Spencer’s Charts A New Direction

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With its mix of novelty items and popular-culture totems, Spencer Gifts occupies a unique niche in American retailing. Founded in 1947 as a mail-order catalog, the company opened its first store in 1963, in the Cherry Hill Mall, Cherry Hill, N.J. Today, it operates more than 600 locations throughout the United States, Canada and Puerto Rico. (A second concept, a seasonal Halloween format called Spirit Halloween, was added in 1999.)

Spencer’s has seen plenty of changes in its 60-year history. Not too long after launching its retail business, the company was acquired by entertainment giant MCA, which funded Spencer’s expansion across America and turned it into a mall mainstay. But beginning in the mid-90s, a series of corporate transactions began to take a toll on the business and, in 2000, the company started falling on hard times.

In 2002, the flagging retailer was put on the block by its then-owner Vivendi Universal Entertainment, resulting in additional distractions. In 2003, it was acquired by GB Merchant Partners LLC, the private-equity arm of Gordon Bros. Group LLC. Steven Silverstein, who had previously served as president of Linens ‘n Things, was tapped to run the business.

The new CEO faced considerable challenges. The company was in disarray and performing poorly. Critics complained Spencer’s execution was dated, and its stores were stuck in the ‘70s. Silverstein thought the concept was sound, but that it had lost focus with its core customer.

His Rx for the ailing company included repositioning the brand from gift giving to a lifestyle orientation (stores are now being signed as Spencer’s rather than Spencer’s Gifts). To reflect the new positioning, the merchandise mix was tweaked. Some categories were reduced, and others were expanded upon. A store makeover followed.

In August 2007, Acon Investments LLC purchased Spencer’s from affiliates of GB Merchant Partners, which retained a minority stake in the business. As part of the transaction, Spencer’s senior management increased its ownership position in the company.

From Spencer’s headquarters in Little Egg Harbor, N.J., Silverstein discussed Spencer’s evolving strategy with Chain Store Age editor-in-chief Marianne Wilson.

Chain Store Age: How is the business doing?

Steven Silverstein: Very well. We are solidly profitable. The past year was a very strong one for us. It’s no secret that Spencer’s had become unproductive. My goal since arriving has been to improve our productivity. We still have a ways to go to get up to par, but we’re moving in the right direction.

CSA: Spencer’s has seen so many changes in the past couple of years. Where is the company now?

Silverstein: We’re at the culmination of a process that has succeeded in reinventing Spencer’s and making it relevant to its core customers, young adults 18 to 24 years of age.

CSA: What did that process entail?

Silverstein: A strategic reconstruction of the brand, which entailed refocusing Spencer’s on its brand promise to be a cool, irreverent, edgy retailer with a background in humor and fun. From this, we were able to more clearly reclaim our target customer. This also led us to a clearer merchandising and operating strategy that involved a broader definition of Spencer’s.

CSA: How are you defining the business?

Silverstein: We want Spencer’s to be viewed as a lifestyle brand where shoppers can find great accessories—both for their room and to wear. We are not as highly focused on gift giving as we were in the past. Instead, we’re working hard to make the store a self-purchase destination for our core customers.

CSA: Has the merchandise mix changed?

Silverstein: It hasn’t changed as much as it has evolved in line with our goal of becoming more of a lifestyle destination. It’s really more of a shift in emphasis, and it’s been critical in paving the way for our future.

We’ve always carried T-shirts, for example, but now we have exploded the category. The same thing goes for jewelry, which has become huge for us.

At the same time, we’ve downsized what we call our legacy businesses, categories such as lighting and decor. This has to do with our new emphasis and also changes in the marketplace. Twenty years ago, the type of novelty lighting and decor we offered was unique. Today, however, these types of products are widely available and don’t have the same sense of cool they once did. But rest assured: Spencer’s will always sell lava lamps.

CSA: Anything new in the works merchandise-wise?

Silverstein: We’re introducing a new rock-apparel line, and are investing heavily in a mixed martial-arts brand. Mixed martial arts is one of the fastest-growing spectator sports and it’s a great category for us.

Also, this spring we will start selling swimwear. We tested it last year and, to my surprise, it was a success. As Spencer’s has evolved into a destination lifestyle store, we have seen a seasonal shopping pattern on the part of our target customers that we plan to increasingly tap into going forward.

CSA: What is the average ticket at Spencer’s?

Silverstein: It’s a little less than $20. As we introduce new categories, we hope to improve upon it.

CSA: Spencer’s has a new store design. How did it evolve?

Silverstein: The redesign was the final part of our strategic reconstruction of the brand. It emanated from our new merchandising strategy.

CSA: What are some key features of the design?

Silverstein: It’s very exciting. The changes start on the exterior, which has an urban, back-alley-inspired brick facade. It’s pretty cool looking.

The interior has a downtown club look. It’s raw and industrial. From a lighting standpoint, it’s a dark, well-lit space in that the merchandise is highlighted with directional lighting, but the overall atmosphere is on the darker side. The design firm JGA really did a great job of helping us express our brand through the physical space.

CSA: Are there any other benefits associated with the redesign?

Silverstein: Yes. Operationally, it enabled us to deliver on our new merchandising strategy by introducing a new fixture strategy that is highly flexible. The entire perimeter features slatwall that can accommodate multiple types of fixturing, from pegs to shelving. This makes it easier for us to display our expanding selection of accessories—products that come in a wide range of shapes and sizes—than our old design, which was oriented to deep fixed shelving. Also with the new ceiling design, we’re able to merchandise the full vertical height of the store.

We’re finding product is performing significantly better in the stores with the redesign than the stores that haven’t received it yet, which we attribute to the fact that the presentation is so much more powerful with the new fixturing.

CSA: Do customers like the changes?

 Silverstein: Yes. We know from the results we’re seeing that consumers love our new look.

CSA: What are the plans going forward?

Silverstein: The new design has been rolled out to approximately 20% of the chain, or 100 to 130 stores. We’ll do another 40 to 50 locations this year. I’m talking mainly about remodels of existing locations.

CSA: Are you planning any new stores?

Silverstein: We’re ramping up our appetite for new locations. We plan to open about 10 to 15 stores this year.

CSA: Any plans for international expansion?

Silverstein: There was a Spencer’s

United Kingdom for a while, but it was closed down after the business was acquired in 2003. International growth is not on my radar right now.

CSA: How is Spencer’s other concept, Spirit, doing?

Silverstein: It’s growing very nicely and has been a very strong business for us. We had 548 locations last year, and anticipate more than 600 this year.

CSA: Has the acquisition by Acon impacted the overall company?

Silverstein: Only in a positive way. The fact that the management team here participated with Acon in buying out the Gordon Bros. position is an indication of the positive results that we’ve been experiencing.

CSA: The economy has lot of retailers on edge these days. What’s your take on things?

Silverstein: As we go into tougher economic times, we have to control inventory and expenses and double up on the customer experience. We have an edge in that we offer a great experience and that’s what we intend to concentrate on.

CSA: One final question: Do you have a favorite Spencer’s product?

Silverstein: I have three children, and I love them all equally. It’s the same with our merchandise. I love it all.

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