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Outdoor retailer REI lets shoppers at its Denver store take kayaks out for a test.

INNOVATIVE RETAILERS STRIVE TO STAY AHEAD OF THE PACK

With more retailers than ever competing for attention, the pressure to be innovative is pretty intense. What’s more, becoming successful is only half the battle. The age has passed when retailers fortunate enough to become household names could count on decades of prosperity.

Today, a giant retail chain at the top of its game one year can find its popularity plummeting the next for any number of reasons — aggressive competition, shifting markets, management missteps or fickle consumers, to name just a few perils.

Consequently, there are scores of retailers blazing trails to raise their profiles and their profits. In the following article, SCT Senior Contributing Editor Edmund Mander looks at six very different companies — Charlotte Russe, Apple Computer, REI, White House/Black Market, Cotton Patch and Regis Corp. — that are trying different and unusual concepts to stay ahead of the game.

 

Charlotte Russe
San Diego
President and CEO: Bernard Zeichner
Category: Young women’s apparel and accessories
Number of stores: 140 Charlotte Russe; 38 Rampage; eight Charlotte’s Room

When shoppers complain that malls all look the same, no one is pointing fingers at retailer Charlotte Russe; its displays of young women’s clothing and accessories are constantly changing, with an inventory that turns over 12 times a year.

Nearly all the company’s merchandise is produced domestically by about 600 vendors, explained Harriet A. Bailiss-Sustarsic, the company’s president and chief merchandising officer.

“When the trend stops selling, we don’t have to worry that the merchandise is still coming on boats from China,” she said. “It’s really difficult for us to get stuck.”

The company operates an 8,000-square-foot buying office where its employees interact daily with vendors and their products.

“We don’t predict fashion; we let the customer tell us what she wants,” Bailiss-Sustarsic said.

Charlotte Russe Holding Inc. operates three chains: Charlotte Russe, Rampage and an experimental small-format store, Charlotte’s Room. Besides clothes, the stores carry shoes, jewelry, cosmetics, hats, scarves and lingerie.

“If you’re building a mall or a lifestyle center, they’re a retailer you want to have.” said Candace Rice, SCMD, CLS, senior vice president, leasing, with Newport Beach, Calif.-based Donahue Schriber, adding that the stores rarely fail to catch shoppers’ attention. “Their display windows are always very interesting, and customers like to stop and look at them.”

While there are plenty of other stores in the mall selling young women’s apparel, Charlotte Russe has a style of its own. The stores are eye-catching and are about twice as big as the average competitor — 7,500 square feet for Charlotte Russe, 6,000 square feet for Rampage — and they are geared to make customers feel comfortable; the fitting rooms, equipped with couches, look more like bedrooms, for instance. But for all that, prices are low.

The company’s stores cater to subtly different customers. Rampage serves “fashion leaders” with avant-garde styles that have not widely caught on yet. When it does catch, the merchandise goes to Charlotte Russe stores to be picked up by the “fashion follower” customer.

The Rampage customer is 18-35, while the less expensive Charlotte Russe appeals to women 16-35. Charlotte’s Room, of which there are currently just eight, is a 3,500-square-foot store appealing to females age 12-20, and carries bedding, rugs, clothes and accessories.

“Our stores cater to young junior women, but also older ones,” said Graham Luck, vice president of real estate. The closest competitor, he added, is The Wet Seal.

Nearly all the clothing is private-label and manufactured in the United States, which the company says enables it to react faster to changing trends and tastes. There have been Charlotte Russe stores since 1975, when the first one was founded in Carlsbad, Calif., but the company really took off after being bought in 1996 by Stamford, Conn.-based Saunders Karp & Megrue, the private merchant bank that owns stakes in Tommy Bahama, Dollar Tree Stores and The Children’s Place, among other firms. Charlotte Russe — it’s the name of a dessert, not a person — went public in 1999, and today there are 140 Charlotte Russe stores across the country, 38 Rampage locations; the eight Charlotte’s Room stores remain under test, Luck said. The chain, which prefers malls, plans to add 46 Charlotte Russe stores and nine Rampage in the next year, he said.

There are already several of the stores in Donahue Schriber’s malls. “They just know their customer, know their market, and focus on their market,” Rice said. “They’re intriguing.”

 

Apple Computer
Cupertino, Calif.
Senior vice president of retail: Ron Johnson
Category: Macintosh computers and software
Number of locations: 25 by end of 2001

Let’s hope Apple Computer proves to be better at running stores than it is at keeping secrets; despite Apple’s attempts to impose a news blackout, shopping center developers around the country were confirming its plans to open stores months before the rollout.

But, in an effort to be much, much better at running stores than keeping secrets, Apple has hired some of the best retailing talent available, including executives from Gap, Target, Virgin, Sony and Victoria’s Secret; Gap CEO Mickey Drexler is a member of Apple’s board.

“We even stole away one of the executives from Bloomingdale’s to do our window displays,” said an Apple spokesman, requesting his name not be used.

And it shows. Its first store, a 6,000-square-foot space in the smart Tysons Corner Center, McLean, Va., has a snazzy entrance that bears the company’s symbol but no name, bleached wooden floors, and clerks clad in black T-shirts eager to guide customers around displays of sleek computer equipment. In the “Genius Bar” at the back, “MacGeniuses” are waiting to solve any problems customers throw at them. And if they can’t do it, there are telephone hot lines to Apple headquarters.

“The company’s products are innovative, its salespeople are very knowledgeable and the added-value services provided at the store, such as the Genius Bar, are unique,” said Eric Kulczycky, Tysons’ marketing and public relations director. “Apple is a destination store that is drawing people from well outside our trade area, so we are extremely pleased on all levels.”

The company plans to have 25 stores open by the end of the year in prime locations around the country. Simultaneous to the Tysons rollout, another opened in the Glendale (Calif.) Galleria, and stores are going into Mall of America, Bloomington, Minn.; Palisades Center Mall, West Nyack, N.Y.; Chicago’s North Michigan Avenue; and downtown Manhattan’s Soho district.

“We’re looking at major, hip, traffic areas,” the Apple spokesman said. “It could be a street location, it could be a shopping center, it could be a mall.”

But while the interiors are hip, too, don’t expect a brush-off from staff too cool to deal with the average computer ignoramus.

The company expects the stores to be profitable by 2002, the spokesman said, adding that executives were encouraged by the Tyson’s Corner and Glendale openings; the two stores managed a total $600,000 in sales in their first two days, he said.

“Apple’s sales have been phenomenal since the May 19 grand opening,” said Tyson’s Kulczycky, explaining that the store is a great fit for a mall that tries to set itself apart through its tenants.

“Tysons Corner Center tries to differentiate itself from the competition by bringing one-of-a-kind retailers to the Washington, D.C., market,” he said. “This is one of the reasons why we were very interested in adding Apple to our merchant mix.”

 

REI
Seattle
President and CEO: Dennis Madsen
Category: Sporting goods
Number of stores: 60

Not many retailers freeze their customers, soak them with water or let them light fires in the store. But Recreational Equipment Inc. (REI) not only maintains a devoted following, it attributes much of its success to such goings on.

Just try and walk into REI’s flagship store in Seattle and remain focused on the reason for your visit. Chances are your attention will be grabbed by a customer whizzing past on a reclining bicycle, a climber clinging to an in-store rock face or a store assistant declaiming on the velocity of pedal kayaks. And you thought you just needed a woolen hat?

REI has turned distraction into a high art.

“They’re the leading specialty outdoor retailer,” said Laurie Breidenbach, a retail analyst at Wells Fargo Van Kasper, a Seattle-based investment banking firm. “When you go in there, they try and simulate the experience of the adventure you’re going on.”

Which is where the freezing and soakings come in. At the Seattle store, customers can test rain gear in a kiosk that simulates rainstorms. In the similarly sized — 95,000 square feet — store REI opened in Denver last year, budding Everest conquerors can find out if that parka will really keep them warm by entering a chamber that takes the temperature down to -20 degrees Fahrenheit and blasts them with fans. Some stores have a bike test track and, at the Denver store, you can take kayaks outside to the river that flows opposite the building. And those fires? Some of REI’s stores have areas where camping enthusiasts can light up cooking stoves.

“We really want to make sure that when people walk out of the store, they not only have a great experience, but have exactly the right thing,” said Michael Foley, a spokesman for the company.

The staff is the linchpin of the retailer’s success, Breidenbach said, fired with a passion for their sport that can turn an unsuspecting cycling enthusiast into a raving kayak nut as well.

REI is growing cautiously, mostly in the Western states, picking areas for expansion that offer convenient nearby opportunities for outdoor recreation. Currently it has about 60 stores, and has been adding about three a year, Foley said.

The average store is 22,000 square feet, but REI is experimenting with four small-formats that rely heavily on kiosk technology to allow customers to order anything offered at the company’s larger locations.

Kiosks and the Internet are another REI success story. With an initial investment of just $250,000 and six employees, its e-tailing operations became profitable just two years after the 1996 launch of REI.com, with sales growing to $92 million last year, according to the company. The company attributes this success to a decision to integrate all its retail channels from the beginning, according to Jennifer Lind, a company spokeswoman. Customers can return items bought over the Internet to stores, and talk to any employee — at the store or at REI.com — about their online purchases. “From the start we had no concerns about cannibalization,” Lind said.

But if you want to climb the walls, ride a bike, test a kayak or just be frozen or soaked REI style, you’ll still need to go to one of its stores.

 

White House/Black Market
Glen Burnie, Md.
CEO: Richard D. Sarmiento
Category: Women’s fashion
Number of locations: 85 by end of 2001

Henry Ford reportedly said that customers buying his Model T could have any color they liked, so long as it was black. Richard D. Sarmiento was saying much the same thing when he opened his first White House location back in 1985, selling white-only clothes and accessories for women.

For the most part, retail professionals thought he was nuts, Sarmiento recalled, adding that his total lack of retailing experience — he came from the hotel trade — didn’t inspire much confidence either. What kind of an idea was this?

“At first glance it does appear to be quite narrow,” conceded Sarmiento, noting that it met with “a healthy dose of skepticism” at first.

Customers had an entirely different reaction, however: The store, which began 16 years ago with one tiny location — 268 square feet — in Baltimore’s Harborplace open-air market, was a hit, and in 1995 Sarmiento took the concept a step further, opening Black Market, a chain devoted to black fashion wear and accessories. Now the Glen Burnie, Md.-based parent company, The White House Inc., has combined the two under one roof, called White House/Black Market, and by the end of this year will be operating 85 stores in some of the best retail centers across the country, generating sales of $50 million.

Although the merchandise is not especially expensive, White House/Black Market’s elegant interiors appeal especially to more affluent customers, primarily women age 30-40 years, he said. Sarmiento said he especially likes to put his stores in lifestyle centers — they are in Cocowalk, Coconut Grove, Fla.; and Country Club Plaza, Kansas City, Mo., to name two — where customers can drive right up to the door, but the stores also are located in other shopping centers, including super-regionals, and in a few downtown streetfront locations.

How has so narrow a range of colors met with such widespread success? A key attraction is that it is simply different, Sarmiento said, adding that this is no small feat in an increasingly crowded retail arena.

“Probably the most important thing I like about the idea is nobody else has done this,” he said. “One of the problems retailers face these days is just trying to be different.”

But being different only goes so far. The merchandise is cutting edge and, whatever colors might be hot at any given time, black and white is a staple of women’s fashion, retail observers note.

“Many times people will buy the black and white and use that as a backdrop for other colors,” said Leatrice Eiseman, a color psychologist and consultant, and author of a book on the subject, “Pantone Guide to Communicating with Color.” “It becomes the core group of the wardrobe.”

This fact hasn’t been lost on executives at The White House Inc. While black and white are predominant at the stores, other colors have crept in. There are splashes of red on some black dresses, for instance.

A shifting of fashion habits has also helped move black and white apparel. The rule about not wearing white after Labor Day is out the window, and black is frequently seen during the summer, especially in cities, Eiseman noted.

And with one group of shoppers, black clothes are guaranteed to remain popular, she added: “A lot of women feel they look thinner in them.”

All of which bodes well for the future health of Sarmiento’s concept. Not bad for someone who jumped into retailing at the deep end, straight from a career as a general manager for Hyatt Hotels Corp. Being a neophyte in the retail business actually helped, argued Sarmiento, a former Marine pilot who served in Vietnam.

“Because I came in without any knowledge … we’ve been dumb enough to ask questions,” he said. “It’s a tough business, there’s no question about it; it’s a lot more technical than I thought it would be.”

And Sarmiento is well aware that there are two separate aspects to successful retailing: getting ahead and staying ahead. “You can’t rest on your laurels for one second,” he observed.

 

Cotton Patch
Lexington, Ky.
Owner: Isobel Chewning
Category: Women’s career wear and sportswear
Number of locations: one

Isobel Chewning is serving shoppers long before they arrive at Cotton Patch, her Lexington, Ky., women’s apparel and accessories store.

When customers call and say they’re coming, Chewning and her staff consult a computer database on their previous purchases and start laying out clothing and accessories in the appropriate size, color and style. The system also makes it easy for husbands to find the right gift, and even gives them the option of not coming to the store at all.

In fact, Chewning has found that taking care of husbands is one of the best ways she can serve her customers, even though she only sells women’s merchandise. When men come into the store with their wives and girlfriends, they are offered a comfortable chair and a copy of Sports Illustrated to keep them happy.

“That way, when a man comes in with his wife, he is not hurrying her out,” she said. “Men are typically not comfortable even entering a women’s clothing store; they’re out of their realm.”

For the same reason, Cotton Patch indulges children with a playroom where they can play with toys and watch movies; not only does it prevent children from shortening their mothers’ shopping visits, it actually encourages them to bring their parents in, Chewning said.

You have to provide men and children entertainment in a small strip center like the one her store occupies, she explained, because there is little to keep them occupied outside.

Cotton Patch, which originally was the name of a store owned by two women in Murfreesboro, Tenn. — it was named after a horse one of them owned — who wanted to expand into Kentucky. Chewning, then only 23, went into business with them and opened the Lexington store in 1985 with a partner. In the years since, the relationship with her Tennessee colleagues has ended, and Chewning has bought out her partner.

At the beginning lenders were a little cautious about extending her a loan, not only on account of her age, but also because a business that originally occupied the same spot went out of business.

But Chewning said she knew that personal service would be key to attracting and retaining customers at Cotton Patch, which carries stylish career wear and sportswear by the likes of Sigred Olsen, Tommy Bahama, Garfield & Marks and Hanky Panky. Using the database, she can even match their purchases with what they already own.

However, while the database helps her provide the most personal service possible, Chewning is leery of some other forms of computer technology. For instance, she won’t go near Internet commerce. “That’s not very personable,” she explained.

And, for now, she isn’t interested in opening additional stores. She is raising a family, Chewning explained, and is too busy to devote the time to finding and training staff members capable of providing the high level of customer service her customers have come to expect.

 

Regis Corp.
Minneapolis
President and CEO: Paul D. Finkelstein
Category: Hair care
Number of salons: About 5,700

Talk about big hair: Five years ago the Regis hair salon chain had 1,534 salons; today the company operates about 5,700, and in another five years or so, it plans to grow to about 10,000.

Sales last year topped $1.7 billion, with its salons around the world — it has locations in all 50 states, the United Kingdom, France and Puerto Rico — and it delivered about 106 million haircuts.

Yet, for all this growth, the company has only cornered 4% of the haircutting market, which bodes well for its future, executives and observers say.

“There are lots of opportunities out there to continue their growth,” said Jack Nielsen, a securities analyst at Miller Johnson Streichen Kinnard, a Minneapolis financial services firm. And, however the economy might falter, people will still need haircuts, again and again, he observed. “It’s a great business to be in.”

Minneapolis-based Regis, originally a family-owned hair salon, has grown up with the shopping center industry. Russian immigrant Myron Kunin founded the company in 1922, and sold it in the mid-1950s to his son and current chairman, also named Myron. The younger Kunin quickly recognized an opportunity in the growing shopping center industry, said Jenny LaPointe, a company spokeswoman.

Regis became public in 1991, and operates six divisions, with company-owned and franchised salons tailored to malls, strip centers and Wal-Mart stores. Its brands, which among others, include Regis, MasterCuts, Trade Secret, SuperCuts, Cost Cutters, HairMasters, Style America and SmartStyle, are becoming as pervasive and familiar to shoppers as Gap, Blockbuster and Walgreens. Indeed, in recent years it has opened about as many locations annually as those three retailers combined. In 1997, Regis’ annual sales hit $1 billion, and it has continued growing since then, mainly by purchasing mom-and-pop salons, although some of its divisions also grant franchises.

Each division caters to a specific demographic segment. For instance, SuperCuts offers affordable haircuts — about $10 — in strip centers, with no appointment necessary. At the other end of the scale, its Regis Progressions and Regis Signature upscale mall salons charge an average $30, and provide services including facials and pedicures. It also recently launched a new concept — Mia & Maxx — aimed at younger consumers, filling a niche between the family-oriented MasterCuts and the upscale Regis Salons.

“I see their business growing, and they’re certainly great tenants,” said John Mott, manager of Pyramid’s Palisades Center Mall, West Nyack, N.Y., which has a MasterCuts at one end and a Trade Secret at the other, plus two other locally owned hair establishments. Due to the Regis companies’ name recognition, “they build a clientele a little more quickly than local businesses,” he said.

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