PRINT THIS STORY:

CHANGE TEXT SIZE:

ENTERTAINING AMERICA

Hastings brings more entertainment options to small-town U.S.A.

By Karen M. Kroll

Small-town dwellers may have to travel to find a Barnes & Noble, but Hastings Entertainment is striving to make sure they do not have to go far to find books, music and videos.

About two-thirds of the Amarillo, Texas-based chain of 153 stores are at least 50 miles from major metropolitan areas.

“We felt that consumers in smaller towns were being underserved when it came to entertainment,” said John Marmaduke, Hastings’ chairman and CEO.

By focusing on smaller markets, Hastings avoids going head-to-head with such heavyweights as Barnes & Noble and Tower Records. But there is nothing small about the chain’s ambience, says Charles (Tex) Spear, senior vice president for the Southwest region for New York City-based New Plan Excel Realty Trust.

“It’s a happening place,” said Spear, who just executed a lease to bring the first Hastings unit to a New Plan center, in Victoria, Texas.

Hastings got its start in 1968 as the retail division of Western Merchandisers, a book and music wholesaler. In 1991 Wal-Mart acquired Western, and Hastings became an independent entity, though the company still relied on Western for some corporate services. In 1996 Hastings severed all ties with Western, which had by then become part of Anderson News Corp.

Today there are Hastings stores in 20 Western and Southern states, from Alabama to Washington, including Idaho Falls, Idaho (population 51,000); Altus, Okla. (21,000); and Lawrence, Kan. (80,000).

Hastings will probably open two stores next year and three or four the year after that, while also closing one or two underperforming stores each year, says Robin Muir, the chain’s director of real estate. Hastings is considering additional opportunities in states where it already has a presence as well as in the states bordering those. Muir looks for areas that have 50,000 to 60,000 people within 15 to 20 miles of the store.

America’s rural areas are the land of opportunity, according to Muir. “They have industries, colleges and businesses that are growing,” Muir said. “Wal-Mart puts in distribution centers, and other companies put in factories, because there’s a good pool of people.”

A strategy examined
When Muir evaluates potential locations, he makes sure to watch for signs indicating a town is not doing well. If the population is on a steady downward trend and other employers are closing shop, for instance, Muir will look elsewhere. The company builds from the ground up about 50 percent to 60 percent of the time. It may consider existing spaces, but they are often too small, or too expensive to retrofit.

Seven out of 10 Hastings stores are within three miles of a college or university. Among these are the stores in Ames, Iowa, home to Iowa State; and Fayetteville, Ark., the University of Arkansas’ hometown. “We don’t say that they have to have a college, but it’s a benefit,” Muir said. Beyond the students, colleges bring faculty members and employees, all of whom tend to have higher than average incomes.

In picking locations, Hastings has to balance the need to be near residential areas, so customers can easily pick up a movie, against the importance of being in a recognized shopping area, Muir says.

About 20 percent of Hastings stores are stand-alones, with the rest in open-air centers, usually anchored by grocery stores.

In the late 1990s Hastings began rolling out a new store layout, running about 20,000 square feet and carrying some $1.2 million worth of merchandise. These stores also feature coffee bars and wide aisles. Muir says sales increase “significantly and markedly” when an older store is converted to this format, though he declined to specify. Currently, 78 stores conform to the new layout; eight more will have joined the group by the end of this year.

The company has not determined at this point how many of its stores will convert to the new format, Muir says, but it is making that decision as leases come up for renewal.

Product categories are split fairly evenly among music, books and movies, with each given its own section. But the chain is steadily expanding its nonfiction books and even adding used books. By year-end about a dozen stores will be offering both used and new books, the chain says.

Benefits and caveats
Locating in smaller towns offers Hastings several advantages, observers say. “On average, competition is less for them than it would be in cities,” said Arvind Bhatia, senior vice president and associate director of research at Southwest Securities, in Dallas.

“They are providing services in smaller markets that used to be primarily associated with urban life,” said Paul Lasley, a professor of sociology at Iowa State University, in Ames, and an expert on rural areas in the Midwest.

But none of this makes Hastings immune to competition. More rural consumers are shopping the Internet, says Norman Walzer, a professor of economics at Western Illinois University, in Macomb, and until recently, director of the Illinois Institute of Rural Affairs. “For the new generation, the Internet will be the natural mode of shopping,” Walzer said. It is difficult for most small-town retailers to compete with the selection offered by Internet retailers, he says.

In addition, regional shopping centers and big-box retailers often draw away rural consumers, says Walzer. As in the cities and suburbs, many rural households have both spouses out working. Given the demands on their time, they often head to a mall or power center where they can hit a number of stores at once.

Still, Hastings’ product mix and prominence in small towns often make the stores a destination point, Bhatia says. “Customers say they walk into the stores not knowing what they want to buy,” Bhatia said.

The chain’s performance has been steady. Revenues for the year ended Jan. 31 were $542 million, up 6.7 percent from the previous year. Net income was $5.8 million, down from $8.3 million the previous year. (It should be noted that net income for that previous year was boosted by an income tax benefit resulting from an operating-loss carry-forward of $1.36 million.)

Marginal markings
The company faces some challenges in its product mix, observers say. Most notably, its video rental business is under pressure as consumers move to download movies or purchase them outright. For the most recent fiscal year, rental revenue in stores open at least a year dropped 4.5 percent. This is significant, says Bhatia, because industrywide gross margins on video rentals run about 65 percent to 70 percent. By contrast, margins on videos for sale average about 20 percent, and those on books are between 30 percent and 35 percent.

But Hastings has long sold more videos and DVDs than it rented, Marmaduke points out. Rental revenue accounted for about 16 percent of total revenue in the most recent year. Over the same period, the sale of videos and video games grew by 15 percent and 30 percent, respectively.

At this point Hastings’ Web site brings in only minimal revenue, and the company does no catalog selling. Muir says he does not anticipate a move to emphasize e-commerce over the stores. “People still want to get out and have a shopping experience,” he said. And Hastings is bent on keeping that experience close to home.

© 2008 ICSC. All rights reserved. | Terms and Conditions | Privacy Policy | Contact ICSC | ICSC Home |