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Shopping Centers Today -> February 2004
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TESTED AND WORSTED
Why did retailers kill off series of test concepts over the course of last year?
BY MICHAEL BAKER AND VERONICA SORIANO
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| Chico’s killed off its smaller, trendier and cheaper offshoot, Pazo, after only six months. |
Landlords struggling with anchor tenant consolidation and some pullback by specialty chains have at least taken some comfort from tenant eagerness to leverage and extend their brands by opening new concepts. But is this, too, now under threat?
Consolidation within the retail segments that typically anchor shopping centers, such as department stores, supermarket chains and discount general merchandisers, has been prevalent for a number of years and made the retenanting or redevelopment of dark anchor spaces a special preoccupation among owners. Now, after some rapid growth in the store counts of specialty retail chains during the 1990s, these, too, are looking increasingly at “right-sizing” their store bases — i.e., carefully re-evaluating stores at lease renewal and shutting those that don’t meet threshold requirements for sales and/or profitability. This has added to concerns about maintaining shopping center occupancy. But at least there has been the rollout of those concept stores.
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| Too Inc. launched its teen apparel and accessories chain Mishmash in September, 2001, expanding it to 18 stores before closing it down last May. |
Failure factors
What did these failures represent? A fundamental shift in market
dynamics causing specialty retail niche concepts, particularly the
full-price ones, to flop with greater regularity? Were these retailers,
struggling with a shrinking economy, less able to cope with the
distraction of managing a new concept? Has economic growth just
been too weak during the past couple of years to support new concepts?
Answering these questions is important not only to shopping center owners but also to the retailers themselves. Many chains have reached saturation with their core concepts and need new growth channels — Gap and Limited Brands are prime examples.
In response to saturation, there has been a spectacular proliferation of niche concepts in recent years targeting kids, teens, babies, mothers having babies, bath and body, intimate apparel, men, lower-income, petites, plus sizes and more.
This diversification has not been limited to small specialty stores, either. Department store companies such as Bloomingdale’s have opened home stores. Large-format retailers wanting to serve urban locations but unable to acquire enough land for their customary large boxes have established formats with edited selections. Examples include Wal-Mart’s neighborhood markets and The Home Depot’s urban format. By the same token, Target has gone from its usual one level to two to fulfill the role of mall anchor.
Some new concepts have experienced rapid growth. For example, Abercrombie & Fitch’s Hollister brand, which was opened in the summer of 2000 to attract 14-to-18-year-olds, had 164 stores by the end of last year. Hollister is currently the company’s principal growth driver. Hot Topic’s Torrid concept (fashion apparel for plus-size women age 15 to 30) has grown from six stores at the end of 2001 to 52 at the end of 2003. Sears Hardware is already a 249-store chain three years after its inception. C.J. Banks, Christopher & Banks’ plus-size concept, has 116 stores after three years.
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| Click for chart: Retail offshoots — hits and misses (150k PDF). |
Other concepts have benefited from an incubation period in catalogs before occupying real estate. Multichannel home furnishings retailer Williams-Sonoma, for example, which already has four successful store concepts, tests new ones by catalog before opening stores. Such catalogs include Pottery Barn Teen, a teen-age follow-up to its successful Pottery Barn Kids, and West Elm, a value brand. Talbots, a women’s apparel retailer with significant catalog and store-based operations, takes a similar approach. The company opened its first three Talbots Men stores after a catalog launch in the fall of 2002 and had six units by the end of last year.
Clearly, there have been some huge success stories among specialty retailers. But do the failures of 2003 mean that the stream of successful new concepts is about to dry up and that the ones still out there have less chance of success than they did a few years ago? Or is there some fundamental distinction between those that succeeded and those that did not?
The five specialty concepts terminated in 2003 were full-price concepts targeting demographics where heavy competition already existed. Pazo, for instance, was aimed at fashion-conscious women between 25 and 35 who might otherwise shop at stores like Express, Bebe or any number of department stores. This is hardly a demographic that could be considered underserved. Even for a growth company like Chico’s, here was a tough market.
Charming Shoppes also plonked down its Monsoon/Accessorize concept right in the thick of a fiercely contested market segment: moderate-to-better women’s apparel. The concept was brought across the Atlantic from the United Kingdom in 2001 for an initial investment of $4 million. It was given until March 2003 to prove itself but came up short. According to company reports, the nine test stores generated average sales volume of $477,000, compared with approximately $1.3 million per store for Lane Bryant, Charming Shoppes’ other mall-based concept.
Testing
the tween market
Mishmash sold intimate apparel, furnishings and personal care products
to 14-to-19-year-olds — again, not an underserved segment.
Even before the back-to-school season, Mishmash’s parent announced
it was closing the 18 test stores, taking a $7.3 million charge.
The company has decided instead to roll the dice on an off-mall,
value-priced apparel and accessories concept for tween girls (between
7 and 14). Interestingly, the new concept would be more or less
in competition with the company’s own full-price core concept,
thus risking a degree of cannibalization.
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| Not all experiments get shut down. Limited Brands-Shiseido’s Aura Science skin care chain, opened in September 2002, has nine stores today. |
A stronger economy would not have saved them.
Each of these concepts was terminated before the retail sales recovery really got going in the latter part of the third quarter. Would they have made it after all if the parent companies had hung on for a few more months? The answer is probably no. Well-differentiated retailers with strong merchandise offerings weathered the difficult times from 2001-2003, prospering with rising sales and margins. Chico’s, Hot Topic, Pacific Sunwear and others performed well without any help from the economy. If the failed test concepts had been sufficiently compelling, they too would likely have grown, much as Torrid and Hollister did.
The trouble seems to have been at least partly a result of the product’s being too undifferentiated on the one hand, and the target market already too crowded on the other. Another problem may have been distraction and limitation of resources; companies often seem to have difficulty managing more than one growth concept at a time, particularly if a new concept is significantly different from the core one. Such was the case with Pazo, removed as it was from Chico’s core high-income customers age 30 to 60. (Undeterred, Chico’s says it will test an intimate-apparel concept with 10 stores to open in 2004, aimed at customers the same age and income level as the typical Chico’s shopper. The company also acquired the White House/Black Market concept, a proven performer with sales of $559 per square foot; it plans to add an additional 25 to 30 of these stores in 2004.)
But changing market dynamics also played a role in the failures. None of the concepts that fell through was a “value” concept — all were full-price (though, admittedly, that’s a relative term in today’s deflationary market). A number of companies have announced new concepts that are aiming at lower price points (Williams-Sonoma’s West Elm, Too’s proposed off-mall concept and Ross Stores DD’s Discounts among them), in recognition of the fact that consumers are gravitating toward the discount channel.
So landlords needn’t fret too much over the new concept sector. There are more on the way.
Michael Baker is a retail and economic consultant and former ICSC research director. Veronica Soriano is senior research analyst at ICSC.
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