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A WORLD OF GOODS

Eclectic Cost Plus World Market plans big expansion

BY NANCY COHEN

Without so much as picking up a passport, shoppers across the country will soon be able to browse among Balinese baskets, peruse Portuguese pottery, comb through African wood carvings and stock their pantries with foods from around the globe, all at a single destination and not very far from home.

Cost Plus World Market, a specialty retailer that imports casual home furnishings and entertaining goods, recently upped its expansion target to 600 stores — originally it planned 450. The Oakland, Calif.-based company, which has been expanding by more than 20 percent a year since going public in 1996, will have 204 stores in operation in 23 states by Thanksgiving. Located mostly in lifestyle and power centers, the stores operate as Cost Plus World Market west of the Mississippi and as World Market to the east. (The corporate parent, founded in 1958, is Cost Plus Inc.)

“Today ‘World Market’ better exemplifies what we’re all about, but the Cost Plus name is so entrenched in the West, we’re reluctant to remove it,” said Chairman, President and CEO Murray Dashe.

At 18,000 square feet, World Market stores brim with an unusual, eclectic array of furniture, decorative accessories, wines, coffees, specialty beers and nonperishable edibles. There are hand-loomed rugs from India and olive oils from Italy, Ghanian ceremonial masks and Greek almond wafers, Javanese sarongs and free samples of World Market’s own java. It’s almost as if a shipwrecked Trader Joe had washed up onto Pier 1.

Merchandise ranges from African masks to wine, Portuguese pottery to coffee.

Even Dashe concedes that the merchandise mix is unlikely. “Home furnishings and consumables don’t make much sense on paper, but it does fly when you put it to the test,” he said.

The numbers appear to back up that claim. The chain has seen sales rise by at least 20 percent annually over the past decade. Last year total sales grew 21.8 percent to $692.3 million, while net income rose 40.6 percent to $28.4 million. Same-store sales grew 5.6 percent, with sales per square foot averaging $266. The consistently rising return has enabled Cost Plus to finance all its expansion exclusively through cash flow since 1997. (In 1996 the company used the funds raised in its public offering to retire the debt that had almost crippled it under previous management. Dashe joined the following year.)

A number of components lie behind World Market’s success. First, direct imports keep margins high and prices low, as well as differentiate the merchandise. In addition, a changing assortment (about 60 percent of the product is new each year) stimulates visits, the selection of more than 450 wines draws upmarket shoppers, and the emphasis on food drives traffic. Food and beverages account for more than one-third of the merchandise sold, says Dashe. “Without the consumable category, we’re just another furniture store.”

“It’s a unique concept with a unique mix,” agreed Joan Storms, a retail analyst at Wedbush Morgan Securities, Los Angeles. “They’re the only ones doing home furnishings plus gourmet comestibles, and it really is the ultimate in home entertaining. So even though it overlaps with a lot of other retailers, it doesn’t butt right up against them.”

World Market does like to cluster, however, with other retailers in related fields, from Target to Williams-Sonoma. They share a customer base, says Dashe. “Several of our projects have a Pier 1 and a Cost Plus, and they both do great,” said David Larcher, executive vice president of Phoenix-based Vestar Development, which has six Cost Plus World Market stores in its portfolio. “It’s a different approach to the same business.”

Most of World Market’s home products are exclusive, often designed in-house and sourced directly from some 1,700 suppliers in 60 countries. (In the consumables department, which is largely stocked with branded goods, the chain has developed exclusivity with private labels, from Seacliff wines and World Market coffees to Market Classic garlic-stuffed olives and the Mercado del Mundo line of tortilla chips, dips and salsas.)

To be sure, running an import business in an age of heightened security and epidemics such as SARS has its challenges, Dashe says. The company carefully monitors its containers and prohibits visits to countries made unsafe by terrorism, war or disease.

“It’s not an easy business, but we’ve made every effort to master it,” Dashe said. An indication of Cost Plus’s expertise, he says, is that the company is one of a handful working with the U.S. Customs Department on import security issues. And the trade’s challenges are more than offset, he says, by its benefits, including product differentiation.

“They try to be very authentic, and importing is what makes the mix unique,” said Storms. “It may pose more logistical issues, but they are quite experienced at it — and they can’t afford not to.”

Another obstacle that has proved to be worth overcoming is the labyrinth of liquor-licensing laws in various states and jurisdictions. Having learned the ins and outs of the process over the years, Cost Plus World Market views its difficulties as an advantage — a barrier to competition. Today, Dashe asserts (although he would not divulge numbers), the chain is one of the nation’s largest retailers of wine.

The wine and specialty beer draw not just an upscale shopper, but also a male one, he says. Although 82 percent of World Market shoppers are women, “they typically have men in their lives and at some point will drag them into the store,” Dashe said. “When he gets tired of looking at home furnishings, he’s deposited in the wine section. And that’s it — then he’ll return on his own.”

As for the women, they seem content to explore the entire store. Their average visit lasts 50 minutes, and according to surveys, these customers consider shopping at World Market a pastime.

Customers can never be sure what they’ll find in a store whose stock runs from wooden giraffes to beer.

“Whereas she’s predetermined her purchase before visiting most other retailers, she comes here for her own entertainment, with no expectations,” said Dashe. “She’s on a treasure hunt — and she doesn’t feel guilty when she finds something, because it’s a value-priced item, whether it’s a $1.29 back scratcher or a $299 6-foot carved giraffe.”

To heighten the sense of discovery, World Market stores are designed with meandering aisles and casually arranged goods spilling out of baskets or heaped into crates. “We purposely create clutter, because [our shopper] enjoys rummaging through something and finding something else behind it, just as if she was browsing in some foreign country’s central marketplace.”

Though World Market attracts sophisticated customers (Dashe describes them as upscale, college-educated women age 22 to 54, with a high taste level), the concept has proved to have a broad appeal. Until recently, the company’s growth was centered in the Western United States, but the popularization of casual, California-style living and a growing appetite for the exotic, in both foods and furnishings, are driving expansion across the country and into smaller markets and giving rise to multiple branches in larger markets.

“Wall Street’s so-called experts said that it wouldn’t fly in more conservative markets in the Midwest or in small towns,” said Dashe. “Well, we’re doing so well in Omaha [Neb.], we’re opening a second store — and if it works in Omaha, it will work in most cities in the U.S.”

The concept has been popular with developers as well. The World Market store at the Promenade at Westlake, Thousand Oaks, Calif., is “a great success,” according to Rick Caruso, president of Caruso Affiliated Holdings. “We’d like to do more business with them — and we’re talking about it,” he said.

And if he can’t have a World Market on-site, Caruso is eager to have one nearby. He not only encouraged the developers of the Los Angeles Farmers Market, which is opposite The Grove, his open-air retail entertainment center, to add a World Market there, he helped negotiate the lease, he says. “We like them as a neighbor. It’s proven to attract a great customer as a minianchor.”

World Market’s aggressive advertising schedule is another boon to the centers it occupies, says Ian Pierce, director of corporate communications at the Weitzman Group/Cencor Realty, a Dallas brokerage and development firm.

“They’re very promotional,” Pierce said. “They have an ad in the major publications every week. That, of course, is a major draw and one of the benefits. They add a higher profile to your centers.” The company put a World Market in two Texas centers, Grapevine Towne Center, which it developed, and The Highlands of Flower Mound, which it leased.

“They’ve got home furnishings — one of the strongest areas of retail — a good product mix, good price points and something unusual: wine and beer,” said Pierce. “They’re in that sweet spot right now.”

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