Sector Spotlight:
At Your Service
Specialty retailers say they are making the best of a tough economy as they cater to consumers’ needs.
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E-mailMany specialty retailers are saying they will ring up strong sales this year despite the economic forces that continue to weigh on consumers, including job losses, declining home values and tight credit. For some it’s about being in the right type of business at the right time. Sales at auto-parts stores, for instance, are growing because budget-conscious consumers are repairing their aging cars instead of buying new ones, says Michael Souers, an industry analyst for Standard & Poor’s Equity Research, a division of The McGraw-Hill Companies Inc. (MHP). Advance Auto Parts Inc. (AAP), which says it’s a leading U.S. auto-parts retailer, reports that same-store sales for fiscal 2009 rose 5.3 percent to $5.4 billion compared with a year earlier. Dollar chains, such as Dollar General Corp. (DG) and Family Dollar Stores Inc. (FDO), have also reported an uptick as they attract new shoppers looking to stretch their money, Souers says. Those new customers will probably stick around, even if their wallets fatten, he adds. “Trading up takes a lot longer than trading down,” he says. “I don’t think that’s going to happen anytime soon.”
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Sally Beauty Holdings Inc. (SBH), an international distributor of professional beauty products, says it’s also benefiting from the trading-down effect. Sales at its 3,900 stores reached $705 million in the first quarter of fiscal 2010, a 9 percent increase from a year earlier, boosted partly by more women skipping visits to the salon and opting to buy products for at-home manicures and hair coloring, according to the company. “Regardless of the economy, women aren’t giving up their beauty regimen,” says Gary Winterhalter, president and CEO. Overall, sales at health- and personal-care stores climbed more than 3 percent last year, the only nonfood category that grew, according to the U.S. Commerce Department.
Outdoor sports and recreation retailer Cabela’s Inc. (CAB) says it bucked overall retail sales trends because it fills a special niche for its customers. Cabela’s says merchandise sales rose 2.8 percent last year. “Our products are an integral part of our customers’ lifestyles,” says CEO Thomas Millner. “In periods of high unemployment, they actually have slightly more time to enjoy the outdoors because they’re probably not working 60 hours a week. It’s an odd irony.”MORE ON SPECIALTY RETAIL
Where Shoppers Are
Tweeting Their Way to Customers
Exceptional service is one way specialty retailers can stand apart from general merchandisers and gain market share, Souers notes. Earlier this year, for example, Best Buy Co. Inc. (BBY) added remote-access technical support as an alternative to an in-home visit. Through the service, the electronics retailer says, its Geek Squad online agents can access a consumer’s computer remotely to install printers, make repairs and handle other tasks fast and efficiently. Best Buy is also appealing to price-sensitive customers. One-on-one computer training with an online agent costs $50, compared with $150 for an in-home visit, according to the company.
Exceptional service is one way specialty retailers can stand apart from general merchandisers.
Slimmed-Down Inventories
Although total retail sales dropped 7 percent in the U.S. in 2009, many specialty retailers took smart steps to ride out the recession, notes Souers. “The majority did a really good job of inventory management,” he says. Home-furnishings retailer Williams-Sonoma Inc. (WSM), for instance, says it cut inventory by more than 20 percent in the third quarter last year across all of its brands, which include Pottery Barn, West Elm and Williams-Sonoma. The company reports that comparable-store sales climbed 6.5 percent during the holidays compared with the same period in 2008. Souers expects retailers to continue keeping a tight rein on inventory this year to avoid steep markdowns if the economy doesn’t improve.
Stricter inventory control is good news for discounters such as 99¢ Only Stores (NDN), says Eric Schiffer, CEO of the California-based chain, which has more than 270 outlets in four states. He explains that because half the company’s merchandise is closeouts, “when manufacturers try to reduce inventories because of tough times or canceled orders, it creates buying opportunities for us.” Schiffer says same-store sales grew 3 percent in the third quarter of fiscal 2010, compared with the same period a year earlier, and he forecasts low single-digit annual same-store sales increases through the end of fiscal 2012. According to Schiffer, the company’s top-performing store ($11 million in annual sales, versus $5 million on average) is on Wilshire Boulevard near Beverly Hills. “You see BMWs and Porsches in the parking lot,” he notes.
