View the 2019 Hot Retailers here.
Three of the first four businesses on STORES Magazine’s Hot 100 Retailers list are supermarket chains ultimately owned by foreign-based companies. At the top of the chart is Lidl, part of Lidl Siftung & Co., based in Neckarsulm, Germany. In the No. 3 slot is Grupo Comercial Chadraui, Mexico’s third-largest retailer whose stores in the United States operate under the El Super banner. Right behind at No. 4 is Don Quijote, Japan’s largest discounter, which bought the Hawaiian chain Time Supermarkets two years ago.
Breaking the run of supermarkets at the top of the chart is No. 2 Rue Gilt Groupe, formed when online apparel and home goods site Rue La La acquired the Gilt flash sales site from Saks Fifth Avenue in June of last year. No. 5 Boxed.com is an ecommerce merchant dealing in prepacked wholesale quantities of merchandise.
Rounding out the top 10 are home goods retailers Wayfair at No. 6 and No. 8 At Home; Dublin, Ireland-based Primark at No. 7; AT&T’s storefront operation at No. 9; and Five Below, the quirky small format discounter aimed at young shoppers, at No. 10.
Grocers represent the largest slice of retailers on the chart, with another 19 listed including such major operators as Kroger and H-E-B, smaller operators such as Rouse’s and Coburns and niche retailers like online grocer Fresh Direct and Asian-oriented H Mart.
Tory Gundelach, vice president of retail insights at Kantar, says supermarkets have evolved in two major areas — digital capabilities and in-store experience. “Most supermarkets have now rolled out online fulfillment capabilities either of their own or through a partnership with a third party like Instacart,” she says. “This allows supermarkets to fit into shoppers’ lives even when it’s not convenient to go into the store.”
As consumers change their grocery-shopping patterns, making more frequent trips to the supermarket and spending less time on each visit, research from retail services firm JLL shows companies are opening smaller stores and featuring more local products. James Cook, director of retail research at JLL, says nearly twice as many new grocery stores opened than closed last year.
“In 2019 we’re seeing more grocery stores rolling out their smaller format stores as they battle razor-thin margins in prime locations while still serving evolving consumer needs,” Cook says.
The growth of grocery
The three supermarkets at the top of the chart each took a different path. Chadraui’s El Super caters to Hispanic shoppers, while Don Quijote is a more traditional supermarket operator with a few flourishes added from its Japanese discount stores.
Lidl is a hard discounter on prices, stocked with private-label goods — a trail blazed in this country by No. 51 Aldi. Lidl opened 15 new stores last year after entering the U.S. mid-Atlantic market in June 2017. It has since expanded into Georgia, Maryland, New Jersey, Pennsylvania and New York. Lidl has also acquired the Best Market chain, giving it more sites in the New York suburbs, and plans to open 25 new stores this year.
“We often work with local government agencies and apply for available investment programs when we expand into new markets, including on sites that require remediation or rehabilitation,” says Lidl spokesman Will Harwood. “This is only one aspect of our decision-making process — the most important factor for us is finding the most convenient locations to serve our customers.”
Lidl is teaming up with Boxed.com to test online sales; the pilot project involves stores in Staten Island, N.Y., and Powder Springs, Ga. Consumers living near those stores can view Lidl’s offerings on Boxed’s website, place their orders and get same-day delivery in as little as three hours.
The test began in June and is scheduled to continue through December. Fulfillment is being handled by Boxed Express, which specializes in perishable deliveries. Lidl also has teamed with Shipt for deliveries from most of its other stores.
Boxed, which was founded in 2013 and has yet to become profitable, serves both consumers and small businesses who can order goods comparable to warehouse club offerings without the cost of a membership fee.
Following its deal with Lidl, Boxed hopes to broaden the market for its proprietary technology that includes order management systems, mobile technology, robots capable of transporting goods though warehouses and software that tracks expiration dates.
“As a retailer, Boxed has taken a unique position as an ‘online club’ model,” says Rachel Dalton, a consulting division director for Kantar. “While developing in-house end-to-end logistics, it built a sophisticated network that allows moving bulky items to homes.”
Continued investments at home
Even as home goods retailers face increased competition, both online seller Wayfair and ecommerce-eschewing At Home achieved high sales gains last year.
“In recent years, post-Great Recession, key macroeconomic factors have been in favor of more home-related spending, including continued improvements in incomes and strength in jobs, as well as rising home values — which sends the message to consumers that investing in their homes could yield a return,” says Laura Kennedy, vice president of the consulting division of Kantar.
Wayfair has been growing by double-digit bunches since being launched as CSN Stores in 2002 by Steve Conine and Niraj Shah. With backing from venture capitalists and hedge funds, Wayfair held its first public stock offering five years ago. The money from the stock helped the company advertise more widely, acquire new customers and keep its technology infrastructure up to date.
One thing Wayfair hasn’t done is make a profit. “Wayfair, at this point, is interested in increasing market share rather than operating in the black,” says Dave Marcotte, head of insights at Kantar. Right now, Wayfair is making more money through investors than from shoppers but “eventually they’ll have to make money,” he says.
Last year Wayfair created Way Day, offering special bargains for a limited number of hours. Building on the inaugural edition — its biggest sales day in history, the company says — this year’s event was expanded to 36 hours. It generated 11 percent more orders, 9 percent more customer volume and a 5 percent increase in order value over last year’s event, estimates Edison Trends.
Wayfair, which has opened pop-up stores in past holiday seasons, plans to open a more permanent location this fall in Natick, Mass. That is in addition to a closeout outlet in Florence, Ky., and more pop-up stores this year.
Opening 31 new stores in one year was enough to help At Home drive up sales 23 percent. The company does not sell online but uses its website to preview merchandise available in its stores. Nearly three-quarters of its home décor and related items are unbranded, private label or exclusive to At Home.
At one point the price of At Home’s stock shares was down 40 percent over a 12-month period, prompting reports that the company was looking to sell itself. Yet it remains in expansion mode with plans to open 32 new locations, billing itself as the “Home and Holiday Décor Superstore.” The company will open a new distribution center in Carlisle, Pa., next January to supplement its lone warehouse at headquarters in Plano, Texas.
The value proposition
Value retailers from a variety of retail sectors are well-represented throughout the Hot 100 Retailers. “Dollar stores are a basic needs store for shoppers living from pay event to pay event, and despite the strong economy, about 26 percent of American households are what we call ‘cash flow statement’ shoppers, managing their lives through the cash they have in their wallet,” says Bryan Gildenberg, Kantar’s chief knowledge officer.
“Costco sells primarily to ‘balance sheet shoppers’ — the 34 percent of U.S. households that view wellbeing more through wealth than income,” he says. “Costco basically acts as an outsourced value shopper for affluent consumers who don’t want to spend more than they need to, but don’t have time to shop around. TJX creates value for women by enabling them to buy two outfits for the price of one at a department store and lets women with their own sense of style explore that at low price points.”
The U.S. operation of No. 7 Primark is only four years old, but management characterizes it as strong and “driven by excellent trading.” The stores, scattered among Atlantic Seaboard states, have yet to generate profits, and the retailer has been adjusting to American tastes and shopping behavior.
“With its roots in Europe, and primarily the U.K., Primark’s expansion in the U.S. remains small, but growing,” says Tiffany Hogan, senior analyst at Kantar. “It continues to profess that it can operate at lower prices, its hallmark, without investing in ecommerce and focusing on stores only.”
No. 9 AT&T Wireless sells smartphones and other mobile communications devices as well as accessories through its network of company-owned stores. AT&T boosted sales, in part, by eliminating discounts on devices; this year, it offered consumers promotions on service rather than equipment to retain subscribers at a higher level than industry watchers had anticipated.
Rounding out the Top 10 is Five Below, an experience-driven retailer where nothing costs more than $5. Aimed at teen and tween consumers, the stores stock such items as candy, tech gadgets and accessories, beauty kits, sports equipment, remote-controlled cars and gag gifts.
Five Below does operate online but continues to add stores at a quick clip: The retailer opened its first Arizona store in May and will cut the ribbon on another four in the state before the end of 2019. These are part of the 145-150 stores the company plans to open this year.
“Five Below’s experience-rich stores have driven strong comp growth for the retailer amidst other channel players’ continued expansion of digital strategies,” Hogan says. “A relatively new player, Five Below has positioned itself as the ‘yes’ store for centennials, millennials and their parents alike.”
Five Below has tripled its store base in the last six years (the company was founded in 2002), and management feels there is room for as many as 2,500 stores around the country. Unlike many fast-growing chains in the past, opening new stores is not a drag on Five Below’s financial performance. Each new store costs about $300,000 to open and yields about $450,000 in operating income in the first 12 months, with a payback period of about seven months. Mature Five Below stores generate about $2 million in sales annually.
“The treasure hunt concept has proven to be durable and compelling, and so perhaps it’s not surprising that having one for younger consumers would be successful also,” says Mark Ryski, chief executive of business analytics firm HeadCount. “The fact is, none of the products that Five Below offers is special or unique — the real magic is the store experience they deliver.”
Pureplay retailers
For all of the excitement and disruption digital commerce has created over the last decade, only 10 retailers ring up a predominant share — or all — of their sales online. These include Top 10 performers Rue Gilt Groupe, Boxed.com and Wayfair, as well as ASOS, Amazon.com, Build.com, FreshDirect, 1-800-Flowers, Overstock.com and Sony Electronics.
Apple does not provide a breakdown of retail sales made through its bricks-and-mortar stores and sales through iTunes, Apple Music, Book Store and its various app stores.
“The Apple Store’s biggest challenge is the Apple Store, and there look to be three issues,” says Gildenberg. “First, the Apple store was designed for shoppers who were discovering and falling in love with Apple’s products and ecosystem. Shoppers still love Apple — but in the same way that a multi-decade marriage is different than falling in love, managing an ongoing relationship with the Apple ecosystem requires different skills than courtship. The Apple Store doesn’t know you well enough when you walk in and doesn’t let you manage your relationship to the Apple ecosystem efficiently — other retailers are getting much better at this.
“Second, the store is a clutter of trips and intention — largely crowded by shoppers needing service or assistance, it becomes difficult to shop efficiently and quickly,” he says. “The new Nike flagship store in New York has an entire floor dedicated to shoppers who don’t want the full Nike experience but just want to get in and out quickly. Apple Stores need to find a way to let shoppers choose when to engage.”
David P. Schulz has been writing for STORES since 1982 and is the author of several non-fiction books.