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SPENCER’S CHANGES EVERYTHING BUT THE NAME

?By Jesse Serwer

“Are they still around?” That was Steven Silverstein’s question when he was asked to take over the reins of Spencer’s Gifts in 2003. The question should have come as no surprise to anyone, because lots of people were wondering the same thing.

Spencer’s, a staple in malls across the U.S. since the 1960s, was struggling, with its dated stock of novelty items and gag gifts, to draw the fickle 16-to-24-year-old crowd. The Egg Harbor Township, N.J.–based chain operated about 700 stores at the time, but had become a money-loser for Vivendi, its parent at the time.

“Even though comp sales were dropping, and it was the low point in the company’s performance, I noticed there was always tremendous traffic in the store,” said Silverstein, who was president and CEO of Linens ’n Things before taking the same titles at Spencer’s. “It’s a magnet, because it’s fun and amusing, and it always has been. I saw a retail icon that we had all grown up with that was maybe a little stalled and misdirected but had that natural draw that I felt, with some reinvention and redirection, we could bring back.”

Silverstein, who was installed when GB Merchant Partners purchased Spencer’s from Vivendi in 2003, has overseen a turnaround that culminated in a management-led buyout of the company, including the seasonal gift shop Spirit Halloween, this past August. (Acon Investments is the new controlling shareholder; GB Merchant Partners, the private equity arm of Gordon Bros. Group, stays on as minority stakeholder.) With plans to add about a dozen stores next year to the current 602, and with Spirit Halloween operating in 547 temporary sites this year, things are starting to look up for Spencer’s, which celebrated its 60th anniversary this year. The chain started as a catalog before the first store opened in New Jersey’s Cherry Hill Mall in 1963.

The retailer has de-emphasized the gift side of its business to establish itself as a lifestyle destination for the Generation-Y customer who enjoys edgy urban environments like New York City’s Greenwich Village or San Francisco’s South of Market neighborhood and probably does not shop at Abercrombie & Fitch or Aeropostale.

The transition puts the brand, which does not disclose sales figures but pulled in revenues of approximately $450 million in 2006, according to Silverstein, into direct competition with Hot Topic, which posted sales of about $751 million across its nearly 700 stores last year, and with Zumiez, a smaller but formidable fast-growing brand with 266 units in 25 states. But Spencer’s differentiates itself by focusing on accessories, rather than apparel, says Silverstein.

“Everybody knows Spencer’s for accessories for your room like lava lights and black-light posters, but the key change has been an emphasis also on lifestyle accessories that you wear,” Silverstein said. “Belts, bags, buckles, hats, handbags, small leather goods, jewelry are all key categories for us.” The store also features licensed T-shirts and hooded sweatshirts.

To solidify the new image, Spencer’s hired Ken Nisch, of Southfield, Mich.–based architectural firm JGA to design an urban, loft-inspired store prototype for its mostly suburban mall locations. A very edgy, nontraditional storefront shows graffiti on exposed brick, a motif that continues inside the store and even on Spencer’s security gate, which doubles as its primary signage. “The inspiration was bars, music venues and alternative art galleries where you might find people who live on the edge,” said Nisch.

The prototype, originally rolled out with five stores in 2004, has been expanded to 130, and the company has plans to remodel 40 to 60 additional units next year. Though the new units, which measure between 1,800 and 2,000 square feet on average, are roughly the same size as the older Spencer’s stores, they give the illusion of being larger, Silverstein says.

The new stores address what retail consultant C. Britt Beemer, president of Charleston, S.C.–based America’s Research Group, says has been Spencer’s main issue over the years: the lack of a distinctive product identity. “People tend to go there when they can’t find anywhere else,” said Beemer. “It means you only win when everybody else is bad.”

Of late, much of Spencer’s growth has come through the 25-year-old Spirit Halloween concept, which has more than tripled its number of stores since 2003. Because Spirit stores generally open in August and September, close immediately after Halloween and rarely open in the same locations year after year, the company is always on the lookout for sites measuring about 5,000 square feet.

“We look for highly visible locations, ideally in big-box strip centers, but in order to take that many spaces that quickly we have to be pretty flexible,” said Silverstein. “We’ve taken vacant 100,000-square-foot anchor locations in malls and smaller in-line locations.”

Spirit Halloween stores provide a quick, albeit temporary, fix for landlords who recognize that a particular vacant space will not be leased in the immediate future.

Going forward, Spencer’s, which has stores in every U.S. state but Alaska, as well as 19 units in Canada and four in Puerto Rico, plans to continue rolling out roughly a dozen stores per year. “We’re looking at the density of out targeted customer, and relevance within the mall, like where we see some of the other teen tenants.”

Opening more stores in Canada is high atop the company’s priority list too.