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IN BRIEF

Wal-Mart’s U.S. stores split up

Wal-Mart is effectively breaking its 3,400-unit U.S. division into six smaller chains that will target specific consumer segments: the affluent, blacks, boomers, Hispanics, rural residents and suburbanites. Stores aimed at blacks, for example, will offer urban-style apparel and special hair-care products, as well as expanded gospel and rap music selections. The chain is renovating the units at the rate of about 300 per year for this new strategy, said Eduardo Castro-Wright, president and CEO of Wal-Mart U.S., at an investor conference. Most of the chain’s rural units will see little change, he said.

Wal-Mart says it hopes to reinvigorate same-store sales, which have slowed. And though the product mix will become less uniform, Wal-Mart’s sheer size will help maintain the low prices consumers have come to expect. “You can drive specificity without sacrificing economies of scale,” Castro-Wright said.

So far 200 stores have undergone conversion. At one Houston store converted to the Hispanic-targeted model, sales per square foot are 7.6 percent higher and gross margins 156 basis points higher than those at other Houston Wal-Marts, he said. At a suburban Chicago store converted to the black-targeted model, gross margins are 250 basis points higher than other area stores.

The reorganization goes beyond the units themselves. District managers will no longer be based at Wal-Mart’s Bentonville, Ark., headquarters but will live in the markets they oversee so as to stay in touch with local consumers, Castro-Wright said. Further, executive compensation will be tied to regional rather than companywide performance.

He said the process will take between 18 and 24 months to execute.

Abercrombie’s golden Ruehl

Abercrombie & Fitch says its Ruehl division will reach profitability by Jan. 29, 2007. Ruehl stores are posting annual sales of $330 per square foot on average, said CEO Michael Jeffries on a second-quarter earnings call. “We are signing leases aggressively for this brand,” he said. The company will open seven Ruehl stores this year, bringing the total store count to 15.

Though the Ruehl brand is about “a great American kid who moves to New York City to become successful, it is not an urban business, and it is playing well in the suburbs,” Jeffries said. Same-store sales percentage increases were in the mid-30s in the men’s section and in the high single digits on the women’s side during the second quarter, he said.

A revamped selection of handbags is likely to boost the women’s comps in coming months, Jeffries said. As a whole, the company posted second-quarter net sales of $658.7 million, up 15 percent from the year-ago quarter. Same-store sales, meanwhile, were flat year on year, versus a 30 percent increase 12 months before that.

Rite Aid takes over East Coast

Rite Aid is catching up to rivals CVS and Walgreens through a deal that will make it the largest drugstore chain on the East Coast, with 5,000 stores. The Montréal-based Jean Coutu Group drugstore chain said in August it would sell its 1,858-store U.S. division to Rite Aid for $1.45 billion in cash and a 32 percent stake in Rite Aid. The deal values the seller’s package, consisting of 337 Brooks stores and 1,521 Eckerd stores, at some $3.4 billion.

About 70 percent of the stores are in states where Rite Aid already operates, giving the chain scale comparable to its competitors, said Mary Sammons,Rite Aid’s president and CEO, in a press release.

“It is clear that they will evaluate duplicate locations for potential closings,” said Stuart Kessler, a veteran retail executive and president of Clear Thinking Group, a Hillsborough, N.J., consulting firm. “In addition, they have indicated that they will be ‘upgrading’ the stores’ physical plants, which should benefit both the stores themselves as well as the properties in which they are located.” Jean Coutu, which operates 327 stores in Canada, bought the Eckerd stores from JCPenney in 2004 for $2.4 billion. Rite Aid plans to open an additional 800-1,000 stores within five years.

J. Crew’s public debut a success

J. Crew Group is starting off on the right foot as a public company, Wall Street analysts say. The chain, which operates about 219 stores, enjoyed a 33 percent jump in operating income, to $26.8 million, for its second quarter, ended July 29. Total sales grew 21 percent to $197.4 million, while same-store sales increased 16 percent. The retailer will be aiming to maximize the productivity of every square foot in its portfolio, said Chairman and CEO Millard Drexler on a conference call.

The 28 stores the company opened this year are smaller than the typical J. Crew unit. “We’re finding a lot of space within existing stores” to boost productivity by adding children’s apparel departments, he said. Despite the chain’s success, landlords aren’t showering J. Crew with lease breaks, said CFO Jim Scully. “The landlord community has been very receptive,” he said, though when it comes to lease negotiations, “we have not seen anything materially different.” The company says it expects comparable-store sales growth to be in the single-to-mid digits, and annual square footage growth to be about 7 percent to 9 percent for the next few years.

TransWorld to take FYE national

TransWorld Entertainment executives are not saying whether they will make a bid for troubled rival Tower Records. They did acknowledge on a second-quarter earnings call that they might like to take their FYE division national and that the company is in the market for more acquisitions. Albany, N.Y.-based TransWorld bought Musicland for about $122 million and has already converted almost all those stores to the FYE banner.

The company says it will not shut any additional stores, though, until after the holidays. TransWorld has managed to reduce its reliance on music sales during the second quarter, said Robert J. Higgins, president and CEO. Music division same-store sales were down 5 percent for the second quarter, but accessories were up 25 percent, DVD sales rose 16 percent, used merchandise climbed 12 percent, and video games and electronics each gained 10 percent. Companywide, second-quarter net sales grew 18 percent to $298.3 million on the Musicland buy. Further, same-store sales fell 7 percent, and net income declined by $7 million. The company currently operates 1,091 stores, including the Coconuts and Wherehouse Music brands.

Fuel woes boost supermarkets

Conventional supermarket operators are benefiting from climbing fuel prices in a variety of ways, executives said last month during presentations to investors. For one, lower-income consumers are paring down gas-guzzling trips to distant Wal-Mart Supercenter stores and going to their neighborhood supermarkets instead. “We and other supermarkets are more conveniently located,” Safeway chairman and CEO Steve Burd told investors last week.

Wal-Mart had moved away from emphasizing its low prices in ads. But as more shoppers put off weekday trips to its Supercenters, the retailer has decided to tout its low prices again to convince shoppers it’s worth burning the extra gas, said Eduardo Castro-Wright, CEO of Wal-Mart U.S.

Supermarkets are also stealing traffic from restaurant chains, as consumers do more cooking at home and buy prepared meals at grocery stores, said Frank Vitrano, CFO of supermarket chain Pathmark. “While some people are tightening up,” he said, “they also may be tightening up with restaurants and moving back to us.”