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Retailers pick growth over expansion

Isadore Barmash

Isadore Barmash, who formerly covered retailing for The New York Times, is a writer and lecturer based in New York.

After several difficult years, a good many retailers are focusing more on their core businesses and less on aggressive expansion campaigns.

Stores in this category include Abercrombie & Fitch, Intimate Brands, the Limited, Talbots, J.C. Penney and Zales.

Reasons for this vary. One is that many have learned to rack up decent profits from modest sales gains by sharply controlling expenses. Another is the realization that loyal customers bemused by lots of store sameness seem to like new wrinkles or nuances as well as new concepts.

A third factor is the rising trend to push brand awareness of the company's name, its principal products, or both. J.C. Penney's St. Johns Bay soft lines brand is an example of a private label becoming closely identified with the stores as a result of increased television advertising. Sears Roebuck and Co. is taking a somewhat different path, promoting its Brand Central group of departments which sell electronics and appliances rather than merely promoting only its Kenmore label. Zales, the nation's largest jewelry retailer, is attempting to establish its most prestigious store label, Bailey Banks & Biddle, as a national brand.

"While store expansion might be a relatively easy way to deliver growth, many ... are focused on constantly improving their position within their respective markets," wrote Mark A. Friedman, analyst for Merrill Lynch, New York, in a recent report. "In an effort to increase productivity and grow market share, these companies are continually launching new initiatives."

Those initiatives include introducing new concepts or product extensions, as well as brand-building.

The Gap has successfully established a new store concept, Old Navy, and is now digging in to get more out of what it already has. Noting that The Gap posted strong comp-store gains in January, Goldman Sachs reported that "The Gap's heavy investment in marketing and advertising continues to drive vigorous same-store increases."

This underscores that a growing number of retailers are intensifying their use of television advertising to squeeze more from their existing markets while planting seeds of recognition when they open new units. This is why Wal-Mart Stores has boosted its TV commercials, particularly on the East Coast.

But it's also becoming sadly clear that TV or any large-scale advertising is no guarantee against corporate disaster. This is the case in the New York area with Nobody Beats the Wiz, a super-aggressive electronics chain which used TV as a sharp competitive weapon but then went into Chapter 11, closed some stores and was acquired by Cablevision Electronics Investment in February.

From the standpoint of self-protection, concentrating on one's existing trading area and getting more sales from it has many enthusiastic adherents. But the opposite concept -- continuing new-store expansion -- also has its proponents. This latter group includes Tiffany & Co., The Sports Authority, the Nine West Group, Just for Feet and Gymboree.

As with the Woolworth Corp., the pressure to dig in with what you have can come from the demand for sheer survival. Besides coping with its large number of specialty-shop variations, Woolworth is faced by the industrywide erosion of demand for athletic shoes, an important component for the operator of Foot Locker, Lady Foot Locker and Kinney Shoe stores.

"Since Roger Farah's arrival as chairman in 1994, [Woolworth] has evaluated its retail formats and moved to eliminate unprofitable concepts and nonstrategic businesses," said Mr. Friedman of Merrill Lynch. "With this effort almost complete, we believe Woolworth can now focus more of its energy on revitalizing its ongoing store base and sales performance."

But Mr. Friedman also noted that in general, "athletic retailers appear to be expanding at a greater rate than demand."

So, two sharply divergent factors seemed to be driving American retailing in early 1998. The newer one is that of focusing more on existing markets; the other is to sustain an aggressive expansion. There's no doubt that the former is being driven by a defensive imperative, but it is nevertheless laced with optimism that the pie can yield a greater slice. The latter is based on the belief that the long-term future is bright, despite today's problems.

It will be well worth watching two retailers in particular -- The Limited and Woolworth -- to see how they fare. After some considerable past success, both are sharply cutting back on expansion and are concentrating on what they have left.