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Retail Trends

Hot 100 Retailers

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Click on chart to see a list of the Hot 100 Retailers.

Three of the hottest areas in retailing right now are groceries, the result of food price inflation and contraction among supermarket operators; trendy fashion, thanks to a nascent — if halting — recovery in consumer apparel spending; and the intersection of e-commerce and telecommunications, mostly because this is the 21st century.

Exhibit A among food retailers is Sprouts Farmers Market, which tops the 2012 edition of the STORES Hot 100 Retailers. Sprouts is joined by Lowe’s Market Place in the Top 10 of this year’s hottest retailers, and is one of nearly 20 supermarket chains on the Hot 100 chart. Also included are Kroger, the nation’s largest operator of traditional supermarkets; national chains Whole Foods Market, Trader Joe’s and Aldi; and regional giants Publix and H-E-B.

There is also a trio of clothing retailers in the Top 10, starting with Michael Kors at No. 3, just ahead of Lululemon Athletica and Under Armour.

Among technology-based retailers, Verizon Wireless, Apple and AT&T sell consumer electronics merchandise, Amazon sells almost everything under the sun and all four also provide retail services and content for a wide variety of devices. Rounding out the Top 10 is CARE Pharmacies, the network of community drugstores operating primarily in the mid-Atlantic region and one of only two drug retailers (along with No. 72 Walgreen) on the Hot 100 chart.

Sprouts’ lineage dates to the World War II-era fruit stand of Henry Boney. A quarter of a century later, Boney’s sons opened a market in Romona, Calif., that by 1997 had become Henry’s Marketplace and two years later sold to Wild Oats Markets.

Sprouts was founded in Arizona 10 years ago by Boney family members and friends, expanding into Texas and California. Sprouts opened 23 locations in 2009 alone; stores range in size from 12,000 to 37,000 sq. ft., with newer units being on the larger side.

Whole Foods Market took over Wild Oats Market in 2007, setting off a multi-year battle with the Federal Trade Commission over the acquisition. Whole Foods sold Henry’s Marketplace to Smart & Final, the warehouse-style food and supply chain headquartered in Southern California, and last year Henry’s Marketplace was brought back into the Boney family fold.

Chances are that Sprouts will rank among the hottest retailers again in 2013, since earlier this year it merged with Sunflower Markets to expand in the natural-and-organic supermarket niche. New stores have opened this year in California and Arizona; combined with the Sunflower Markets, these should generate close to $2 billion in revenues for Sprouts Farmers Market this year.

Like Sprouts, No. 8 Lowe’s Market Place is a family business. It operates the majority of its stores in Texas, but also has locations in New Mexico, Arizona and Colorado under banners including Big 8, Family Center, Super S Foods and Fiesta Foods.

The three apparel retailers in the hot 10 share many similarities: All are roughly two decades old, are publicly held and have developed customer bases that border on cult followings. That said, “Each of these retailers has a differentiated, unique offer that is not subject to heavy price/style feature comparison among shoppers who want the look offered by the brand,” says Mary Brett Whitfield, senior vice president of Kantar Retail.

“These players are among the best at creating true brand advocates who are willing to pay full retail prices and/or who have a business model that doesn’t rely on discounts to drive traffic and appeal.”

Highest ranked is Michael Kors, a Hong Kong-based company with U.S. headquarters in New York City. The company has been around since 1981 selling fragrances, accessories, footwear, watches and jewelry, as well as men’s and women’s apparel. The goods are sold both through third-party retailers and its own network of stores in destination locations like Beverly Hills, Chicago and New York.

Sales at Michael Kors in the fiscal year ended in March were boosted by an aggressive campaign that added 71 stores worldwide. “Our North American comparable-store sales increase was 37.2 percent, reflecting the strong demand for the Michael Kors luxury brand, our exciting assortment of fashion merchandise and our exceptional jet-set in-store experience,” says chairman and CEO John Idol. The company is forecasting a comparable-store sales increase of about 35 percent for the current year.

No. 4 Lululemon Athletica is headquartered in Vancouver, B.C., with U.S. offices in nearby Sumner, Wash. Founded in 1998 by yoga enthusiast Dennis “Chip” Wilson, whose stated mission was to “elevate the world from mediocrity to greatness,” Lululemon achieved $1 billion in worldwide sales for the first time last year.

As significant a milestone as that might be, “far more important than the number itself are the beliefs, values, culture and people that achieved it,” says Lululemon CEO Christine Day. “We are really so much more than our numbers. It is the everyday actions of our dedicated team that translates into an unparalleled guest experience and allows us to achieve our ultimate goal of elevating the world.” For this year, the company anticipates same-store sales gains above 20 percent.

Under Armour also produces and sells athletic apparel, with a customer base that ranges from the highest levels of professional sports to consumers seeking everyday casual wear. The company is a leading developer, marketer and distributor of branded performance apparel, footwear and accessories, with a major selling point being its “moisture-wicking fabrications [which] are engineered in many different designs and styles for wear in nearly every climate to provide a performance alternative to traditional products.”

The company was founded in 1996 by former University of Maryland football player Kevin Plank, but didn’t open its first retail outlet until 2007. It currently has about 90 retail locations, and plans are underway for a 25,000-sq.-ft. flagship store at its Tide Point headquarters in Baltimore. Under Armour went public in 2005; in June it split its common stock shares 2-for-1.

The remaining hot 10 retailers all owe their success to technology. No. 7 is a perennially hot retailer — it was No. 2 on last year’s chart — and has been hailed as a revolutionary retailer ever since it opened its virtual doors in the mid 1990s. Innovation has been a watchword at the company ever since, as it showed others what e-commerce could be and how it can evolve.

Amazon has ramped up its “original content” effort that began a couple of years ago when it solicited ideas for movies and television-like video shows. In addition, after deals with major Hollywood studios including Walt Disney, Sony, 20th Century Fox and Lionsgate, Amazon recently launched the Never Before on DVD store, selling classic movie and TV programs.

Back when Amazon was a pioneer in what was referred to as business-to-consumer commerce, major rivals were store-based retailers ranging from Walmart and Target to such bygones as Borders and Circuit City. Now competes against the likes of Netflix, Hulu and, of course, Apple.

Apple, which also placed in the hot 10 last year, is much more than nearly 250 stores selling iPads, iPhones and other “wow” technology; the company also does a massive download business providing music, movies and video content for its devices. Ron Johnson, the genius behind Apple’s chain of retail locations who left to run J.C. Penney, was succeeded by John Browett, a rare outsider who came from British consumer electronics chain Dixons Retail.

The explosion of wireless, cellular and smart telephony has involved more than just mobile communications and the sun setting on landlines. Over the last five years, handheld devices have moved from being providers of e-mail and text messaging to daily necessities packing convenient, powerful computers equipped with sensors, still and video cameras and music players. Verizon Wireless and AT&T have vaulted into the hot 10 by providing handsets, services and some content for mobile devices.

No. 2 Verizon is now the largest wireless provider in the United States as measured by retail customers and revenue, with approximately 95 percent of customers served on a post-paid basis (which means they pay for access fees in advance and any usage charges afterward).

Verizon Wireless closed 2011 with 107.8 million connections and, the company boasted to shareholders, iPhone and Android penetration is “fueling 21 percent annual growth in wireless data revenue.” Sales were boosted last year, the company added, because of “a significant increase in wireless equipment and other revenue as a result of sales of new smartphone devices” including iPhone4 and 4S and the company’s 4G LTE-capable devices.

No. 10 AT&T increased its wireless connections by 7.7 million last year to give it a subscription base of 103.2 million customers, with more than eight in 10 new contract device sales involving a smartphone. The company anticipates continued growth this year and next as it rolls out its 4G LTE technology with a goal of deploying it to 80 percent of the country’s population by the end of 2013.

Among technology-focused retailers, the only pure-play online retailer other than in the Hot 100 is No. 47, which serves both retail and commercial customers seeking computers, related hardware and software, peripherals and accessories.

Ascena Retail Group, which topped the Hot 100 last year with a 58.9 percent growth spurt, managed to tack on another 6.3 percent worth of expansion in 2011 while it digested its prior year’s takeovers and additions, coming in at No. 95 on this year’s list. The company, which operates the Justice and maurices chains in addition to dressbarn, recently closed on a deal to purchase Charming Shoppes, operator of 1,832 apparel stores in 48 states under such banners as Lane Bryant, Cacique, Fashion Bug and Catherines Plus Size.

There is a well-accepted basis for Ascena’s strategy, Kantar’s Whitfield suggests. “As the expansion runway for mature concepts shrinks, one of the ways to drive growth for large retailers is through acquisition,” she says.

Kantar sees a slowdown in retailing this year, partly because sales “will not be pumped up by inflation as they were last year,” Whitfield says. “Softer inflation and lack of the pent-up-demand effect will keep apparel growth milder in 2012. Apparel sales growth in nominal terms — at category level — is likely to be under 3 percent this year vs. growth rates that approached 5 percent in both 2010 and 2011.”

One area that doesn’t seem to be struggling is upscale retail. High-end department stores and luxury brands “have been strong performers because much of the core customer base is not affected by the current macroeconomic environment,” Whitfield says. Still, “It will take a much more robust recovery that touches a broader base of the shopper population before many of the ‘aspirational’ spenders return to the luxury upscale market.”

Convenience stores have seven representatives among the Hot 100, led by the granddaddy of the them all, 7-Eleven at No. 17. The list also includes Circle K (20), Casey’s General Stores (30), Cumberland Farms (33), Stripes (59), Sheetz (92) and QuickTrip (98).

As a retail segment, c-stores’ sales amounted to $680 billion last year, $195 billion of which came from non-fuel inside merchandise and foodservice sales — up 2.4 percent from the previous year, according to the National Association of Convenience Stores’ State of the Industry report for 2011. Cigarettes and other tobacco products accounted for about 42 percent of inside revenues, far outdistancing the second- and third-most purchased goods, foodservice offerings (16.9 percent) and packaged beverages (14.3 percent).

7-Eleven, the world’s largest retailer by number of locations, added more than 4,600 units worldwide last year. “In the world of real estate and development, it’s been a buyers’ market,” says Dan Porter, 7-Eleven’s real estate vice president. “We have been in the enviable position to capitalize on property and space availability, plus 7-Eleven’s strong credit rating.”

7-Eleven plans on adding at least 630 North American stores this year, and has already acquired more than 50 Exxon Mobil stores in north Texas, 23 former Quix locations in north and central Texas and 55 locations from Sam’s Mart in the Carolinas.

Circle K, owned by Quebec-based Alimentation Couche-Tard, also has been adding stores being sold off by Exxon Mobil, as well as locations in the Chicago area divested by SUPERVALU and 26 units operated by Chico Enterprises.

Casey’s General Stores expanded its pizza-delivery program beyond test markets and fought off a hostile takeover attempt by Alimentation Couche-Tard. During 2011, Casey’s acquired 35 stores, built 30 from scratch and replaced 10 older units. This year, the company plans to increase store count by between 4 and 6 percent while replacing 20 stores and remodeling 50 to 75 locations.

Cumberland Farms continues to benefit from its association with Gulf Oil, sharing a corporate home, website and administrative resources to encompass “a vision to become the premier brand of choice for the on-the-go world.” Cumby’s, as the chain is colloquially known, has clustered in 10 Northeastern states and Florida. Stripes is the c-store retail division of Susser Holdings, the largest non-refining c-store operator in Texas by number of locations. The chain opened 17 new stores last year and now operates more than 540 units that include its Laredo Taco Company in-house restaurant and such proprietary merchandise as Royal brand cigarettes, Slush Monkey frozen carbonated beverages and Quake energy drinks.

The final two c-stores on the Hot 100 chart are Sheetz, which has been using its foodservice expertise to push expansion through the mid-Atlantic states, and QuickTrip, which from its Great Plains base moved into South Carolina last year and now stretches through 11 states in the southern portion of the country.

Dropping from No. 3 on last year’s Hot 100 chart to 11th place this year, Fresh & Easy Neighborhood Market is slowing its expansion and is hampered by a larger base from which annual growth rate is computed.

Fresh & Easy is U.K.-based Tesco’s attempt to gain a foothold in the U.S. grocery market; the chain is a Hot 100 retailer only because Tesco keeps plowing money into it. From its base in Southern California, Fresh & Easy operates stores in Arizona and Nevada as well. The chain has won much critical acclaim since opening its first units in 2007, but that praise from industry watchers has failed to translate into customer traffic: Fresh & Easy has yet to turn a profit, but the latest company forecast has it breaking even by the end of the current fiscal year (February 2013).

Fresh & Easy’s continued operation has been called into question as Tesco experiences rough going in the U.K. The company has already announced its intentions to pull out of the Japanese grocery market, but so far is resisting a similar step in the United States.