News

Hot Topic Cools Down

BY Marianne Wilson

It’s turning out to be another cold winter for Hot Topic. The music-related teen retailer, which hasn’t posted a monthly same-store gain since March 2005, slashed its fiscal fourth-quarter forecast by more than a third on the heels of disappointing holiday results.

Same-store sales fell in the key categories of women’s apparel (down 5% vs. last year), accessories (9%) and music (down 10%). The declines came even in the face of changes the chain had put into place for the back-to-school season.

“It was a disappointing holiday for us. We thought we were poised to turn around,” said chief executive Betsy McLaughlin in January at Cowen and Company’s Fifth Annual Consumer Conference in New York City.

McLaughlin, whose unpretentious, friendly manner and natural smarts make her one of those retailers you can’t help but root for, was characteristically blunt in her remarks.

“It’s hard for us to differentiate in fashion from other mall retailers now that kids aren’t wearing [their] music tastes on their bodies,” she said.

What McLaughlin was getting at is really the root cause of Hot Topic’s malaise: changing consumer behavior. In that, she has a tough row to hoe. The ability to download music from iTunes and other sites has transformed not only the music business, but also listening habits, especially among teens. Instead of being album-focused, they tend to pick and choose tunes at random, ending up with playlists that are typically far more diverse than those of just a couple of years ago.

“Customers today like all kinds of music,” McLaughlin said.

That’s a far cry from Hot Topic’s halcyon days, when teens tended to identify strongly with a certain type of music-Goth, punk or whatever-and dress accordingly. Today, however, they are far more likely to blend different items into one look. That puts Hot Topic in a tough spot.

The jury is still out on McLaughlin’s fix for the chain: an emphasis on music and music-licensed products (think T-shirts), with special attention to lower and mid-tier bands; a 10% to 15% reduction in inventory (with most of it coming out of fashion apparel); and a new store prototype with a wider appeal than Hot Topic’s signature dark dens of years past.

“It’s lighter and brighter…the slotwall is not black anymore,” McLaughlin explained. “There are mannequins and more space to move around. But it certainly doesn’t scream mall store. It looks worn and still has the feel of being in a hip, alternative space.”

Hot Topic is dancing as fast it can to adjust to the new music sensibility that technology has wrought. I’m hoping the chain gets its mojo back. But it will have to pull off a fine balancing act as its seeks to appeal to a wider, slightly more mainstream demographic and still maintain its cool, outsider vibe.

Hot Topic’s predicament just goes to show you that sometimes a chain can do everything right, and still stumble. Retailers are often at the mercy of forces outside their control. That’s what makes the business so challenging. And interesting.

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OPERATIONS

Victoria’s Secret Names New CEO

BY CSA STAFF

Columbus, Ohio, Limited Brands Inc. on Monday announced that Lori Greeley will replace Grace Nichols as CEO of Victoria’s Secret Stores. Greeley is currently executive VP and general merchandising manager of intimates for Victoria’s Secret.

The retirement of Nichols, a 20-year Limited veteran, from the CEO post was announced in May 2006. She will take a new role supporting initiatives within Victoria’s Secret, including the growth of its Intimissimi brand.

Additionally, Mark Weikel, COO of Victoria’s Secret Stores, will add the title of president.

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FINANCE

Wal-Mart to Focus on Expanding Seiyu

BY CSA STAFF

New York City, Wal-Mart Stores is open to acquisition opportunities in Japan, but the retailer is more focused on expanding business at its 53%-owned Seiyu chain, according to a report by Reuters. Shares of Seiyu jumped Monday after Wal-Mart vice chairman Michael Duke told the Nikkei business daily that the company might look for more acquisition opportunities in Japan.

The paper reported that Duke welcomed planned changes in corporate laws in May that will enable foreign companies to buy Japanese firms through share swaps.

Wal-Mart last year tried to invest in superstore operator Daiei Inc., aiming to boost its presence in the country, but it lost the chance to Aeon Co., Japan’s second-biggest retail group.

Wal-Mart entered the Japanese market in 2002 by taking a small stake in Seiyu. It has since invested more than $1 billion in the chain, but has yet to return the retailer to profitability.

Wal-Mart spokeswoman Amy Wyatt said Wal-Mart’s focus in Japan is on Seiyu.

“It’s a very sizable business today, so we still think that there are a lot of growth opportunities in the existing business,” she said.

In terms of acquisitions, she said: “I wouldn’t go as far as to say we’re shopping for them.”

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