Consumers in discretionary purchase mode
That dollar store chain Big Lots posted double-digit year-on-year increases in total revenue and comparable store sales for the first nine months of 2002 tells you all you need to know about the kind of year it’s been. Whether it’s apparel or toys, the story is the same: Value rules.
‘Consumers are looking for [high] fashion looks at bargain prices,’ says Marshal Cohen, co-president of NPDFashionworld, a market research arm of The NPD Group that tracks the apparel industry. The unit pegged children’s apparel sales down by 18% for the first half of this year as consumers flocked to discounters like Wal-Mart, Target and Costco.
As a category, toys fared little better. NPDFunworld (another division of The NPD Group) predicts sales for the US$25-billion industry to remain flat for this year, despite mega merch hits for Spider-Man and SpongeBob SquarePants. There are many reasons for the bleak outlook: Rising oil costs, a limping stock market, the impending threat of war (not to mention the now-resolved West Coast dock workers strike, which delayed the distribution of Christmas merch from Asia) are collectively sapping the momentum from consumer toy spending, says Reyne Rice, director of communications and marketing at NPDFunworld.
It’s not surprising, then, that these economic conditions would claim a number of casualties. To wit: Carnegie, Pennsylvania-based Family Toy Stores – a 24-store chain with locations dotted mostly throughout the North Eastern U.S. – revealed in September that it planned to close its stores for good by the end of the year. This was preceded by Rocky Hill, Connecticut-based Ames Department Stores – the sixth-largest toy seller in the U.S. – announcing that it would ring through its last sale this fall, following a year and a half of restructuring. Then there’s Kmart: After years of attempting to compete with Wal-Mart and Target, the chain filed for chapter 11 in January.
Despite the grim outlook, there were some positive retail-related stories to crow about. DVD showed more signs that it’s poised to unseat VHS as the filmed entertainment format of choice. Sales of DVD players rose 39% from January to May, spurred on by boffo kids titles like Disney’s top-selling Monsters Inc., which had moved 9.3 million units by October. Video games also continued to grow – by 20% for the first eight months of the year. And even in toys, there were bright spots – especially products tied to Yu-Gi-Oh!, which is starting to draw Pokémon-like sales figures. In particular, YGO! Metal Raiders card game (released last June by Konami) claimed the sixth-best-selling toy spot in terms of unit sales over the first seven months of the year, according to NPDFunworld.
Here’s hoping for a green Christmas.
FAO Inc. looks to break retail’s Q4 dependence
With its stock down 70% from a high of US$9.87 in April, FAO Inc. may appear to be an unlikely choice for KidScreen’s retailer of the year honor. But that oft-cited piece of financial data obscures what is emerging as one of the sector’s more encouraging comeback stories. FAO Inc. (nee The Right Start), which acquired 22 locations from foundering specialty toy chain FAO Schwarz in January, spent most of this year integrating those assets into its nascent retail empire, which also includes edu-toy store Zany Brainy and infant furniture retailer The Right Start.
The centerpiece of these efforts – introducing TRS infant furniture boutiques in 50 ZB locations last spring – has been an unqualified success. ZB stores with the boutiques posted sales 11% higher than those without. FAO introduced the new format to reduce the negative sales swings toy retailers encounter outside of Q4, and to broaden the brand’s appeal with affluent moms (its target customer). Currently, the chain has boutiques in 100 ZB locations (60% more than originally planned) and is on pace to have them in 90% of ZB stores by March. FAO has also tightened ZB’s toy offering, adding action figure and Barbie sections from FAO, as well as FAO-branded plush, to both ZB and TRS locations. FAO Schwarz and Zany’s tactic of selling on the thin margins of promotionally-driven merch was also nixed. Consequently, same-store Q2 revenues at both chains saw expected double-digit declines, but on the upside, gross profit margins at ZB and FS grew by 8% and 4.5%, respectively.
With the crucial Q4 shopping period already underway, FAO Inc. still has much to prove this holiday season. In ramping up for that challenge, the chain launched an ambitious direct marketing campaign last month that will see it distribute 60 million coupons through e-mail, print and FSIs, offering consumers 10% discounts on merchandise at all three of its chains.
CEO Jerry Welch pledges to significantly bump FAO Inc.’s staff training budget and to introduce ZB’s edu-toys into FS’s offering in 2003: ‘[We] believe those types of toys can sell well during the whole year – not just the fourth quarter – so that’s also going to [expand] FAO Schwarz’s sales cycle.’
Hot on the Trail
Sure, you may find their store associates’ repeated attempts to super-size your one-day video or game rental into a seven-day lease annoying, but the chain’s sales tactics – including its Like it! Rent It! Buy It! initiative and aggressive positions on DVD and gaming formats – are clearly paying off. For the first three quarters of the year, total and same-store revenues were up 4.9% and 3.7% respectively.
The teen fashion Zeitgeist may not permanently reside at Hot Topic, but it spends a good deal of time there. Revenues over the first 35 weeks climbed by 25%. On a high note, Hot Topics’ plus-size girls apparel chain Torrid continues to grow in popularity with 18 new stores this year.
These days, you’re almost as likely to spot the second-largest U.S. toy retailer’s moniker outside its stores as within them. Through the test-marketing of KB boutiques at Sears and a wholesale distribution agreement with Safeway (both initiated last year), the privately-held company has been successfully broadening its distribution into key mom-specific channels – department stores and supermarkets. Re-upping with Sears this year also makes KB the exclusive toy supplier for the Sears Wish Book and Sears.com, positioning it to grab a greater share of toy sales this holiday season.
Apparel retailer Limited Too speaks to tween girls and is fast becoming the place where this much-prized group is choosing to flex its collective spending muscle. Revenues for the first half of the year rose 15%. Central to Too’s success is its part mag, part catalog Catazine. With an annual circ of 33 million, Catazine contributes US$1.50 to US$2.00 in incremental retail sales, estimates Too’s investor relations director Bob Atkinson. Following successful cross-promos earlier this year with Disney and Universal (both firsts), Too is also proving to be an increasingly attractive retail partner for large entertainment brands that are hoping to zero in on the tween demo.
Sell it for less than your competitor. It’s a simple edict that founder Sam Walton followed in building his retail kingdom, and it’s one that has served the chain well. Today, the world’s largest retailer is the number-one seller of children’s apparel, footwear and toys in the U.S. As rivals like Toys ‘R’ Us are constantly trying to redefine themselves in relation to it, Wal-Mart continues to eat up market share unhindered.