While we?re still a destination for ladies apparel, now our customers don?t have to drive down the road to find a comforter set or a decorative plate, they can pick it while they are in the store.?

            The retail competition in this area of approximately 100,000 people is fierce. There?s a Ross Store, a super Target, Academy Sports, TJ Maxx, Stein Mart, Marshalls, a Sam?s Club, and three super Wal-Marts. Kohl?s is building now and rumor has it that a Burlington Coat Factory will be coming to town.

            How does the small and humble Fashion Warehouse compete? By giving its customers new buying options and excellent customer service.

            ?My wife stays in the store,? Mahfouz says. ?She probably know 60% - 70% of the people who walk through the door. She?s there to greet them. I have another lady who has worked for us for 13 years, and she?s very friendly with our customers. We have a loyal customer base.?

            Mahfouz sees movement into broader merchandise categories as the future direction for his retail operation. His goal is to find 25,000 ? 35,000 square-foot facility where his store can become a destination for shoppers with a variety of product needs.

            ?Having everything under one roof helps the small guy compete against the big guys. Our strength is we can react a lot quicker than large retail operations. We have the ability to bring in assorted merchandise, whereas the big retailers can?t because of warehousing issues. We find a lot of gems in some of these truckloads of assorted merchandise, and there?s a lot of customers who enjoy a surprise.?