Hot 100 Retailers 2015
Differentiation is key for the nation’s fastest-growing retailers
Hot retailers come in a lot of flavors, but one thing the upper echelon of the 2015 STORES Hot 100 Retailers have in common is that they all do things a little differently. Chart-topper Hudson’s Bay is there because at least one man in retailing — aside from Macy’s CEO Terry Lundgren — thinks there is still a place in the world for the traditional department store. Hudson’s Bay Executive Chairman Richard Baker, who purchased Lord & Taylor nine years ago, has assembled a conglomerate that will soon be operating in three countries on two continents.
Runner-up NoMoreRack.com, founded in November 2010 offering deep discounts on an array of general merchandise, was rebranded as Choxi earlier this year after Nordstrom objected to its name (due to possible confusion with its Nordstrom Rack off-price division). The new moniker is said to be a mash-up of “chock full” and “choice” that is not a real word in any language — the better to assist the company in expanding globally.
No. 3 Zulily has elevated the flash sale model to new heights. The company’s early strength was in infant clothing, toys and accessories with a no-returns policy; in May Zulily began a test program that allows some customers to return some brands of apparel and home linens.
“The Hot 100 is a mix of companies that have balance sheets that allow them to make acquisitions or grow organically,” explains Bryan Gildenberg, chief knowledge officer at Kantar Retail, providers of the Hot 100 data. “Hot 100 retailers grow quickly because they understand why people are buying. … They understand the dynamics of their audience.”
Among those following the acquisition trail is No. 4 G-III Apparel Group. Perhaps best known as a softgoods vendor to major department and specialty stores, it also operates stores under the Wilsons Leather, Bass, G.H. Bass & Co., Vilebrequin and Calvin Klein Performance banners.
No. 5 Wayfair is the umbrella for five e-commerce brands offering home furnishings and décor. The company had a particularly good holiday selling season last year, with the number of active customers in its direct retail business reaching 3.2 million at year’s end, up 54 percent from a year earlier.
Two years ago, No. 7 Office Depot purchased a major rival in OfficeMax and not too long afterward put itself in position to be taken over by Staples, potentially reducing the number of office supply superstore operators to just one. If the Staples takeover clears regulatory hurdles, Wall Street analysts have said they expect at least 1,000 office supply stores to be closed around the country.
Both No. 8 Signet Jewelers and No. 9 Men’s Wearhouse acquired major rivals in Zale and Jos. A. Bank, respectively: Signet has put together the only national group of mall-based popular-priced jewelry stores, while Men’s Wearhouse has achieved pretty much the same status among men’s apparel retailers after turning the tables on Jos. A. Bank, which initially tried to take over Men’s Wearhouse.
Good fortune pops up in other areas of the Hot 100 Retailers, with chains operating in hot segments — supermarkets and apparel stores account for nearly half of the Hot 100 entries.
Most of the Hot 100 supermarkets have “core categories that are growing very quickly,” Gildenberg says, such as an emphasis on natural and organic foods or a storeful of ethnic products.
Larger grocers in the Hot 100 include No. 50 Kroger, which is “very successful for a whole host of reasons,” he says, pointing to its two-tier management model that gives a high degree of centralization on one level, but plenty of discretionary judgment afforded to regional, district and store-level management.
Holding up the tradition of ethnic grocers expanding fast enough to achieve Hot 100 Retailer status is No. 29 Grupo Comercial Chedraui, the Mexico-based majority owner of Bodega Latina in Paramount, Calif., which operates 49 supermarkets under the El Súper banner in Nevada and California. El Súper may be challenged to remain among the ranks of the Hot 100 Retailers after this year, however: The retailer is dealing with a labor dispute and boycott involving seven stores where employees, members of the United Food and Commercial Workers union, have been without a contract since September 2013.
Presenting a variation on “know your customer” are apparel retailers, where there has been a major changing of the guard over the last 12 to 18 months, at least among teen-oriented brands. “It doesn’t mean teens have stopped buying clothes,” Gildenberg says. “They’re not going naked — they are buying clothes somewhere else.” He uses as an example Abercrombie & Fitch, where chief executive Mike Jeffries left abruptly last December.
“A&F’s whole model was built on aspirational marketing … their message was ‘If you don’t wear these clothes, you won’t look like this,’” he says. “That was okay for a while but it’s a different era now, and the teens are shopping at places like H&M where the message is, ‘We’ll help you be the best you can look. We’ll help you be the best version of yourself.’ It taps into a different vision.”
No. 13 H&M is not resting on its laurels; plans to keep U.S. investments coming include opening larger quarters on New York City’s Fifth Avenue and letting one or more of its sister brands — COS, & Other Stories, Weekday, Monki and Cheap Monday — take over the vacated locations on the same street.
The strong dollar has made expansion in the U.S. more expensive, but the push will continue, vows chief executive Karl-Johan Persson. “Although these long-term investments currently involve costs, we see them as necessary in order to build an even stronger H&M,” he says. “Among other things, these investments enable us to be a natural part of our customers’ increasingly digital world, where the boundary between shopping online and in physical stores is becoming more and more seamless.”
No. 16 Michael Kors is on the Hot 100 chart for a fourth year, but the prospects for another appearance aren’t so bright. “The problem is, it is popping up everywhere,” notes Neil Saunders, managing director of retail consulting firm Conlumino. “The brand’s become a bit too common and that erodes its value. It’s having to discount to get consumers interested to buy.”
By the time its fiscal year ended March 28, Michael Kors could see the handwriting on the wall. “While we were faced with a number of headwinds in the fourth quarter, we were pleased with the strong performance across our segments and geographies,” notes John D. Idol, chairman and CEO. Coming off a year in which U.S. same-store sales fell almost 7 percent in the three months ended in March, Michael Kors forecast double-digit percentage decreases in the first three months of the new fiscal year.
“The seductive thing about the Kors type of ‘hot’ trajectory is in the initial delight of consumers,” writes Robin Report blogger Robin Lewis. But after that, “in a nano-split second, the largely young and trend-fickle consumer base wakes up and realizes the brand is slapped on everything and is being worn by everybody, everywhere.”
In contrast, newcomer No. 42 Francesca’s looks like it could stay hot for a while. The chain’s stores are designed and merchandised to give the feel of an independently owned and operated shop. Apparel accounts for only about half the sales, with the rest going to jewelry, accessories and gifts. The boutiques, which average 1,350 square feet, carry what the company calls “trend-right, high-quality merchandise at attractive prices.” The assortment is broad but shallow, with little backup inventory for any item.
Francesca’s opened 179 locations over the last two years and management says there may be opportunities to open another 400 to 450 over the next five or six years. Stores are evenly divided between mall and non-mall sites such as lifestyle centers, strip centers and outlet locations. The company expects to open some 80 boutiques this year, spending around $31 million to do so, and grow sales to around $418 million in the current fiscal year.
Omnichannel may be the retail buzzword of the moment, but some uni-channel retailers made the chart behind segment leaders in the top 20, including subscription merchant JustFab (22), flash sale site Gilt Groupe (44) and members-only retailer Rue La La (55). There are a pair of other non-store retailers on the Hot 100 list: direct-mail oriented Bluestem Brands (12), parent of Fingerhut, Gettington.com and Paycheck Direct, where consumers can make purchases and have installments deducted from their regular paychecks; and Evine Live (56), a broadcast shopping retailer that started life a quarter-century ago as ValueVision.
Traditional discount stores aren’t particularly hot, though several small-format value retailers are listed, starting with Five Below (14) and 15th-ranked 99 Cents Only Stores. Actually, the only national chains not on the list are Family Dollar Stores, which was acquired by Dollar Tree last month, and Big Lots, which has closed more stores than it’s opened over the last two years.
The convenience store segment, where fuel is not among the merchandise categories included in Hot 100 total sales figures, has six companies on the list, although not the industry leaders by store count, 7-Eleven or Circle K.
The number of convenience stores among the Hot 100 is surprising, since “The c-store as a channel isn’t growing,” Gildenberg says. Instead, the hot retailers are those “who are winning market share. There is a lot of consolidating going on in this channel.”
The dynamics of c-store retailing are shifting as a result of what is happening with tobacco sales: The general population is cutting back on smoking, and major retailers such as CVS are exiting tobacco sales altogether even as dollar stores are entering the category.
If anything distinguishes successful c-store operators, it is food. “The big oil companies haven’t done very much with their c-stores,” Gildenberg says. “The best operators have done a really nice job of expanding their food sector, increasing their gross dollars per store.”
That certainly describes the highest-ranking c-store on the chart, No. 28 Stripes. Food offerings at more than 400 locations are handled by subsidiary Laredo Taco Co., which prepares Mexican cuisine to order.
Another observation from Gildenberg about the Hot 100 Retailers involves the number of non-urban retailers on the list, starting with No. 10 Northern Tool and Equipment and farm stores Rural King Supply (34) and Tractor Supply Co. (38).
This orientation is also reflected in the number of outdoor recreational retailers — No. 45 Gander Mountain, No. 83 REI and No. 89 Bass Pro Shops — and the absence of indoor recreation and entertainment retailers with the sole exception of No. 100 Hobby Lobby.
Gildenberg’s short explanation was that indoor recreation has gone electronic, whether it is game playing, e-reading or social media. “Everything goes to the iPhone and Amazon. That’s what people are doing,” he says. “It’s digital recreation.”
As for retailers on the Hot 100 list catering to non-urban and outdoor activities, “You’re not going to buy a kayak online. You want the experience of seeing it, touching it, maybe even hefting it. And you certainly don’t want to have it shipped — it’s too big and awkward.”
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