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Hot Topic 1Q Loss Narrows

BY CSA STAFF

City of Industry, Calif., Hot Topic Inc. posted a smaller net loss for its fiscal first quarter on Wednesday, as sales inched higher.

For the quarter ended May 5, the company posted a loss of $809,000 compared with a loss of $1.4 million in the same period a year ago.

Comp-store sales declined 2.3% during the quarter, while revenue climbed 2% to $157.3 million from $154 million.

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Tweeter May File For Chapter 11

BY CSA STAFF

CANTON, MASS. —Tweeter announced it would consider filing for reorganization under Chapter 11 of the bankruptcy code. According to the company, Tweeter does not have sufficient working capital to fund its short-term needs, such as the payment of costs associated with store closings, lump-sum payments to landlords of closed stores with whom it reaches settlements and to fund its long-term cash needs.

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Kohl’s draws new battle lines out West

BY CSA STAFF

MENOMONEE FALLS, WIS. —The race for off-mall dominance is on for mid-tier retailer rivals Kohl’s and JCPenney. Kohl’s, who has always had its heritage in the off-mall space, announced earlier this month at its annual shareholders meeting that it plans to open 110 to 115 stores in fiscal 2007 including debut units in Idaho and Wyoming.

Kohl’s said it still intends to have 1,200 units in operation by 2010, and the company further emphasized that all areas where it operates have a potential for future store growth. Kohl’s experienced success in all 45 states where it operated last year.

“We are very pleased with the top- and bottom-line results for the year as we delivered consistent sales performance across all regions and all lines of business,” said Larry Montgomery, Kohl’s ceo and chairman.

The news of Kohl’s updated plans for expansion comes on the heels of JCPenney’s announcement in mid-April to open 250 stores in the next five years, 80% to 90% of which will be in their off-mall “B”-box format. The B-box format has an oddly similar feel to Kohl’s stores, with just about 100,000 square feet, updated overhead signage, lounge dressing rooms, race-track layout and two front-facing checkout lanes, among other features.

Kohl’s, too, has adapted its prototype approach to stores in an effort to fit various market conditions. So far, it has opened 39 of its 68,000-square-foot small-format stores to supplement the 88,000-square-foot mainstay prototype. In addition, Kohl’s has opened four 133,000-square-foot stores in urban environments. All three of these formats will be used as the retailer continues to expand.

Kohl’s introduced a new prototype in fall 2006, and the company said it plans to continue on building all of its new stores with similar “updated” features, such as wider aisles, updated fitting rooms and enhanced lifestyle graphics on signage throughout the store.

In addition to building new stores, revamping current stores is another part of Kohl’s growth strategy going forward. The company said it will remodel 29 of its existing stores by mid-month, and it plans to double the number of store remodels next year. Right now, 90 of Kohl’s 834 stores have been upgraded to reflect the company’s latest prototype.

JCPenney also announced that a portion of its growth plan included store updates. Penney’s currently operates 1,033 stores, and the company plans on renovating up to 80% of its store base by 2011. Right now, the company has 45% of its store base renovated.

In the six-state region of California, Nevada, Utah, Colorado, New Mexico and Arizona, Kohl’s has developed a store presence that is every bit as aggressive as that of JCPenney. However, in the five states directly to the north (including Oregon, Washington, Idaho, Montana and Wyoming) Kohl’s ended 2006 with merely 10 stores in all (versus Penney’s 58). To address this disparity, Kohl’s has begun to add new stores to the region (including the 10 it opened in Oregon and Washington in 2006) and plans to open a total of 10 more this year in Idaho and Wyoming.

STORE COUNT KEY*

Kohl’s Stores

JC Penney Stores

The off-mall space is the new growth vehicle for mid-tier retailers, according to industry analysts, because there is limited growth in the mall space moving forward.

“If you want to grow, you have to go off-mall,” said Howard Davidowitz, chairman of Davidowitz & Associates. “I think there are maybe a total of six malls planned to be built this year. Unless you’re taking over an old May Co. store space, there simply is no opportunity for growth for department stores other than off-the-mall.”

Consumers are pressed for time and off-mall stores fit more easily into the Middle American shopper’s weekly routine, Davidowitz said. In addition, they can be more profitable: JCPenney has said that its shoppers who visit its off-mall stores double its wallet spend compared to those who shop in Penney’s mall locations.

In addition, consumers demand unique merchandise, which is another place where Kohl’s and JCPenney are offering plenty of enticement. Kohl’s is opening a design center in New York to support its new exclusive brands, which include Chaps, Candie’s, ELLE and, coming this fall, Simply Vera by Vera Wang and the Food Network. Currently, about 7% of the company’s offerings are own brands, although some retailers today offer as much as 10% to 20% of their assortment in exclusive brands. JCPenney, for example, has up to 45% of its merchandising mix in private label brands, and some of its owned brands, like Arizona, bring in more than $1 billion each year in annual sales.

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